Methode Electronics, Inc. (NYSE:MEI) Q1 2016 Earnings Conference Call - Final Transcript

Sep 03, 2015 • 11:00 am ET


Methode Electronics, Inc. (NYSE:MEI) Q1 2016 Earnings Conference Call - Final Transcript


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Welcome to Methode Electronics Fiscal 2016 First Quarter Earnings Conference Call. At this time, all participants are in a listen only-mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

(Forward-looking Cautionary Statements)

It is now my pleasure to introduce your host, Don Duda, President and Chief Executive Officer of Methode Electronics.

Donald Duda

Thank you, and good morning, everyone. Thank you for joining us today for our fiscal 2016 first quarter financial results conference call.

I am joined today by Doug Koman, our Chief Financial Officer and Ron Tsoumas, our Controller and Treasurer. Both Doug and I have comments and afterwards we'll be pleased to take your questions.

As reported this morning, Methode was awarded a contract from a major North American OEM who currently constitutes a substantial portion of the Company's annual automotive revenue. This award is for the next generation of an existing program with this customer. When we are able to, we will provide more details on this program.

Additionally, the Board of Directors has authorized the repurchase of up to $100 million of Methode's outstanding common stock over the next two years. We are pleased to be in a position to consider our stock repurchases given our long-term outlook for growth, strong balance sheet and cash flow generation.

Moving onto financial results, fiscal 2016 first quarter sales decreased 6.8% driven mainly by lower interface sales and the effect of currency translation partially offset by slightly higher Automotive and Power Products sales. However, net income improved nearly 10% driven by consolidated gross margin growth of 300 basis points; positively impacted by favorable currency translation on raw materials and labor costs, favorable commodity pricing of raw materials, refund of import duties from prior periods and manufacturing efficiencies due to increased Automotive production at the company's lower cost manufacturing facility in Egypt.

Partially offsetting these favorable factors were costs and inefficiencies in our Interface segment due to transfer of manufacturing from the Philippines to Egypt.

Year-over-year first quarter selling and administrative expenses as a percentage of revenues increased to 11.4% from 10.2% due mainly to lower sales, along with higher legal, professional services and travel expenses partially offset by lower stock-award compensation expense. First quarter operating margin was 15% compared to 13% last year.

As I noted earlier in our release this morning, we are expecting our Power segment to approach break-even in the second quarter, which would likely lower Methode's second quarter net income below the first quarter. However, in the second half of the year, we are anticipating that an increased income from our European operation should offset deterioration from the Power segment.

As such we are reiterating our fiscal 2016 guidance for sales in the range of $830 million to $865 million, income from operations in the range of $108 million to $119 million and earnings per share in the range of $2.07 to $2.22. Based on this guidance range, our FY16 operating margin target is in 13% to 13.8%