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Methode Electronics, Inc. Reports Fiscal 2014 Third-Quarter Sales Improve 54 Percent Year Over Year; Earnings per Share Increase More Than Fourfold

Gross Margins Improve to 20.3 Percent; Quarterly Dividend Increased by 29 Percent

CHICAGO, IL -- (Marketwired) -- 03/13/14 -- Methode Electronics, Inc. (NYSE: MEI), a global developer of custom engineered and application specific products and solutions, today announced financial results for the Fiscal 2014 third quarter ended February 1, 2014.

Third-Quarter Fiscal 2014
Methode's third-quarter Fiscal 2014 net sales grew $66.8 million, or 54.3 percent, to $189.8 million from $123.0 million in the same quarter of Fiscal 2013.

Net income increased $11.3 million to $14.6 million, or $0.38 per share, in the third quarter of Fiscal 2014 from $3.3 million, or $0.09 per share, in the same period of Fiscal 2013.

Year over year, Fiscal 2014 third-quarter net income benefitted from:

  • higher sales volumes in the Automotive, Interconnect and Power Products segments;
  • increased efficiencies due to higher sales and vertical integration of painting and laser-etching capabilities in the Automotive segment; and
  • favorable raw material commodity pricing and product mix in the Power Products segment.

Year over year, Fiscal 2014 third-quarter net income was negatively affected by:

  • higher bonus and other wage expense of $2.1 million;
  • higher performance-based compensation expense of $1.6 million;
  • higher legal and other professional fee expense of $1.3 million;
  • higher travel and other general expense of $0.9 million;
  • higher income tax expense of $0.5 million; and
  • higher development expense of $0.3 million.

Consolidated gross margins as a percentage of sales improved to 20.3 percent in the Fiscal 2014 third quarter compared to 16.3 percent in the Fiscal 2013 period as a result of increased manufacturing efficiencies related to higher sales and vertical integration in the Automotive segment, as well as favorable raw material commodity pricing and product mix in the Power Products segment, partially offset by manufacturing inefficiencies within the Other segment as a result of lower torque sensing sales volumes.

Selling and administrative expenses as a percentage of net sales decreased to 11.6 percent for the Fiscal 2014 third quarter compared to 12.9 percent in the same period last year. Selling and administrative expenses increased $6.2 million, or 39.0 percent, to $22.1 million in the Fiscal 2014 third quarter compared to $15.9 million in the prior-year third quarter due primarily to higher performance-based compensation expense and higher bonus, legal, travel and development expenses.

In the Fiscal 2014 third quarter, income tax expense increased $0.5 million, or 55.6 percent, to $1.4 million from $0.9 million for the Fiscal 2013 period. Income tax expense for both periods primarily relates to income taxes on foreign profits.

Third-Quarter Fiscal 2014 Segment Comparisons
Comparing the Automotive segment's Fiscal 2014 third quarter to the same period of Fiscal 2013,

  • Net sales increased 73.5 percent attributable to
    • a 200.5 percent sales improvement in North America due to sales of the General Motors' center console program launched in Fiscal 2014, as well as higher demand for the Ford center console program and transmission lead frame assembly products;
    • a 25.2 percent sales increase in Europe primarily driven by new product launches and currency rate fluctuations; and
    • a 17.5 percent sales improvement in Asia attributable to increased steering-angle sensor and transmission lead frame assembly product sales.
  • Gross margins as a percentage of sales improved to 19.3 percent from 12.5 percent due to increased efficiencies as a result of higher sales and vertical integration.
  • Income from operations increased 442.4 percent due to higher sales, improved manufacturing efficiencies and vertical integration, partially offset by higher selling and administrative expenses.

Comparing the Interconnect segment's Fiscal 2014 third quarter to the same period of Fiscal 2013,

  • Net sales increased 28.5 percent attributable to
    • a 38.0 percent sales improvement in North America due to higher appliance, data solution products and radio remote control sales; and
    • an 18.2 percent sales improvement in Europe attributable to higher demand for radio remote control products, partially offset by lower sensor sales; partially offset by
    • a 22.9 percent sales decrease in Asia driven by lower legacy product sales due to the planned exit of a product line.
  • Gross margins as a percentage of sales declined to 24.1 percent from 25.0 percent due primarily to manufacturing inefficiencies related to sales mix.
  • Income from operations grew 37.8 percent due to improved sales volumes partially offset by increased severance and development costs.

Comparing the Power Products segment's Fiscal 2014 third quarter to the same period of Fiscal 2013,

  • Net sales improved 40.6 percent attributable to
    • an 18.8 percent sales increase in North America due to higher demand for PowerRail and associated products, partially offset by lower heat sink demand;
    • a 328.6 percent sales improvement in Europe attributable to by-pass switch and electric vehicle busbar sales; and
    • a 36.1 percent sales increase in Asia driven by increased busbar and cabling products sales.
  • Gross margins as a percentage of sales improved to 18.9 percent from 16.4 percent due to higher sales, lower product development costs, favorable raw material commodity pricing and favorable product mix.
  • Income from operations increased 320.0 percent due to higher sales, lower product development costs, favorable raw material commodity pricing, favorable product mix and lower selling and administrative expenses.

Nine-Month Period Fiscal 2014
Methode's nine-month Fiscal 2014 net sales grew $176.4 million, or 47.5 percent, to $547.9 million from $371.5 million in the Fiscal 2013 period.

Net income increased $17.3 million to $47.9 million, or $1.26 per share, in the Fiscal 2014 nine months compared to $30.6 million, or $0.81 per share, in the same period of Fiscal 2013. In the Fiscal 2013 second quarter, the Company and various Delphi parties agreed to settle all Delphi related litigation matters. In addition to resolving all claims between the parties, the Company assigned certain patents to Delphi and entered into a non-compete with respect to the related technology. In exchange, the Company received payment of $20.0 million. The Company recorded a gain of $20.0 million in the Fiscal 2013 second quarter related to the settlement. Excluding the impact of the $20.0 million gain recorded in connection with the legal settlement and its effect on income tax expense, Methode's Fiscal 2013 nine-month net income was $11.4 million, or $0.30 per share compared to $47.9 million, or $1.26 per share, in the Fiscal 2014 period.

Year over year, Fiscal 2014 nine-month net income benefitted from:

  • higher sales volume in the Automotive, Interconnect and Power Products segments;
  • increased efficiencies due to higher sales and vertical integration of painting and laser-etching capabilities in the Automotive segment;
  • favorable raw material commodity pricing and product mix in the Power Products segment; and
  • lower income tax expense of $0.3 million.

Year over year, Fiscal 2014 nine-month net income was negatively affected by:

  • the absence of the gain recorded in connection with the legal settlement (as discussed above) of $20.0 million;
  • higher performance-based compensation expense of $4.6 million;
  • higher bonus and other wage expense of $4.0 million;
  • higher travel and other general expense of $1.5 million;
  • the absence of a one-time reversal of accruals related to a customer bankruptcy in the Fiscal 2013 second quarter of $1.1 million;
  • higher professional services expense of $0.7 million; and
  • higher development expense of $0.4 million.

Consolidated gross margins as a percentage of sales improved to 20.8 percent in the Fiscal 2014 first nine months compared to 17.2 percent in the Fiscal 2013 period as a result of increased efficiencies related to higher sales and vertical integration in the Automotive segment, as well as favorable raw material commodity pricing and product mix in the Power Products segment.

Selling and administrative expenses as a percentage of net sales decreased to 11.1 percent for the Fiscal 2014 first nine months compared to 13.0 percent in the same period last year. Selling and administrative expenses increased $12.3 million, or 25.5 percent, to $60.6 million in the Fiscal 2014 first nine months compared to $48.3 million in the prior-year period due primarily to higher performance-based compensation expense and higher marketing, travel, stock award and intangible asset amortization expenses, partially offset by lower legal expense, and the absence of a one-time reversal of accruals related to a customer bankruptcy in the Fiscal 2013 second quarter.

In the Fiscal 2014 first nine months, income tax expense decreased $0.3 million, or 6.7 percent, to $4.2 million from $4.5 million for the Fiscal 2013 period. Income tax expense for both periods primarily relates to income taxes on foreign profits.

Nine-Month Fiscal 2014 Segment Comparisons
Comparing the Automotive segment's Fiscal 2014 first nine months to the same period of Fiscal 2013,

  • Net sales increased 59.0 percent attributable to
    • a 142.1 percent sales improvement in North America due to sales of the General Motors' center console program launched in Fiscal 2014, as well as higher Ford Center Console and transmission lead frame products sales;
    • a 22.7 percent sales increase in Europe primarily driven by new product launches and currency rate fluctuations; and
    • a 15.1 percent sales improvement in Asia attributable to increased steering-angle sensor and transmission lead frame assembly product sales.
  • Gross margins as a percentage of sales improved to 19.0 percent from 13.6 percent due to increased efficiencies related to higher sales and vertical integration.
  • Income from operations increased 49.1 percent due to higher sales and improved efficiencies due to the vertical integration, partially offset by the absence of the gain recorded in connection with the legal settlement and the reversal of various accruals in last year's second quarter, as well as higher bonus and travel expenses. Excluding the impact of the gain recorded in connection with the legal settlement in the Fiscal 2013 second quarter, income from operations improved 289.5 percent in the first nine months of Fiscal 2013.

Comparing the Interconnect segment's Fiscal 2014 first nine months to the same period of Fiscal 2013,

  • Net sales increased 32.4 percent attributable to
    • a 46.0 percent sales improvement in North America due to higher appliance, data solution products and radio remote control sales; and
    • a 4.4 percent sales increase in Europe driven by higher radio remote control sales partially offset by lower sensor sales; partially offset by
    • a 13.1 percent sales decline in Asia attributable to reduced legacy product sales due to the planned exit of a product line.
  • Gross margins as a percentage of sales decreased to 25.5 percent from 26.6 percent due primarily to manufacturing inefficiencies related to sales mix.
  • Income from operations grew 52.8 percent due to improved sales volumes partially offset by manufacturing inefficiencies and higher selling and administrative expenses.

Comparing the Power Products segment's Fiscal 2014 first nine months to the same period of Fiscal 2013,

  • Net sales improved 44.1 percent attributable to
    • a 21.7 percent sales increase in North America due to higher demand for PowerRail and associated products, partially offset by lower heat sink demand;
    • a 481.3 percent sales improvement in Europe attributable to by-pass switch and electric vehicle busbar sales; and
    • a 30.0 percent sales increase in Asia driven by increased busbar and cabling products sales.
  • Gross margins as a percentage of sales improved to 22.1 percent from 15.0 percent due to favorable raw material commodity pricing and favorable product mix.
  • Income from operations increased to $7.9 million from $0.6 million due to higher sales, favorable raw material commodity pricing, favorable product mix and lower selling and administrative expenses.

Dividend Increase
Methode's board of directors approved a 29 percent increase in the quarterly cash dividend on the Company's common stock from $0.07 to $0.09 per share. The dividend is payable May 2, 2014 to shareholders of record on April 18, 2014.

Subsequent Event
On February 10, 2014, as part of the sale of Lumidigm, Methode's investment interest in this biometric sensing company, with a cost basis of $4.0 million, was sold. The Company's portion of the proceeds from the sale is $7.2 million, which will result in a pre-tax gain of approximately $3.2 million (about $0.08 per share) in the fourth quarter of Fiscal 2014. The Company continues to hold an exclusive license from Lumidigm in certain transportation markets.

Guidance
Methode has reiterated its full-year Fiscal 2014 sales guidance range of $720 to $750 million and earnings per share guidance range of $1.70 to $1.90. The guidance ranges for Fiscal 2014 are based upon management's current expectations regarding a variety of factors and involve a number of risks and uncertainties, including the following significant factors and assumptions considered by management in preparing this guidance:

  • the launch of significant awards previously announced and the corresponding sales volumes and timing thereof for certain makes and models of automobiles, trucks and SUVs for Fiscal 2014;
  • the uncertainty of the European economy;
  • the finished goods position of large customers;
  • foreign exchange gains or losses;
  • an effective tax rate below 10 percent, and no significant changes in tax valuation allowances;
  • compensation expense related to tandem cash awards; and
  • no future unusual or one-time items.

Management Comments
President and Chief Executive Officer Donald W. Duda said, "In the third quarter, revenue grew 54 percent, earnings per share improved over fourfold and gross margins increased 400 basis points. Year over year, first nine-month revenue grew over 47 percent, earnings per share improved over fourfold, excluding last year's legal settlement, and consolidated gross margins improved 360 basis points.

"Comparing the third quarter to the second quarter, operating and selling and administrative expenses as a percentage of sales were about 1.1 percent higher, primarily the result of salary expense during the holiday shutdowns, which impacted our margins. Further, in the Interconnect and Power Product segments, lower sequential sales, unfavorable sales mix and increased development expenses affected our profitability. We expect similar results for these segments in the fourth quarter."

Mr. Duda concluded, "Consistent with our commitment of returning capital to our stockholders, we are pleased to increase our quarterly cash dividend by 29 percent. Our business continues to generate strong operating cash flows driven by our success in providing customers with highly engineered, customized products, enabling us to continue to invest in strategic growth opportunities, while also returning capital to stockholders and improving shareholder value."

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, today at 10:00 a.m. Central time.

To participate in the conference call, please dial (877) 407-8033 (domestic) or (201) 689-8033 (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 April 12 by dialing (877) 660-6853 (domestic) or (201) 612-7415 (international) and providing Conference ID number 13577316.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 developer of custom engineered and application specific products and solutions 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 design, manufacture and market devices employing electrical, electronic, wireless, safety radio remote control, sensing and optical technologies to control and convey signals through sensors, interconnections and controls. Our business is managed on a segment basis, with those segments being Automotive, Interconnect, Power Products and Other. Our components are in the primary end markets of the automobile, computer, information processing and networking equipment, voice and data communication systems, consumer electronics, appliances, aerospace vehicles and industrial equipment 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) customary risks related to conducting global operations; (4) timing, quality and cost of new program launches; (5) ability to avoid design or manufacturing defects; (6) ability to compete effectively; (7) dependence on the availability and price of raw materials; (8) dependence on our supply chain; (9) downturns in the automotive industry or the bankruptcy of certain automotive customers; (10) ability to keep pace with rapid technological changes; (11) ability to protect our intellectual property; (12) ability to withstand price pressure; (13) location of a significant amount of cash outside of the U.S.; (14) the recognition of goodwill impairment and long-lived asset charges; (15) currency fluctuations; (16) ability to successfully benefit from acquisitions and divestitures; (17) ability to withstand business interruptions; (18) income tax rate fluctuations; (19) a breach of our information technology systems; and (20) the cost and implementation of SEC disclosure and reporting requirements regarding conflict minerals.



METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
($ in thousands, except per share data)

                            Three Months Ended         Nine Months Ended
                         ------------------------  ------------------------
                         February 1,  January 26,  February 1,  January 26,
                             2014         2013         2014         2013
                         -----------  -----------  -----------  -----------

Net sales                $   189,753  $   122,982  $   547,933  $   371,478

  Cost of products sold      151,269      102,949      434,085      307,686
                         -----------  -----------  -----------  -----------

  Gross profit                38,484       20,033      113,848       63,792

  Selling and
   administrative
   expenses                   22,103       15,776       60,606       48,250
  Income from settlement          --           --           --      (20,000)
                         -----------  -----------  -----------  -----------

Income from operations        16,381        4,257       53,242       35,542

  Interest expense, net           88           20          265           27
  Other expense, net             270          114          763          609
                         -----------  -----------  -----------  -----------

Income before income
 taxes                        16,023        4,123       52,214       34,906

Income tax expense             1,431          855        4,169        4,519
                         -----------  -----------  -----------  -----------

Net income                    14,592        3,268       48,045       30,387

Less: Net income/(loss)
 attributable to
 noncontrolling interest          (6)         (57)          35         (189)
                         -----------  -----------  -----------  -----------
NET INCOME ATTRIBUTABLE
 TO METHODE ELECTRONICS,
 INC.                    $    14,598  $     3,325  $    48,010  $    30,576
                         ===========  ===========  ===========  ===========

Amounts per common share
 attributable to Methode
 Electronics, Inc.:
    Basic                $      0.38  $      0.09  $      1.27  $      0.82
    Diluted              $      0.38  $      0.09  $      1.26  $      0.81
Cash dividends:
    Common stock         $      0.07  $      0.07  $      0.21  $      0.21
Weighted average number
 of Common Shares
 outstanding:
    Basic                 38,051,772   37,413,490   37,780,506   37,406,270
    Diluted               38,474,129   37,995,292   38,123,192   37,937,894



METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands)

                                                   As of          As of
                                                February 1,     April 27,
                                                    2014           2013
                                               -------------  -------------
                                                (Unaudited)
ASSETS
CURRENT ASSETS
  Cash and cash equivalents                    $      96,779  $      65,811
  Accounts receivable, net                           134,881        119,816
  Inventories:
    Finished products                                 16,358         11,736
    Work in process                                   10,443         10,220
    Materials                                         52,405         37,973
                                               -------------  -------------
                                                      79,206         59,929
  Deferred income taxes                                3,415          3,313
  Prepaid and refundable income taxes                    252            326
  Prepaid expenses and other current assets           10,466          9,459
                                               -------------  -------------
      TOTAL CURRENT ASSETS                           324,999        258,654
PROPERTY, PLANT AND EQUIPMENT                        318,100        297,255
  Less allowances for depreciation                   215,445        198,897
                                               -------------  -------------
                                                     102,655         98,358
GOODWILL                                              12,935         12,907
INTANGIBLE ASSETS, net                                15,182         16,466
PRE-PRODUCTION COSTS                                  14,616         11,511
OTHER ASSETS                                          36,827         37,043
                                               -------------  -------------
                                                      79,560         77,927
                                               -------------  -------------
      TOTAL ASSETS                             $     507,214  $     434,939
                                               =============  =============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
  Accounts payable                             $      70,887  $      61,541
  Other current liabilities                           27,977         28,930
                                               -------------  -------------
      TOTAL CURRENT LIABILITIES                       98,864         90,471
LONG-TERM DEBT                                        50,000         43,500
OTHER LIABILITIES                                      3,416          3,294
DEFERRED COMPENSATION                                 12,852          8,090
SHAREHOLDERS' EQUITY
  Common stock, $0.50 par value, 100,000,000
   shares authorized, 39,262,168 and
   38,455,853 shares issued as of February 1,
   2014 and April 27, 2013, respectively              19,631         19,228
  Additional paid-in capital                          88,679         81,472
  Accumulated other comprehensive income              20,389         15,680
  Treasury stock, 1,342,188 shares as of
   February 1, 2014 and April 27, 2013               (11,377)       (11,377)
  Retained earnings                                  224,502        184,368
                                               -------------  -------------
      TOTAL METHODE ELECTRONICS, INC.
       SHAREHOLDERS' EQUITY                          341,824        289,371
Noncontrolling interest                                  258            213
                                               -------------  -------------
      TOTAL EQUITY                                   342,082        289,584
                                               -------------  -------------
      TOTAL LIABILITIES AND EQUITY             $     507,214  $     434,939
                                               =============  =============



METHODE ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
($ in thousands)

                                                     Nine Months Ended
                                               ----------------------------
                                                February 1,    January 26,
                                                    2014           2013
                                               -------------  -------------
OPERATING ACTIVITIES
  Net income                                   $      48,045  $      30,387
  Adjustments to reconcile net income to net
   cash provided by operating activities:
    Provision for depreciation                        15,946         11,622
    Amortization of intangibles                        1,332          1,278
    Amortization of stock awards and stock
     options                                           2,596          2,472
    Changes in operating assets and
     liabilities                                     (18,836)       (12,828)
    Other                                                268            (30)
                                               -------------  -------------
      NET CASH PROVIDED BY OPERATING
       ACTIVITIES                                     49,351         32,901

INVESTING ACTIVITIES
  Purchases of property, plant and equipment         (23,516)       (30,013)
  Acquisition of businesses                               --         (1,434)
                                               -------------  -------------
      NET CASH USED IN INVESTING ACTIVITIES          (23,516)       (31,447)

FINANCING ACTIVITIES
  Proceeds from exercise of stock options              5,014             --
  Cash dividends                                      (7,876)        (7,781)
  Proceeds from borrowings                            28,500         28,500
  Repayment of borrowings                            (22,000)       (36,500)
                                               -------------  -------------
      NET CASH PROVIDED BY/(USED IN) FINANCING
       ACTIVITIES                                      3,638        (15,781)

Effect of foreign currency exchange rate
 changes on cash                                       1,495            905
                                               -------------  -------------

      INCREASE/(DECREASE) IN CASH AND CASH
       EQUIVALENTS                                    30,968        (13,422)
Cash and cash equivalents at beginning of
 period                                               65,811         86,797
                                               -------------  -------------
      CASH AND CASH EQUIVALENTS AT END OF
       PERIOD                                  $      96,779  $      73,375
                                               =============  =============


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