Methode Electronics, Inc. Reports Fiscal 2014 First-Quarter Earnings per Share Improved to 36¢ From 10¢ Year Over Year

Consolidated Sales Grow 40.9 Percent and Gross Margins Improve to 20.3 Percent; Increases Fiscal 2014 Sales and EPS Guidance

Marketwired

CHICAGO, IL--(Marketwired - Aug 29, 2013) - 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 first quarter ended July 27, 2013.

First-Quarter Fiscal 2014
Methode's first-quarter Fiscal 2014 net sales grew $48.6 million, or 40.9 percent, to $167.3 million from $118.7 million in the same quarter of Fiscal 2013.

Net income increased $9.9 million to $13.8 million, or $0.36 per share, in the first quarter of Fiscal 2014 from $3.9 million, or $0.10 per share, in the same period of Fiscal 2013. Year over year, Fiscal 2014 first-quarter net income benefitted from:

  • higher sales volume in the Automotive, Interconnect and Power Products segments;
  • increased manufacturing 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 first-quarter net income was negatively affected by:

  • higher performance-based compensation expense of $1.7 million;
  • increased income tax expense of $0.9 million; and
  • higher marketing, depreciation and stock award amortization expenses of $0.6 million.

Consolidated gross margins as a percentage of sales improved to 20.3 percent in the Fiscal 2014 first quarter compared to 18.0 percent in the same period of Fiscal 2013 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 increased sales of products with a higher material content in the Interconnect segment.

Selling and administrative expenses increased $1.7 million, or 9.9 percent, to $18.9 million in the Fiscal 2014 first quarter compared to $17.2 million in the prior-year first quarter due primarily to higher performance-based compensation, marketing, depreciation and stock award amortization expenses, partially offset by lower legal expense. Selling and administrative expenses as a percentage of net sales decreased to 11.3 percent for the Fiscal 2014 first quarter compared to 14.5 percent in the same period last year.

In the Fiscal 2014 first quarter, income tax expense increased $0.9 million, or 225.0 percent, to $1.3 million from $0.4 million for the Fiscal 2013 period. Because Methode has a domestic net operating loss carry-forward, income tax expense for both periods primarily relates to income taxes on foreign profits.

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

  • Net sales increased 45.8 percent attributable to
    • an 86.1 percent sales improvement in North America due to sales of the General Motors' center console program, as well as higher demand for the Ford center console program and transmission lead frame assembly products;
    • a 26.1 percent sales increase in Europe primarily driven by new hidden switch product launches; and
    • a 22.3 percent sales improvement in Asia attributable to increased sales of steering angle sensors and transmission lead frame assembly products.
  • Gross margins as a percentage of sales improved to 18.3 percent from 13.2 percent due to increased manufacturing efficiencies due to higher sales and vertical integration.
  • Income from operations increased 359.3 percent due to higher sales, improved manufacturing efficiencies, vertical integration and lower selling and administrative expenses.

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

  • Net sales increased 37.9 percent attributable to
    • a 55.7 percent sales improvement in North America due to higher appliance and data solutions products sales; and
    • a 10.3 percent sales increase in Europe driven by higher radio remote control sales due to the acquisition off an Italian distributor in September 2012; partially offset by
    • a 20.0 percent sales decline in Asia attributable to lower demand for radio remote control products and reduced sales of legacy products due to the planned exit of a product line.
  • Gross margins as a percentage of sales decreased to 27.2 percent from 29.3 percent due primarily to increased sales of products with a higher material content.
  • Income from operations grew 51.0 percent due to improved sales volumes, partially offset by unfavorable sales mix and slightly higher selling and administrative expenses.

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

  • Net sales improved 43.0 percent attributable to
    • a 19.0 percent sales increase in North America due to higher demand for cabling and busbar products, partially offset by lower heat sink demand;
    • a 625.0 percent sales improvement in Europe attributable to launches of a by-pass switch for a substation and electric vehicle busbars; and
    • a 31.6 percent sales increase in Asia driven by increased busbar and cabling products sales.
  • Gross margins as a percentage of sales improved to 22.5 percent from 16.5 percent due to favorable raw material commodity pricing and favorable product mix.
  • Income from operations increased 666.7 percent due to favorable raw material commodity pricing, favorable product mix and lower selling and administrative expenses.

Guidance
Methode has raised its full-year Fiscal 2014 sales guidance to a range of $670 to $700 million and earnings per share guidance to a range of $1.40 to $1.60. This replaces the Company's previous sales guidance of $630 to $660 million and earnings per share guidance of $0.91 to $1.11. The guidance ranges for Fiscal 2014 are based upon management's expectations regarding a variety of factors and involve a number of risks and uncertainties, including the following significant factors 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;
  • foreign exchange translation rates;
  • an effective tax rate below ten percent, and no significant changes in tax valuation allowances;
  • compensation expense related to tandem cash awards; and
  • no unusual or one-time items.

Management Comments
President and Chief Executive Officer Donald W. Duda said, "Methode's first-quarter financial results reflect over 40 percent revenue growth coupled with strong margin improvement, which delivered record net income from operations for our shareholders. As these results demonstrate, we are beginning to reap the benefits of our efforts to significantly grow Methode's revenue stream by providing an unmatched combination of customer focus, differentiated technology, problem solving capabilities and world-class manufacturing."

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) 407-8031 (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 12 by dialing (877) 660-6853 (domestic) or (201) 612-7415 (international) and providing Conference ID number 419653. 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) further 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  
    July 27,
2013
  July 28,
2012
 
               
Net sales   $ 167,266   $ 118,737  
               
  Cost of products sold     133,285     97,271  
                 
  Gross profit     33,981     21,466  
                 
  Selling and administrative expenses     18,855     17,296  
               
Income from operations     15,126     4,170  
               
  Interest (income)/expense, net     59     (46 )
  Other (income)/expense, net     125     (41 )
               
Income before income taxes     14,942     4,257  
               
Income tax expense     1,299     430  
               
Net income     13,643     3,827  
               
Less: Net income/(loss) attributable to noncontrolling interest     32     (62 )
               
NET INCOME ATTRIBUTABLE TO METHODE ELECTRONICS, INC.   $ 13,611   $ 3,889  
               
Amounts per common share attributable to Methode Electronics, Inc.:              
  Basic   $ 0.36   $ 0.10  
  Diluted   $ 0.36   $ 0.10  
Cash dividends:              
  Common stock   $ 0.07   $ 0.07  
Weighted average number of Common Shares outstanding:              
  Basic     37,552,740     37,391,831  
  Diluted     38,251,312     37,893,873  
               
   
METHODE ELECTRONICS, INC AND SUBSIDIARIES  
CONDENSED CONSOLIDATED BALANCE SHEETS  
($ in thousands)  
   
    As of     As of  
    July 27, 2013     April 27, 2013  
    (Unaudited)        
ASSETS                
CURRENT ASSETS                
  Cash and cash equivalents   $ 73,412     $ 65,811  
  Accounts receivable, net     135,585       119,816  
  Inventories:                
    Finished products     18,356       11,736  
    Work in process     10,695       10,220  
    Materials     39,961       37,973  
      69,012       59,929  
  Deferred income taxes     3,367       3,313  
  Prepaid and refundable income taxes     269       326  
  Prepaid expenses and other current assets     10,572       9,459  
      TOTAL CURRENT ASSETS     292,217       258,654  
PROPERTY, PLANT AND EQUIPMENT     305,709       297,255  
  Less allowances for depreciation     205,391       198,897  
      100,318       98,358  
GOODWILL     12,922       12,907  
INTANGIBLE ASSETS, net     16,032       16,466  
PRE-PRODUCTION COSTS     14,891       11,511  
OTHER ASSETS     37,513       37,043  
      81,358       77,927  
      TOTAL ASSETS   $ 473,893     $ 434,939  
LIABILITIES AND EQUITY                
CURRENT LIABILITIES                
  Accounts payable   $ 76,166     $ 61,541  
  Other current liabilities     27,140       28,930  
      TOTAL CURRENT LIABILITIES     103,306       90,471  
LONG-TERM DEBT     52,500       43,500  
OTHER LIABILITIES     3,705       3,294  
DEFERRED COMPENSATION     9,073       8,090  
SHAREHOLDERS' EQUITY                
  Common stock, $0.50 par value, 100,000,000 shares authorized, 38,579,860 and 38,455,853 shares issued as of July 27, 2013 and April 27, 2013, respectively     19,290       19,228  
  Additional paid-in capital     83,650       81,472  
  Accumulated other comprehensive income     18,123       15,680  
  Treasury stock, 1,342,188 shares as of July 27, 2013 and April 27, 2013     (11,377 )     (11,377 )
  Retained earnings     195,374       184,368  
      TOTAL METHODE ELECTRONICS, INC. SHAREHOLDERS' EQUITY     305,060       289,371  
  Noncontrolling interest     249       213  
      TOTAL EQUITY     305,309       289,584  
      TOTAL LIABILITIES AND EQUITY   $ 473,893     $ 434,939  
                 
   
METHODE ELECTRONICS, INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)  
($ in thousands)  
   
    Three Months Ended  
    July 27, 2013     July 28, 2012  
OPERATING ACTIVITIES                
  Net income   $ 13,643     $ 3,827  
  Adjustments to reconcile net income to net cash provided by operating activities:                
    Provision for depreciation     5,196       3,910  
    Amortization of intangibles     461       404  
    Amortization of stock awards and stock options     1,166       991  
    Changes in operating assets and liabilities     (11,988 )     (2,945 )
    Other     236       --  
      NET CASH PROVIDED BY OPERATING ACTIVITIES     8,714       6,187  
                 
INVESTING ACTIVITIES                
  Purchases of property, plant and equipment     (9,345 )     (11,415 )
      NET CASH USED IN INVESTING ACTIVITIES     (9,345 )     (11,415 )
                 
FINANCING ACTIVITIES                
  Proceeds from exercise of stock options     1,075       --  
  Cash dividends     (2,605 )     (2,592 )
  Proceeds from borrowings     14,500       8,500  
  Repayment of borrowings     (5,500 )     --  
      NET CASH PROVIDED BY FINANCING ACTIVITIES     7,470       5,908  
                 
Effect of foreign currency exchange rate changes on cash     762       (2,330 )
                 
      INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS     7,601       (1,650 )
Cash and cash equivalents at beginning of period     65,811       86,797  
      CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 73,412     $ 85,147  
                 
Contact:
For Methode Electronics, Inc. - Investor
Kristine Walczak
Dresner Corporate Services
312-780-7205
kwalczak@dresnerco.com

Philip Kranz
Dresner Corporate Services
312-780-7240
pkranz@dresnerco.com
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