Methode Electronics (NASDAQ:METH)
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Methode Electronics, Inc. (Nasdaq:METH), a global
manufacturer of electronic components and subsystem devices, today
announced operating results for the fourth quarter and fiscal year ended
April 28, 2007.
For the fiscal 2007 fourth quarter, Methode reported net sales of $130.9
million, and net income of $12.1 million, or $0.33 per share. This
compares with fiscal 2006 fourth quarter net sales of $116.3 million,
and net income of $4.3 million, or $0.12 per share. Included in the
fiscal 2006 fourth quarter was a tax charge of $4.5 million, or $0.12
per share, for repatriation of $38.1 million of foreign earnings, and an
$0.8 million reduction to the bad debt provision, $0.6 million after
tax, or $0.02 per share, on the sale of claims against Delphi
pre-petition receivables. Excluding the tax charge and the reduced bad
debt provision, earnings per share equaled $0.22 in the fiscal 2006
fourth quarter.
Methode achieved better than expected sales and profits in the fourth
quarter, compared to previous guidance. Although Methode’s
U.S. automotive business levels were down year-over-year, their sales
and profit performance was much better than expected in the quarter.
Growth in the Interconnect segment pushed sales above expected levels
due to increased sales in China and the inclusion of TouchSensor for two
months in the quarter. In addition, increased demand for Power
Distribution bus bar products provided better than anticipated results.
Cost of products sold as a percentage of net sales was 77.4 percent in
the fourth quarter of fiscal 2007, compared to 78.2 percent in the
fiscal 2006 fourth quarter. The margins improved primarily due to
favorable purchase price variance from our suppliers supporting our
Shanghai Interconnect operation and production efficiencies at our Power
Distribution operations in Asia and the U.S. This gross margin increase
was partially offset by increased raw material and component prices in
the Automotive segment, and reduced overhead absorption due to lower
sales of legacy automotive products in North America.
Selling and administrative cost as a percentage of net sales was 11.7
percent in the fourth quarter of fiscal 2007, compared to 11.1 percent
in the prior-year period. The increase is primarily attributable to
higher stock-based compensation expense, as 2007 was the first fiscal
year to reflect three annual grants of performance-based restricted
stock awards that have three-year vesting periods. In the fourth quarter
of fiscal 2006, selling and administrative cost benefited from a
reduction in bad debt provision related to the sale of Delphi
pre-petition receivables.
Methode’s fiscal 2007 fourth quarter tax
provision reflects expanded business in lower rate tax jurisdictions in
Malta and China, and the recognition of tax credit utilization related
to a scheduled increase in the statutory rate in Malta and the transfer
of manufacturing operations from Scotland to Malta. The fiscal 2006
fourth quarter tax provision included a tax charge of $4.5 million, or
$0.12 per share, for repatriating $38.1 million of foreign earnings to
the U.S.
For the 2007 fiscal year, Methode reported net sales of $448.4 million
and net income of $26.1 million, or $0.71 per diluted share, compared to
the 2006 fiscal year with net sales of $421.6 million and net income of
$17.0 million, or $0.47 per diluted share. Included in the fiscal 2006
results was a $2.3 million bad debt provision, $1.5 million after tax,
or $0.04 per share, for receivables deemed uncollectible due to the
Delphi bankruptcy, and the above mentioned repatriation tax charge.
Excluding the Delphi bad debt and tax charges, earnings per share
equaled $0.63 in fiscal 2006.
Cost of products sold as a percentage of net sales was 80.3 percent in
fiscal 2007, compared to 79.8 percent in fiscal 2006. The increase was
primarily due to price and volume reductions for legacy automotive
products in North America, operational inefficiencies at the Scotland
automotive facility during the first half of the year, as well as the
cost of relocating manufacturing operations from Scotland to the Malta
facility in the third quarter of fiscal 2007. Partially offsetting this
were increased sales, favorable purchase price variance from suppliers
supporting our Shanghai operation and production efficiencies at our
Interconnect and Power Distribution segments.
Selling and administrative expense for the 2007 fiscal year represented
12.3 percent of net sales, compared to 13.2 percent in fiscal 2006.
Stock-based compensation increased by $1.9 million in fiscal 2007 due to
the adoption of FAS123R, the increase in stock price and 2007 was the
first fiscal year to reflect three annual grants of performance-based
restricted stock awards that have three-year vesting periods. Included
in fiscal 2006 results is a $2.3 million bad debt provision for impaired
receivables due to the bankruptcy of Delphi Corporation. Net interest
income increased due to higher average investment rates, 4.2 percent
this fiscal year compared to 3.1 percent last year, and higher average
cash balances, $88.9 million this fiscal year compared to $77.3 million
last year.
Commenting on the year’s results, Donald W.
Duda, President and Chief Executive Officer, said, “Methode
realized solid improvement and achievements in fiscal 2007. Global sales
increased eight percent, with a five percent improvement to the bottom
line. Our Power Distribution segment had record sales growth of
nearly 40 percent, while the Interconnect segment grew 20 percent. In
our Automotive segment, Europe and Asia sales increased, as anticipated,
but were offset by expected reductions in production volumes with
Chrysler and Ford in the U.S.”
Mr. Duda continued, “In March 2007, Methode
was pleased to complete the largest acquisition in our history –
TouchSensor Technologies, the North American market leader in
solid-state, field-effect switching. The acquisition directly
complements our long-term corporate strategy. We believe it offers short
and long-term synergies, provides patented technology applicable in
multiple industries, including commercial, consumer durables and
automotive, and provides a platform to expand into new markets, such as
point-of-sale and medical equipment.”
Business Outlook
The coming year will bring a combination of new opportunities and
challenges for Methode. The Interconnect segment secured new business
for a major automotive OEM to produce a highly engineered, insert-molded
lead-frame for a transmission controller, which will be used across
several platforms beginning with the 2009 model year automobiles.
The Interconnect segment launched several new PC card and Express card
programs during the past few months, with more scheduled in fiscal 2008.
The segment secured a new FCC mandated cable card program from a major
multi-national OEM. It is anticipated that Methode will supply a
significant percentage of the card packaging and connectors that will be
used with home cable television boxes.
Fiscal 2008 will likely also bring new challenges. Methode will continue
to deal with anticipated reduced production volumes for its legacy
products from its U.S. automotive customers, as well as feel the effect
of raw material price increases. As part of its diversification plans,
Methode intends to continue to wind-down certain U.S. automotive legacy
business during the 2008 fiscal year. Methode’s
weight sensing product, used in a passive occupant-detection system,
will also feel the impact of lower production volumes from the three
Detroit OEMs.
While it had significant growth in fiscal 2007, Methode’s
Power Distribution segment will have certain long-term programs reaching
end-of-life during fiscal 2008. Fluctuations are customary in this
business; however, the bus bar business is seeing increased competition,
since customers are developing second sources as more China-based
suppliers emerge. In addition to addressing these challenges, Methode
intends to continue to invest in its businesses, while continuing to
seek out qualified acquisitions to expand its geographic and industry
reach.
Because of the volatility of the U.S. automotive market, and in
particular, the unpredictable sales of the Company’s
two largest automotive customers, Methode is discontinuing its practice
of providing quarterly sales and earnings per share guidance. Methode
anticipates sales for the 2008 fiscal year to be between $450 million
and $470 million and earnings per share between $0.60 and $0.70.
Conference Call
As previously announced, the Company will conduct a conference call led
by its Chief Executive Officer, Donald W. Duda, and Chief Financial
Officer, Douglas A. Koman, on July 12, 2007 at 10:00 a.m. Central Time.
You may participate on the conference call by dialing 1-877-407-8031 for
domestic callers or 201-689-8031 for international callers. Methode also
invites you to listen to the webcast of this call by visiting the
Company's website at www.methode.com
and entering the "Investor Relations" page and then clicking on the
"Webcast" icon. For those who cannot listen to the live broadcast, a
replay, as well as an MP3 download will be available shortly after the
call. A replay of the call will be available for seven days, by dialing
1-877-660-6853 for domestic callers or 201-612-7415 for international
callers, both using playback account number 286 and conference ID number
245491.
About Methode Electronics
Methode Electronics, Inc. (NASDAQ:METH) is a global manufacturer of
component and subsystem devices with manufacturing, design and testing
facilities in the United States, Malta, Mexico, United Kingdom, Germany,
Czech Republic, China and Singapore. We design, manufacture and market
devices employing electrical, electronic, wireless, 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
Distribution and Other. Our components are in the primary end markets of
the automobile, information processing and networking equipment, voice
and data communication systems, consumer electronics, appliances,
aerospace vehicles and industrial equipment. Further information can be
found at Methode's website www.methode.com.
Forward-Looking Statements
Certain statements in this press release dated July 12, 2007, containing
information on Methode's fourth quarter and year-end reporting periods
for fiscal 2007 and offering guidance for its 2008 fiscal year are
forward-looking statements that are subject to certain risks and
uncertainties. Our business is highly dependent upon three large
automotive customers and specific makes and models of automobiles. The
Company's results will be subject to many of the same risks that apply
to the automotive, computer, telecommunication and appliance industries,
such as general economic conditions, interest rates, consumer spending
patterns and technological changes. Other factors, which may result in
materially different results for future periods, include significant
customer bankruptcy filings; restructuring, operational improvement and
cost reduction programs currently under review by Methode; the current
macroeconomic environment, including higher petroleum and copper prices
affecting material and components used by Methode; potential
manufacturing plant closures by automotive customers; potential strikes
at automotive customers; and significant fluctuations in the demand for
certain automobile models. In addition, market growth, operating costs,
currency exchange rates and devaluations, delays in development,
production and marketing of new products and other factors set forth
from time to time in our reports filed with the Securities and Exchange
Commission, impact our business. Any of these factors could cause our
actual results to differ materially from those described in the
forward-looking statements. The forward-looking statements in this press
release are subject to the safe harbor protection provided under the
securities laws. All information in this press release is as of July 12,
2007. Methode undertakes no duty to update any forward-looking statement
to conform the statement to actual results or changes in the Company’s
expectations on a quarterly basis or otherwise.
Methode Electronics, Inc.
Financial Highlights
(In thousands, except per share data, unaudited)
Three Months Ended
April 28,
April 29,
2007
2006
Net sales
$
130,928
$
116,297
Other income
576
412
Cost of products sold
101,377
90,991
Restructuring charge
166
-
Selling and administrative expenses
15,328
12,872
Income from operations
14,633
12,846
Interest, net
650
452
Other, net
(459
)
168
Income before income taxes
14,824
13,466
Income taxes
2,692
9,175
Net income
12,132
4,291
Basic and diluted earnings per common share
$
0.33
$
0.12
Average Number of Common Shares outstanding:
Basic
36,459
36,284
Diluted
36,916
36,497
Year Ended
April 28,
April 29,
2007
2006
Net sales
$
448,427
$
421,615
Other income
1,596
1,074
Cost of products sold
359,914
336,410
Restructuring charge
2,027
-
Selling and administrative expenses
55,267
55,559
Income from operations
32,815
30,720
Interest, net
3,428
2,106
Other, net
(468
)
(457
)
Income before income taxes and cumulative effect of accounting
change
35,775
32,369
Income taxes
9,792
15,320
Income before cumulative effect of accounting change
25,983
17,049
Cumulative effect of accounting change
101
-
Net income
26,084
17,049
Diluted Earnings per Common Share:
Income before cumulative effect of accounting change
$
0.71
$
0.47
Net income
$
0.71
$
0.47
Average Number of Common Shares outstanding:
Basic
36,328
36,259
Diluted
36,643
36,463
Note - Certain amounts in fiscal 2006 have been reclassified to
conform to the classification in fiscal 2007.
Summary Balance Sheets
(In thousands)
April 28,
April 29,
2007
2006
Cash
$
60,091
$
81,646
Accounts receivable - net
79,180
74,223
Inventories
54,479
45,681
Other current assets
15,691
19,722
Total Current Assets
209,441
221,272
Property, plant and equipment - net
86,857
90,497
Goodwill - net
51,520
28,893
Intangible assets - net
43,680
17,540
Other assets
20,242
16,381
Total Assets
$
411,740
$
374,583
Accounts payable
$
41,041
$
41,581
Other current liabilities
31,420
32,622
Total current liabilities
72,461
74,203
Other liabilities
15,070
8,671
Shareholders' equity
324,209
291,709
Total Liabilities and Shareholders' Equity
$
411,740
$
374,583
Summary Statements of Cash Flows
(In thousands)
Year Ended
April 28,
April 29,
2007
2006
Operating Activities:
Net income
$
26,084
$
17,049
Provision for depreciation
18,915
17,466
Amortization and impairment of intangibles
5,085
5,380
Amortization of restricted stock awards
2,897
2,047
Provision for losses on accounts receivable
372
2,109
Deferred income taxes
(1,012
)
(2,870
)
Changes in operating assets and liabilities
3,524
(12,283
)
Other
509
750
Net Cash Provided by Operating Activities
56,374
29,648
Investing Activities:
Purchases of property, plant and equipment
(10,667
)
(18,654
)
Proceeds from sale of building
800
1,712
Acquisitions of businesses
(63,168
)
(5,344
)
Acquisitions of technology licenses
(113
)
(2,103
)
Other
(1,356
)
(1,427
)
Net Cash Used in Investing Activities:
(74,504
)
(25,815
)
Financing Activities
Options exercised
7,208
689
Dividends
(7,472
)
(7,465
)
Tax benefit from stock options and awards
1,175
-
Purchase of common stock
(3,596
)
(1,783
)
Net Cash Used in Financing Activities
(2,685
)
(8,559
)
Effect of foreign exchange rate changes on cash
(740
)
(770
)
Increase (Decrease) in Cash and Cash Equivalents
21,555
(5,496
)
Cash and cash equivalents at beginning of period
81,646
87,142
Cash and Cash Equivalents at End of Period
$
60,091
$
81,646