Methode Electronics, Inc. (NYSE:MEI) Q2 2018 Earnings Conference Call Transcript

Dec 07, 2017 • 11:00 am ET

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Methode Electronics, Inc. (NYSE:MEI) Q2 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Welcome to Methode Electronics Fiscal Year 2018 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) 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 CEO of Methode Electronics.

Executive
Don Duda

Thank you, Tim, and good morning, everyone. Thank you for joining us today for our fiscal 2018 second quarter financial results conference call. I'm joined today by John Hrudicka, our Chief Financial Officer; and Ron Tsoumas, our Controller and Treasurer. Both John and I have comments, and afterwards, we will take your questions.

Year-over-year fiscal 2018 sales increased 9.9% in the second quarter and 7.5% on the first half. For fiscal 2018 periods include sales of $7 million from Pacific Insight and $9.1 million from Procoplast. Excluding sales from the acquisitions, sales increased 2.2% in the second quarter and 3.5% in the first half. However, earnings per share decreased to $0.64 from $0.66 in the second quarter and to $1.19 from $1.23 in the first half due to several factors. In both periods, we incurred acquisition-related expenses and purchased accounting adjustments of $4.2 million for the quarter and $6.8 million for the six months as well as increased intangible asset amortization expenses of $0.5 million related to the Procoplast and Pacific Insight transactions.

Additionally, the second quarter of last fiscal year included an international grant of $1.5 million. We also increased our investment in sales and marketing, clinical resources and professional services for Dabir. We experienced unfavorable currency impact on labor and factory expenses as well as unfavorable calamity pricing of certain raw materials. And finally, the first half of last year benefited commodity pricing adjustments of $1 million and the onetime reversal of accruals related to customer commercial issues also valued at $1 million, both in the Automotive segment. Partially offsetting these factors in both periods were higher sales in the Automotive and Power Products segments and lower legal and lower income tax expense.

Compared to last year's second quarter, consolidated gross margins improved 30 basis points to 26.9%, driven mainly by higher sales. Gross margins remained constant at 27.3% in the first half. In both periods, gross margins were negatively impacted by purchase accounting adjustments from acquisitions, unfavorable calamity pricing and increased investment in Dabir. The second quarter was also negatively affected by price reductions and the unfavorable currency impact. The first half was also impacted by the absence of the commodity pricing adjustments and reversal of commercial accruals in the Automotive segment in the fiscal 2017 first quarter.

Year-over-year selling and administrative expenses increased in fiscal 2018 second quarter and first half. We did experience lower legal fees and reduced expenses related to Connectivity, but those were offset by the M&A expense, selling and administrative expenses from the acquisitions, increased investment in Dabir as well as higher travel advertising and marketing expenses.

Year-over-year fiscal 2018 operating income was