Methode Electronics, Inc. (NYSE:MEI) Q3 2018 Earnings Conference Call Transcript

Mar 01, 2018 • 11:00 am ET

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Methode Electronics, Inc. (NYSE:MEI) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Welcome to the Methode Electronics Fiscal Year 2018 Third 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
Donald W. Duda

Thank you, Michelle, and good morning, everyone. Thank you for joining us today for our fiscal 2018 third quarter financial results conference call. I'm joined today by John Hrudicka, our CFO; 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 16.6% in the third quarter and 10.5% in the first 9 months. However, earnings per share decreased to a loss of $0.65 from income of $0.63 in the third quarter of last year. For the nine months, earnings per share decreased to $0.54 from $1.86. In both periods, the company recognized tax charge of $56.8 million or $1.52 per share due to the enactment of the US tax reform. Third quarter and nine months were also negatively impacted by higher wage expenses, increased intangible asset amortization expense, warranty expense in the Automotive segment, customer price reductions and unfavorable currency impact.

The nine-month period was also negatively affected by acquisition-related expenses and purchase accounting adjustments, increased investment in Dabir, unfavorable commodity pricing in certain raw materials and absence of commodity pricing adjustments and onetime reversal of accruals in the Automotive segment in fiscal 2017. Partially offsetting these factors in both periods were higher sales in the Automotive segment, gain from the sale of a licensing agreement, increased international government grants and reversal of expense from performance-based stock award amortization due to recent changes regarding fiscal 2020 EBITDA estimates, driven primarily by the slower adoption of Dabir.

Moving on with the financial results. Compared to last year, consolidated gross margins decreased 90 basis points in the third quarter to 26.4% and 30 basis points in the first nine months to 27%. In both periods, margins were negatively impacted by a sales mix related to newly acquired businesses in the Automotive segment, warranty expense, unfavorable currency impact and price reductions. The nine-month period was also impacted by purchase accounting adjustments from acquisitions, higher commodity pricing, increased investment in Dabir and absence of the commodity pricing adjustments and reversal of customer commercial accruals in the Automotive segment in fiscal 2017.

Year-over-year fiscal 2018 third quarter selling and administrative expenses decreased due primarily to reversal of a stock award expense and absence of expense-related operating units exited at the end of fiscal 2017. This was partially offset by expenses from new acquisitions and increase of wages and travel. For the nine months, selling and administrative expenses increased year-over-year due mainly to M&A expense, selling and administrative expenses from acquisitions and higher wages and travel expenses. These increases were partially offset by the reversal of the stock award expense and