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Molex Incorporated (MOLX)

Q1 2013 Earnings Call

October 23, 2012 9:30 am ET

Executives

Steve Martens

Martin P. Slark - Chief Executive Officer, Vice Chairman, Member of Executive Committee and Member of Stock Option Plan Committee

David D. Johnson - Chief Financial Officer, Executive Vice President and Treasurer

Analysts

Sherri Scribner - Deutsche Bank AG, Research Division

Amitabh Passi - UBS Investment Bank, Research Division

Mike Wood - Macquarie Research

Shawn M. Harrison - Longbow Research LLC

Wamsi Mohan - BofA Merrill Lynch, Research Division

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Jim Suva - Citigroup Inc, Research Division

Craig Hettenbach - Goldman Sachs Group Inc., Research Division

Anil K. Doradla - William Blair & Company L.L.C., Research Division

Steven Bryant Fox - Cross Research LLC

James M. Kisner - Jefferies & Company, Inc., Research Division

Amit Daryanani - RBC Capital Markets, LLC, Research Division

Brian John White - Topeka Capital Markets Inc., Research Division

Michael J. Wherley - Janney Montgomery Scott LLC, Research Division

Anthony C. Kure - KeyBanc Capital Markets Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fiscal Year 2013 First Quarter Molex Incorporated Conference Call. My name is Lisa, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Steve Martens, Vice President of Investor Relations. Please proceed.

Steve Martens

Thank you, Lisa. Good morning, and welcome to our September 2012 conference call. Joining me today are Martin Slark, our CEO, who will provide a summary of the quarter and commentary on end markets; and Dave Johnson, our CFO, who will provide details on financial performance. You can access presentation materials and a replay of this call through the Investor Relations section of our website, www.molex.com.

Slides 1 and 2 of the presentation contain our Safe Harbor statements. During the course of this presentation, we will be providing forward-looking information and referring to non-GAAP measures. Please read carefully the forward-looking statements of our press release and Form 10-K for an understanding of the risks and uncertainties associated with forward-looking information and a reconciliation of non-GAAP measures to GAAP.

And now, I’ll turn the call over to Martin.

Martin P. Slark

Thank you, Steve, and good morning, everybody to the call. If you'd like to turn to the next page of the presentation, I'll give you a quick summary of the current quarter.

Given the current economic climate, which has been well-discussed by many other people the last couple of weeks, we believe that our September 2012 quarter was a reasonably strong one for Molex. We launched several new products, and we continue to work on additional projects that we believe will drive above-market growth for Molex this fiscal year.

Our customers recognized our strong engineering and manufacturing capabilities and continue to bring us their interconnect challenges for us to resolve them for them. New products played a key role in our sequential growth this quarter and propelled the company to new records for all incoming orders.

While we move forward with our growth strategies, the economy that we operate in is becoming more and more uncertain. End customers are taking a conservative approach to managing their businesses, deferring hiring and investment decisions and tightly managing their inventories. This has resulted in a choppy business environment. We are monitoring our business closely, and we'll take appropriate steps if our revenue starts to slow down.

However, in the interim, as Molex has always in the past, we'll continue to invest in R&D and equipment so we are properly positioned to benefit when the business environment stabilizes, and we're very confident of further growth opportunities as the economy starts to recover.

In early October, as we previously announced, Molex acquired Affinity Medical Technologies as part of our strategy to enhance our exposure to the medical market. Affinity brings several key strengths to Molex: new manufacturing capabilities; new customers; and a strong portfolio of industry-recognized products. We'd like to take the opportunity today to welcome the employees of Affinity to the Molex family and say how confident we are that this acquisition will have a very positive impact on our results in the medical market.

Relative to prior periods, we're also very encouraged by the strength of our acquisition pipeline, and we will continue to pursue further acquisitions this year as part of our growth strategy. Our operational metrics also continue to strengthen with record on-time delivery and record quality metrics being recorded in the quarter. This performance is being recognized by our major customers, with more than 15 major customer awards over the last 12 months.

In the last quarter, we were named as Global Supplier of the Year by Cisco. As more than 50% of the Molex locations around the world support Cisco, we are particularly pleased to receive this recognition from a leading global customer which we think is great recognition of our global operational excellence and our ability to support our key customers on a global basis.

We turn now to the next page of the presentation. In total, if you look at our sequential orders and revenue results, revenue increased 7% sequentially, but declined 2% from the record September quarter in 2011. When you think back to that quarter, please remember that this was the quarter in September prior when to we saw a significant dip in October. So with the benefit of hindsight, we know that we had customers in the September month that over-ordered last year. So we clearly are comparing ourselves to what really was an inflated quarter for orders and revenue.

Orders themselves increased 5% sequentially and were up 4% from the prior year. The book-to-bill ratio for this quarter was 1.03:1. The revenue and order trend demonstrates really organic growth over the last 3 quarters in what has been a challenging environment. Orders achieved record levels this quarter. And while revenue as reported was below the record level last September, this was largely due to unfavorable exchange impacts. If you look at the same results in local currency, our revenue was actually higher than September quarter last year.

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