AVX Earnings Call Nuggets: End Markets Analysis and Backlog Details

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

End Markets Analysis

Matt Sheerin – Stifel Nicolaus: John, can we just start off with a rundown of your end markets as a percentage of sales? You talked generally about those end markets, but could you give us the numbers?

John S. Gilbertson – CEO and President: Sure. If you look at automotive, Matt, it was 21%. So, that’s up about 1 point from where it was in the previous quarter. So, we are continuing to improve that. I’d just go across here for a few years and on the chart that Kurt send me every time and we’re at 21, if you look back see that’s two years ago we were only 14. So, you can see how that’s improving our position in the market.

Matt Sheerin – Stifel Nicolaus: John, just on automotive is that mostly the connectors or do you have more passives in there now to?

John S. Gilbertson – CEO and President: We have much more passives than we had Matt. To be honest with you that connector was sort of an entry into the automotive. We were not that strong in automotive, but a couple of product changes. Our FLEXITERM has been very successful in very difficult environments. But the entry into automotive and the growth was a reputation we built up in connectors that really helped us, particularly at some of the larger automotive European suppliers.

Matt Sheerin – Stifel Nicolaus: Got it…

John S. Gilbertson – CEO and President: On the cellular business it was 15% – 15 points, computer was 13, consumer was 8, industrial 13, medical was 8. Medical has been improving a little bit, but it’s not what I’d say strong right now. Now, military was 4 and that’s been flat for about three or four quarters. Networking was 4% and telecom was 14.

Matt Sheerin – Stifel Nicolaus: And you’re guiding sort of flat to up a little bit, are you expecting most end markets to be in line with that or sounds like you’re talking about be the smartphone cell area to be maybe a little bit weaker and then rebound in the December quarter?

John S. Gilbertson – CEO and President: That’s exactly right. And if I could say a little bit different in that just to add to it. I expect cellphones to be a little weak here in the September quarter and pickup in October and November, okay. We’ll really see the movement in October and November and that’s what we’re hearing from our customers. As you know you’re very well informed on this. But several of these suppliers didn’t have models performed as they thought they would and they kind of gone back to the drawing board and giving little bit more time before releases. And what they’re saying right now is that October, November timeframe get ready for improvements there.

Matt Sheerin – Stifel Nicolaus: On the Nichicon acquisition, could you tell us what the revenue contribution in the quarter was? I know that you talked about running through higher materials inventory from Nichicon, which weighs on your margins a little bit. When does that go away and when should we see a boost in margins because of that?

John S. Gilbertson – CEO and President: As I mentioned earlier, I think last time, it’s going to take us a quarter or two to get the materials, the material moving through the system and that some qualifications issued, but some of it is now moving through. I would say in the September quarter we should see more in that area and we’re seeing – the quarter we saw somewhere around $13 million related to Nichicon. And the Nichicon right now is running profitably…

Matt Sheerin – Stifel Nicolaus: Then just last for me. On the EPA settlement, has that been finalized yet and approved or is that still pending?

John S. Gilbertson – CEO and President: That’s still pending, Matt. It’s in the court system and so we should hear soon.

Matt Sheerin – Stifel Nicolaus: That was $366 million, right?

John S. Gilbertson – CEO and President: Right.

 

Backlog Details

Jim Suva – Citi: Thank you, and congrats to you and your team there. A question regarding kind of the backlog or book-to-bill that you guys talked about seems very, very healthy and encouraging and then when I look at your sales outlook of flat to maybe slightly up and look at Nichicon acquisition, could you help me kind of bridge the gap between that strong backlog and kind of flattish to slightly up sales like why wouldn’t sales be up much more especially with Nichicon or is there some additional seasonality that I should just consider into that?

John S. Gilbertson – CEO and President: You had the answer there at the end its seasonality. What we normally see is people build a little backlog as they get ready for the summer season and if you like at July and August it’s pretty slow. So what happens is we tend to do deplete our backlog as we go through the season and that help hurts us in this quarter. Now depending on the activity during the summer months it doesn’t seem to be to be to me as slow. As a matter of fact July orders have been stronger this July than they were last July. So, we could see some improvement there in the July August timeframe more than we normally see. But generally what happens to us as we build a little backlog because purchasing guys going on vacation they put stuff in there and well they will be sure to get it when they come back. So we’ll see a little slow down there and that hurts our shipments…

Jim Suva – Citi: And then any changes in material pricing like tantalum powder or anything like that or has it been kind of stable, just kind of wondering about how things could enter into your cost of goods sold, kind of looking forward in the next couple of quarters?

John S. Gilbertson – CEO and President: Jim, Kurt and I were talking about that before the conference call. (Interestingly), we’ve not seen as the level we saw last year. Last year we saw a lot of activity. We’re seeing a little movement in the tantalum or but I wouldn’t say it’s big. We’re still doing some spot buys, when price drop below our purchase level, but we’re not seeing the material increases that we saw a year ago. The entire commodity situation has changed. So, this time last year I could have used commodity prices as an excuse you might say, but I can’t do it this year. We are running pretty where we thought we were. We are actually a little bit below where we thought we’re going to be on commodity prices and it’s helping us a little bit.

Jim Suva – Citi: Then on the comparison of an AVX value opportunity or ASP opportunity of a tablet versus a notebook. If we think about maybe a student or a first-time buyer buying a tablet instead of a notebook, is there similar content for AVX, are there more capacitors and resistors, less capacitors and resistors, more higher value ones because they are operated on a battery rather than a plugin. How should we kind of think about the opportunity for sales and profitability of a tablet sales continuing to do better and notebook struggling?

Matt Sheerin – Stifel Nicolaus: John, can we just start off with a rundown of your end markets as a percentage of sales? You talked generally about those end markets, but could you give us the numbers?

John S. Gilbertson – CEO and President: Sure. If you look at automotive, Matt, it was 21%. So, that’s up about 1 point from where it was in the previous quarter. So, we are continuing to improve that. I’d just go across here for a few years and on the chart that Kurt send me every time and we’re at 21, if you look back see that’s two years ago we were only 14. So, you can see how that’s improving our position in the market…

Matt Sheerin – Stifel Nicolaus: John, just on automotive is that mostly the connectors or do you have more passives in there now to?

John S. Gilbertson – CEO and President: We have much more passives than we had Matt. To be honest with you that connector was sort of an entry into the automotive. We were not that strong in automotive, but a couple of product changes. Our FLEXITERM has been very successful in very difficult environments. But the entry into automotive and the growth was a reputation we built up in connectors that really helped us, particularly at some of the larger automotive European suppliers.

Matt Sheerin – Stifel Nicolaus: Got it.

John S. Gilbertson – CEO and President: On the cellular business it was 15% – 15 points, computer was 13, consumer was 8, industrial 13, medical was 8. Medical has been improving a little bit, but it’s not what I’d say strong right now. Now, military was 4 and that’s been flat for about three or four quarters. Networking was 4% and telecom was 14.

Matt Sheerin – Stifel Nicolaus: And you’re guiding sort of flat to up a little bit, are you expecting most end markets to be in line with that or sounds like you’re talking about be the smartphone cell area to be maybe a little bit weaker and then rebound in the December quarter?

John S. Gilbertson – CEO and President: That’s exactly right. And if I could say a little bit different in that just to add to it. I expect cellphones to be a little weak here in the September quarter and pickup in October and November, okay. We’ll really see the movement in October and November and that’s what we’re hearing from our customers. As you know you’re very well informed on this. But several of these suppliers didn’t have models performed as they thought they would and they kind of gone back to the drawing board and giving little bit more time before releases. And what they’re saying right now is that October, November timeframe get ready for improvements there.

Matt Sheerin – Stifel Nicolaus: On the Nichicon acquisition, could you tell us what the revenue contribution in the quarter was? I know that you talked about running through higher materials inventory from Nichicon, which weighs on your margins a little bit. When does that go away and when should we see a boost in margins because of that?

John S. Gilbertson – CEO and President: As I mentioned earlier, I think last time, it’s going to take us a quarter or two to get the materials, the material moving through the system and that some qualifications issued, but some of it is now moving through. I would say in the September quarter we should see more in that area and we’re seeing – the quarter we saw somewhere around $13 million related to Nichicon. And the Nichicon right now is running profitably.

A Closer Look: AVX Earnings Cheat Sheet>>

More Articles About:    

More from The Cheat Sheet