AVX Earnings Call Nuggets: Book-to-Bill

AVX Corporation (NYSE:AVX) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Book-to-Bill 

Matt Sheerin – Stifel Nicolaus: First question, John, regarding the book-to-bill. Could you tell us what the number has been in April so for?

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John S. Gilbertson – CEO and President: Matt, the reason I didn’t give it was it’s so high, I’m a little skeptical regarding the number. But the actual number is 1.34. This is early in April, but it has been very healthy, and I suspect it will weaken as the month progresses. But actually our shipments have also been good. So sometimes when we get an unusual book-to-bill, it’s because our shipments earlier in the month haven’t been strong. But our shipments are on forecast and we still have a strong book-to-bill.

Matt Sheerin – Stifel Nicolaus: That 2% to 3% guidance sounds fairly conservative. Also, given the fact that you’re going to have a full quarter of the Nichicon business, right, which is – what’s the run rate, quarterly run rate there? Is it, what, $10 million or $15 million a quarter or more?

Kurt Cummings – VP, CFO, Treasurer, and Secretary: Well, Matt, we said that they had been running in the $70 million to $75 million kind of annual rate, and that’s what we’re expecting. But you may think 2% to 3% is conservative, and in this market and what’s going on in Europe, it’s a hard call.

Matt Sheerin – Stifel Nicolaus: No, I understand that. It’s just with the full quarter if you have incremental extra $10 million or so of sales from Nichicon, then that 2% to 3% on an organic basis is actually lower. Given the strong book-to-bill, it sounds conservative, but it’s certainly fairly enough, and probably the right place to be right now. In terms of the distribution, restocking and inventories, John, it’s sounds like you’re seeing some distributors starting to have more confidence and bring on some inventory and others are not. What does the sell-through in distribution look like and in the book-to-bill in distribution relative to the rest of the business?

John S. Gilbertson – CEO and President: Well, that POS is up a little bit, Matt. The real problem that we’re having there is as the POS goes up, and you’re aware you can broker that part to the system, you’re little bit better off with lead times low. So some are more aggressive than others on the future of the business; others have, let’s say, under-shot their inventory level. They perhaps have gone below what they will like to have seen in their inventory level and they’re upping their numbers there. So we’re seeing a mix bag. I would say, just roughly, that number we’re seeing movement or activity in about 35^ to 40% of those distributors and more packages that we’re seeing going into April. But the in the quarter, I would say that was at 30%, 35% range we’re getting activity.

Matt Sheerin – Stifel Nicolaus: Is that gross margin number – I guess, the flattish kind of guide, is that impacted at all by the Nichicon inventory or anything else there that’s impacted by that acquisition?

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John S. Gilbertson – CEO and President: Yes, it definitely is, Matt. As we mentioned early when we did the acquisition, A, they’ve got higher-cost material in there. It’s going to take us three to six months to get that done. Plus, we’ve got just some of the consolidation that’s got to be done. So that’s going to hurt us for two or three months on the gross margin. But we are anticipating when that material gets through there, some of the machine and equipment changes that we’re making, we’re spending a little extra money both in training and other issues there that would come with a new acquisition. So we think that in the June quarter that will hurt us a little bit, but we expect as the year goes on it will add to the margin, particularly with material and the new product that’s coming on.

Matt Sheerin – Stifel Nicolaus: First question, John, regarding the book-to-bill. Could you tell us what the number has been in April so for?

John S. Gilbertson – CEO and President: Matt, the reason I didn’t give it was it’s so high, I’m a little skeptical regarding the number. But the actual number is 1.34. This is early in April, but it has been very healthy, and I suspect it will weaken as the month progresses. But actually our shipments have also been good. So sometimes when we get an unusual book-to-bill, it’s because our shipments earlier in the month haven’t been strong. But our shipments are on forecast and we still have a strong book-to-bill.

Matt Sheerin – Stifel Nicolaus: That 2% to 3% guidance sounds fairly conservative. Also, given the fact that you’re going to have a full quarter of the Nichicon business, right, which is – what’s the run rate, quarterly run rate there? Is it, what, $10 million or $15 million a quarter or more?

Kurt Cummings – VP, CFO, Treasurer, and Secretary: Well, Matt, we said that they had been running in the $70 million to $75 million kind of annual rate, and that’s what we’re expecting. But you may think 2% to 3% is conservative, and in this market and what’s going on in Europe, it’s a hard call.

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Matt Sheerin – Stifel Nicolaus: No, I understand that. It’s just with the full quarter if you have incremental extra $10 million or so of sales from Nichicon, then that 2% to 3% on an organic basis is actually lower. Given the strong book-to-bill, it sounds conservative, but it’s certainly fairly enough, and probably the right place to be right now. In terms of the distribution, restocking and inventories, John, it’s sounds like you’re seeing some distributors starting to have more confidence and bring on some inventory and others are not. What does the sell-through in distribution look like and in the book-to-bill in distribution relative to the rest of the business?

John S. Gilbertson – CEO and President: Well, that POS is up a little bit, Matt. The real problem that we’re having there is as the POS goes up, and you’re aware you can broker that part to the system, you’re little bit better off with lead times low. So some are more aggressive than others on the future of the business; others have, let’s say, under-shot their inventory level. They perhaps have gone below what they will like to have seen in their inventory level and they’re upping their numbers there. So we’re seeing a mix bag. I would say, just roughly, that number we’re seeing movement or activity in about 35^ to 40% of those distributors and more packages that we’re seeing going into April. But the in the quarter, I would say that was at 30%, 35% range we’re getting activity…

Matt Sheerin – Stifel Nicolaus: Is that gross margin number – I guess, the flattish kind of guide, is that impacted at all by the Nichicon inventory or anything else there that’s impacted by that acquisition?

John S. Gilbertson – CEO and President: Yes, it definitely is, Matt. As we mentioned early when we did the acquisition, A, they’ve got higher-cost material in there. It’s going to take us three to six months to get that done. Plus, we’ve got just some of the consolidation that’s got to be done. So that’s going to hurt us for two or three months on the gross margin. But we are anticipating when that material gets through there, some of the machine and equipment changes that we’re making, we’re spending a little extra money both in training and other issues there that would come with a new acquisition. So we think that in the June quarter that will hurt us a little bit, but we expect as the year goes on it will add to the margin, particularly with material and the new product that’s coming on.

Matt Sheerin – Stifel Nicolaus: First question, John, regarding the book-to-bill. Could you tell us what the number has been in April so for?

John S. Gilbertson – CEO and President: Matt, the reason I didn’t give it was it’s so high, I’m a little skeptical regarding the number. But the actual number is 1.34. This is early in April, but it has been very healthy, and I suspect it will weaken as the month progresses. But actually our shipments have also been good. So sometimes when we get an unusual book-to-bill, it’s because our shipments earlier in the month haven’t been strong. But our shipments are on forecast and we still have a strong book-to-bill.

EXCLUSIVE OFFER! Take Advantage of the Tax Relief 50% Off Sale for a Limited Time. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Matt Sheerin – Stifel Nicolaus: That 2% to 3% guidance sounds fairly conservative. Also, given the fact that you’re going to have a full quarter of the Nichicon business, right, which is – what’s the run rate, quarterly run rate there? Is it, what, $10 million or $15 million a quarter or more?

Kurt Cummings – VP, CFO, Treasurer, and Secretary: Well, Matt, we said that they had been running in the $70 million to $75 million kind of annual rate, and that’s what we’re expecting. But you may think 2% to 3% is conservative, and in this market and what’s going on in Europe, it’s a hard call.

Matt Sheerin – Stifel Nicolaus: No, I understand that. It’s just with the full quarter if you have incremental extra $10 million or so of sales from Nichicon, then that 2% to 3% on an organic basis is actually lower. Given the strong book-to-bill, it sounds conservative, but it’s certainly fairly enough, and probably the right place to be right now. In terms of the distribution, restocking and inventories, John, it’s sounds like you’re seeing some distributors starting to have more confidence and bring on some inventory and others are not. What does the sell-through in distribution look like and in the book-to-bill in distribution relative to the rest of the business?

John S. Gilbertson – CEO and President: Well, that POS is up a little bit, Matt. The real problem that we’re having there is as the POS goes up, and you’re aware you can broker that part to the system, you’re little bit better off with lead times low. So some are more aggressive than others on the future of the business; others have, let’s say, under-shot their inventory level. They perhaps have gone below what they will like to have seen in their inventory level and they’re upping their numbers there. So we’re seeing a mix bag. I would say, just roughly, that number we’re seeing movement or activity in about 35^ to 40% of those distributors and more packages that we’re seeing going into April. But the in the quarter, I would say that was at 30%, 35% range we’re getting activity.

EXCLUSIVE OFFER! Take Advantage of the Tax Relief 50% Off Sale for a Limited Time. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Matt Sheerin – Stifel Nicolaus: Is that gross margin number – I guess, the flattish kind of guide, is that impacted at all by the Nichicon inventory or anything else there that’s impacted by that acquisition?

John S. Gilbertson – CEO and President: Yes, it definitely is, Matt. As we mentioned early when we did the acquisition, A, they’ve got higher-cost material in there. It’s going to take us three to six months to get that done. Plus, we’ve got just some of the consolidation that’s got to be done. So that’s going to hurt us for two or three months on the gross margin. But we are anticipating when that material gets through there, some of the machine and equipment changes that we’re making, we’re spending a little extra money both in training and other issues there that would come with a new acquisition. So we think that in the June quarter that will hurt us a little bit, but we expect as the year goes on it will add to the margin, particularly with material and the new product that’s coming on.

A Closer Look: AVX Earnings Cheat Sheet>>