SOURCE: Methode, Inc.

Methode, Inc.

August 30, 2012 06:30 ET

Methode Electronics, Inc. Reports Fiscal 2013 First-Quarter Earnings per Share Improved to 10¢ From 4¢ Year Over Year

Fiscal 2013 Earnings Guidance Increased; Delphi Litigation Settled

CHICAGO, IL--(Marketwire - Aug 30, 2012) - Methode Electronics, Inc. (NYSE: MEI), a global developer of custom engineered and application specific products and solutions, today announced financial results for the Fiscal 2013 first quarter ended July 28, 2012.

First-Quarter Fiscal 2013
Methode's first-quarter Fiscal 2013 net sales grew $7.9 million, or 7.1 percent, to $118.7 million from $110.8 million in the same quarter of Fiscal 2012.

Net income increased $2.4 million to $3.9 million, or $0.10 per share, in the first quarter of Fiscal 2013 from net income of $1.5 million, or $0.04 per share, in the same period of Fiscal 2012. Year over year, Fiscal 2013 first-quarter net income benefitted from:

  • higher overall sales volume;
  • higher Other segment income of $2.0 million as a result of increased torque-sensing product sales;
  • lower performance-based compensation and severance expense of $0.6 million;
  • commodity pricing adjustments of $0.9 million in the Automotive segment; and
  • lower legal expenses of $0.6 million.

Year-over-year, Fiscal 2013 first-quarter net income was negatively affected by:

  • higher income tax expense of $0.4 million;
  • higher selling and administrative expense of $0.4 million due to the acquisitions of Advanced Molding and Decoration (AMD); and
  • higher costs of $0.2 million related to the design, development and engineering of a North American automotive program.

Consolidated gross margins as a percentage of sales were relatively flat at 18.0 percent in the Fiscal 2013 first quarter compared to 18.1 percent in the same period of Fiscal 2012. Gross margins decreased slightly as a result of higher design, development and engineering costs for a new automotive program scheduled to launch in late Fiscal 2013 and increased sales of automotive product that has higher prime cost due to the current high percentage of purchased content, partially offset by lower costs related to vendor production and delivery issues, the commodity price adjustment, a favorable product mix in the Interconnect segment, lower commodity pricing in the Power Products segment and increased sales and lower purchased content in the Other segment.

Selling and administrative expense decreased $1.4 million, or 7.5 percent, to $17.2 million in the Fiscal 2013 first quarter compared to $18.6 million in the prior-year first quarter due primarily to lower legal expense and lower salary, stock-based compensation, severance, travel and bad debt expenses, partially offset by higher expense related to the acquisitions of AMD. Selling and administrative expense as a percentage of net sales decreased to 14.5 percent for the Fiscal 2013 first quarter compared to 16.8 percent in the same period last year.

In the Fiscal 2013 first quarter, income tax expense was $0.4 million compared to no net tax expense for the Fiscal 2012 period. Income tax expense for the Fiscal 2013 period relates to income taxes on foreign profits. In the Fiscal 2012 period, a benefit of $1.1 million related to tax credits in Malta offset $1.1 million of tax expense on foreign profits.

First-Quarter Fiscal 2013 Segment Comparisons
Comparing the Automotive segment's first quarter of Fiscal 2013 to the same period of Fiscal 2012,

  • Net sales increased 13.2 percent attributable to
    • a 114.5 percent sales improvement in North America due to higher demand for the Ford center console program and lead frame assembly products, which represented 52.4 percent of the increase, and to sales from the AMD acquisition; partially offset by
    • a 5.0 percent sales decrease in Europe primarily due to fluctuation in currency exchange rates; and
    • a 14.2 percent sales decrease in Asia attributable to lower sales of lead frame assembly products due to the planned partial transfer of this business to North America.
  • Gross margins as a percentage of sales decreased to 13.2 percent from 14.8 percent due to higher design, development and engineering costs for new programs and new product launches, as well as the increased sales of automotive product that has higher prime cost due to the current high purchased content, partially offset by commodity pricing adjustments and lower costs related to vendor production and delivery issues.
  • Income from operations increased 22.7 percent due to increased sales, the commodity pricing adjustments and lower selling and administrative expenses, partially offset by higher design, development and engineering costs and administrative expense due to the AMD acquisition.

Comparing the Interconnect segment's first quarter of Fiscal 2013 to the same period of Fiscal 2012,

  • Net sales decreased 2.2 percent attributable to
  • a 19.4 percent sales decline in Europe due primarily to the lack of sales to a financially distressed radio remote control distributor, as well as lower sensor product sales; and
  • an 18.4 percent sales decline in Asia due to lower demand for radio remote control products and lower sales of legacy products due to the planned exit of a product line; partially offset by
  • a 7.9 percent sales increase in North America due to higher appliance and data solutions products demand.
  • Gross margins as a percentage of sales improved to 29.3 percent from 28.4 percent due primarily to higher sales of data solutions products partially offset by development costs for products scheduled to launch in the Fiscal 2013 second quarter.
  • Income from operations increased 14.0 percent due to favorable sales mix and lower selling and administrative expenses.

Comparing the Power Products segment's first quarter of Fiscal 2013 to the same period of Fiscal 2012,

  • Net sales decreased 5.5 percent attributable to
  • a 7.0 percent sales decline in North America due to lower demand for cabling and heat sink products, partially offset by higher busbar demand;
  • a $100,000 sales decline in Europe on a small base of business due to lower busbar demand; and
  • flat sales in Asia.
  • Gross margins as a percentage of sales improved to 16.5 percent from 15.6 percent due to favorable raw material commodity pricing and product mix in the North American business.
  • Income from operations increased 50.0 percent due to favorable raw material commodity pricing and selling and administrative expenses offset by lower sales.

Delphi Litigation Update
In August 2012, the Company and the various Delphi parties agreed to settle all Delphi related litigation matters. In addition to resolving all claims between the parties, the Company will assign certain patents to Delphi and enter into to a non-compete with respect to the related technology. In exchange, the Company will receive a payment of $20.0 million, half of which will be paid in October 2012 and half of which will be paid in January 2013. The Company expects to record the entire gain in the second quarter of fiscal 2013.

Guidance
Methode reiterates its full-year Fiscal 2013 sales guidance of $495 to $525 million. However, the Company increased its Fiscal 2013 earnings per share guidance to $0.66 to $0.81 due to higher than expected first-quarter profitability coupled with the expected absence of Delphi related legal fees beginning in the third quarter of this fiscal year. This guidance excludes the settlement with Delphi, which the Company expects to be recorded as a gain during the second quarter of Fiscal 2013. The launch of a user interface panel for a large laundry program, along with the launch of multiple automotive programs in Europe in the second and third quarters, is expected to improve second and third-quarter sales and earnings sequentially. Additionally, the launch of the General Motors center console program in the fourth quarter is anticipated to make that quarter the Company's strongest in sales and earnings for Fiscal 2013.

Management Comments
President and Chief Executive Officer Donald W. Duda said, "First-quarter sales remained strong in our Automotive segment, while we continued to experience softness in our Interconnect and Power Products segments. We anticipate softness in these two segments to continue into the next quarter, particularly for the Interconnect segment, which will experience OEM-driven lower than anticipated volume in the new laundry platform in the second quarter. However, first-quarter earnings above our original expectations contributed to an improved earnings outlook for Fiscal 2013."

Mr. Duda concluded, "While we remain cautious about the macroeconomic environment in Europe in the near term, the growth we foresee in our businesses through several major launches this fiscal year in our Automotive and Interconnect segments continues to set the stage for margin and earnings improvement for Fiscal 2013 and beyond."

Conference Call
The Company will conduct a conference call and Webcast to review financial and operational highlights led by its President and Chief Executive Officer, Donald W. Duda, and Chief Financial Officer, Douglas A. Koman, at 10:00 a.m. Central time.

To participate in the conference call, please dial (877) 407-8031 (domestic) or (201) 689-8031 (international) at least five minutes prior to the start of the event. A simultaneous Webcast can be accessed through the Company's Web site, www.methode.com, by selecting the Investor Relations page, and then clicking on the "Webcast" icon.

A replay of the conference call, as well as an MP3 download, will be available shortly after the call through September 13 by dialing (877) 660-6853 (domestic) or (201) 612-7415 (international) and providing Account number 286 and Conference ID number 398940. On the Internet, a replay will be available for 30 days through the Company's Web site, www.methode.com, by selecting the Investor Relations page and then clicking on the "Webcast" icon.

About Methode Electronics, Inc.
Methode Electronics, Inc. (NYSE: MEI) is a global manufacturer of component and subsystem devices with manufacturing, design and testing facilities in China, Egypt, Germany, India, Italy, Lebanon, Malta, Mexico, the Philippines, Singapore, Switzerland, the United Kingdom and the United States. We are a global designer and manufacturer of electronic and electro-mechanical devices. We design, manufacture and market devices employing electrical, radio remote control, electronic, wireless, sensing and optical technologies. Our business is managed on a segment basis, with those segments being Automotive, Interconnect, Power Products and Other. Our components are found in the primary end markets of the aerospace, appliance, automotive, construction, consumer and industrial equipment markets, communications (including information processing and storage, networking equipment, wireless and terrestrial voice/data systems), rail and other transportation industries. Further information can be found on Methode's Web site www.methode.com.

Forward-Looking Statements
This press release contains certain forward-looking statements, which reflect management's expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements are subject to the safe harbor protection provided under the securities laws. Methode undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in Methode's expectations on a quarterly basis or otherwise. The forward-looking statements in this press release involve a number of risks and uncertainties. The factors that could cause actual results to differ materially from our expectations are detailed in Methode's filings with the Securities and Exchange Commission, such as our annual and quarterly reports. Such factors may include, without limitation, the following: (1) dependence on a small number of large customers, including two large automotive customers; (2) dependence on the automotive, appliance, computer and communications industries; (3) further downturns in the automotive industry or the bankruptcy of certain automotive customers; (4) ability to compete effectively; (5) customary risks related to conducting global operations; (6) dependence on the availability and price of raw materials; (7) dependence on our supply chain; (8) ability to keep pace with rapid technological changes; (9) ability to improve gross margin due to a variety of factors, (10) ability to avoid design or manufacturing defects; (11) ability to protect our intellectual property; (12) ability to withstand price pressure; (13) the usage of a significant amount of our cash and resources to launch new North American automotive programs; (14) location of a significant amount of cash outside of the U.S.; (15) currency fluctuations; (16) ability to successfully benefit from acquisitions and divestitures; (17) ability to withstand business interruptions; (17) income tax rate fluctuations; (19) ability to implement and profit from newly acquired technology; and (20) the future trading price of our stock.

   
METHODE ELECTRONICS, INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)  
($ in thousands, except shares and per share data)  
   
    Three Months Ended  
    July 28,
2012
    July 30,
2011
 
             
Net sales   $ 118,737     $ 110,804  
                 
  Cost of products sold     97,271       90,824  
                 
  Gross margins     21,466       19,980  
                 
  Selling and administrative expenses     17,296       18,562  
                 
Income from operations     4,170       1,418  
                 
  Interest (income)/expense, net     (46 )     4  
  Other income, net     (41 )     (43 )
                 
Income before income taxes     4,257       1,457  
                 
Income tax expense     430       22  
                 
Net income     3,827       1,435  
                 
Less: Net loss attributable to noncontrolling interest     (62 )     (59 )
                 
NET INCOME ATTRIBUTABLE TO METHODE ELECTRONICS, INC.   $ 3,889     $ 1,494  
                 
Amounts per common share attributable to Methode Electronics, Inc.:                
    Basic   $ 0.10     $ 0.04  
    Diluted   $ 0.10     $ 0.04  
Cash dividends:                
    Common stock   $ 0.07     $ 0.07  
Weighted average number of Common Shares outstanding:                
    Basic     37,391,831       37,277,306  
    Diluted     37,893,873       37,518,183  
                 
                 
                 
   
METHODE ELECTRONICS, INC AND SUBSIDIARIES  
CONDENSED CONSOLIDATED BALANCE SHEETS  
($ in thousands)  
   
    As of     As of  
    July 28, 2012     April 28, 2012  
    (Unaudited)        
ASSETS                
CURRENT ASSETS                
  Cash and cash equivalents   $ 85,147     $ 86,797  
  Accounts receivable, net     94,677       98,359  
  Inventories:                
    Finished products     9,678       7,001  
    Work in process     14,729       14,235  
    Materials     22,953       22,325  
      47,360       43,561  
  Deferred income taxes     3,335       3,529  
  Prepaid and refundable income taxes     635       1,015  
  Prepaid expenses and other current assets     9,017       7,172  
      TOTAL CURRENT ASSETS     240,171       240,433  
PROPERTY, PLANT AND EQUIPMENT     276,585       277,451  
  Less allowances for depreciation     195,136       200,299  
      81,449       77,152  
GOODWILL     16,422       16,422  
INTANGIBLE ASSETS, net     16,215       16,620  
PRE-PRODUCTION COSTS     14,405       16,215  
OTHER ASSETS     36,818       36,806  
      83,860       86,063  
      TOTAL ASSETS   $ 405,480     $ 403,648  
LIABILITIES AND EQUITY                
CURRENT LIABILITIES                
  Accounts payable   $ 54,038     $ 54,775  
  Other current liabilities     35,761       37,102  
      TOTAL CURRENT LIABILITIES     89,799       91,877  
LONG-TERM DEBT     56,500       48,000  
OTHER LIABILITIES     3,378       3,413  
DEFERRED COMPENSATION     4,982       4,801  
NON-CONTROLLING INTEREST     257       333  
SHAREHOLDERS' EQUITY                
  Common stock, $0.50 par value, 100,000,000 shares authorized, 38,402,678 and 38,375,678 shares issued as of July 28, 2012 and April 28, 2012, respectively     19,201       19,188  
  Additional paid-in capital     78,630       77,652  
  Accumulated other comprehensive income     8,624       15,573  
  Treasury stock, 1,342,188 shares as of July 28, 2012 and April 28, 2012     (11,377 )     (11,377 )
  Retained earnings     155,304       154,008  
      TOTAL METHODE ELECTRONICS, INC. SHAREHOLDERS' EQUITY     250,382       255,044  
Noncontrolling interest     182       180  
      TOTAL EQUITY     250,564       255,224  
      TOTAL LIABILITIES AND EQUITY   $ 405,480     $ 403,648  
                 
                 
                 
   
METHODE ELECTRONICS, INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)  
($ in thousands)  
   
    Three Months Ended  
    July 28, 2012     July 30, 2011  
OPERATING ACTIVITIES                
  Net income   $ 3,827     $ 1,435  
  Adjustments to reconcile net income to net cash provided by operating activities:                
    Provision for depreciation     3,910       3,439  
    Amortization of intangibles     404       462  
    Amortization of stock awards and stock options     991       1,110  
    Changes in operating assets and liabilities     (2,945 )     (231 )
    Other     --       286  
      NET CASH PROVIDED BY OPERATING ACTIVITIES     6,187       6,501  
                 
INVESTING ACTIVITIES                
  Purchases of property, plant and equipment     (11,415 )     (4,553 )
      NET CASH USED IN INVESTING ACTIVITIES     (11,415 )     (4,553 )
                 
FINANCING ACTIVITIES                
  Proceeds from exercise of stock options     --       198  
  Cash dividends     (2,592 )     (2,589 )
  Proceeds from borrowings     8,500       27,000  
      NET CASH PROVIDED BY FINANCING ACTIVITIES     5,908       24,609  
                 
Effect of foreign currency exchange rate changes on cash     (2,330 )     424  
                 
      INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS     (1,650 )     26,981  
Cash and cash equivalents at beginning of period     86,797       57,445  
      CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 85,147     $ 84,426  
                 

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