Technitrol Reports Q101 EPS in Line With Guidance
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PHILADELPHIA--(BUSINESS WIRE)--April 23, 2001--Technitrol, Inc. (NYSE:TNL - news) reported net earnings for its first fiscal quarter ended March 30, 2001 of $18.0 million, or $.54 per diluted share, compared with $16.8 million after one-time items, or $.52 per diluted share, in the first quarter of 2000.
Per-share results reflect the two-for-one stock split that became effective November 27, 2000.
First-quarter 2001 earnings include provisions of approximately $3.8 million after tax, or $.12 per share, for slow-moving inventory, employment severance and other expenses related to the precipitous market downturn in the Electronic Components Segment (ECS) that began late in the fourth quarter of 2000.
Technitrol's consolidated first-quarter revenues were $157.2 million, compared with $152.7 million last year. Earnings before interest, taxes, depreciation and amortization (EBITDA, defined as operating profit plus depreciation and amortization) were $27.8 million, up 9.0% from the comparable 2000 period.
Technitrol Chairman and Chief Executive Officer James M. Papada, III said, ``We delivered first-quarter results in line with our most recent guidance despite much higher-than-anticipated inventory, severance and related provisions and in a time of remarkable near-term market uncertainties. Since the downturn in our electronics markets began late last year, our business segments have executed very well to control expenses while maximizing free cash flow and economic profit. As we said before, we cannot create demand, but we can do our best to protect profitability while we await a market rebound.
``During the quarter, we continued to build our net cash position, which, coupled with extensive unused credit, will facilitate our ongoing program to expand through strategic acquisitions.''
Electronic Components Segment
Sales in the ECS were $91.3 million in the first quarter of 2001, compared with $92.5 million last year. Segment operating profit in the 2001 quarter, including the inventory, severance and other provisions noted above, was $17.2 million.
``People who have been in this business for a long time recognize that valleys follow peaks, and we're definitely in a valley,'' Papada said. ``Neither lasts forever, and the duration of neither is predictable. This valley is definitely wide and deep, though. Order cancellations in the ECS continued throughout the first quarter, while order entry slowed considerably from the fourth quarter of 2000. This cycle has produced a double-whammy - massive excess inventories at original equipment manufacturers (OEMs), distributors and contract manufacturers coupled with the virtual disappearance of demand across all market segments driven by anemic capital spending and the flight of available capital. This is consistent with what has been discussed publicly by virtually every major customer of Pulse. It is especially evident in our North American telecommunications market, but its impact is being felt to one extent or another across all primary product categories and all of our geographic markets.
``Again confirming what many of our customers have publicly stated, we, too, expect second-quarter ECS business volumes to be significantly below first-quarter levels,'' Papada said. ``Once capital spending on networks and information technology recovers, we believe the ECS will resume historical average annual growth levels of 15%-20%, but the timing of this recovery is, at this time, anyone's guess. On the upside, the magnitude of cancellations has been declining, and technology development continues with new products and more features. And there is a growing sense of optimism that the bottom is near.
``Meanwhile, we have remained focused on what we are able to control and continue to take aggressive steps to preserve cash flow and adjust the size of our operations to anticipated revenue levels,'' Papada said. ``We have eliminated all but mission-critical discretionary expenses, significantly reduced our direct and indirect production labor, and launched plans to further consolidate production facilities, which will result in better efficiency when order entry rates recover.
``At the same time, Pulse has been busy on several fronts to broaden its customer base and strengthen its market position,'' Papada said. ``Development activity remains robust, and we continue to actively pursue new-product design wins, which are running ahead of last year's record pace. With the acquisition of Grupo ECM, we have laid the foundation for further expansion into the growing automotive electronics business. And we continue to seek and evaluate other potential acquisitions with the goal of building economic profit for our shareholders.
``Despite an ugly near-term outlook, we strongly believe that Pulse's primary markets will continue to present attractive long-term growth opportunities well into the future,'' Papada said.
Electrical Contact Products Segment
In the Electrical Contact Products Segment (ECPS), revenues in the first quarter were $65.9 million, up 25.3% from the fourth quarter of 2000 and 9.6% year-over-year, reflecting strong markets, particularly in Europe, and contributions from the Engelhard-CLAL operations acquired in January of 2001.
Adjusting for the unfavorable translation effect of a 5.4% weaker Euro, on average, versus the dollar in the first quarter of 2001 than in the 2000 period, first-quarter ECPS revenues would have grown 13.1% year-over-year. Segment operating profit was $4.5 million, up 53.3% from the first quarter of 2000 and 60.6% on a constant-Euro basis.
The improved profitability reflects primarily higher gross margins in the 2001 compared with the 2000 quarter, resulting from improved cost controls, the segment's Strategy 2000 initiatives and ongoing process improvement efforts.
``The outlook remains good for AMI Doduco in 2001,'' Papada said. ``In North America, last week's interest rate cuts by the Federal Reserve increase the likelihood that demand for construction, durable goods and industrial machinery will increase from sluggish levels in the first quarter. In Europe, we expect activity to remain at current levels for the rest of the year, driven by higher exports of commercial, industrial and electric power equipment and solid growth in the construction and appliance markets. In both Europe and North America, we are aggressively promoting our ability to help customers concentrate on their core businesses by identifying opportunities to outsource electrical contact-related products.
``In the worldwide automotive business, we continue to see markets for our products growing faster than the overall industry, due to the steadily increasing number of power features and control devices per vehicle,'' Papada said. ``The 42-volt automotive electrical system is driving significant new product development programs for both materials and parts, particularly in Europe, and ECPS managers are working very hard to win development contracts for our component subassembly business as well as our traditional contact business.
``We currently anticipate second-quarter ECPS revenues to be comparable to first-quarter levels,'' Papada said.
Consolidated Effective Tax Rate
Technitrol's effective tax rate in the first quarter of 2001 rose slightly to 21.3% from 19.6% in the fourth quarter of 2000 and 20.1%, before one-time items, in the first quarter of 2000 due to proportionately higher taxable income in high-tax jurisdictions.
Second-Quarter and Full-Year 2001 Earnings Outlook
Due to the lack of visibility across the electronics supply chain, the importance of the ECS contribution to consolidated earnings, and the fact that many ECS customers have avoided entirely, publicly withdrawn, or have been proven wrong repeatedly with their full-year 2001 guidance, Technitrol is withdrawing its previously announced full-year 2001 quantitative earnings outlook.
The company will not at this time provide guidance for the second quarter, but will revisit the issue in mid-May.
``Until we have some reliable measure of clarity from our ECS customers -- the world's leading suppliers, manufacturers and/or distributors of networking, telecommunications and power conversion equipment -- whose forecasts are essential to our own, it is meaningless for Technitrol to attempt to quantify its expected revenue and earnings performance beyond the very near term,'' Papada said. ``When our customers begin to provide reliable guidance to us, we will return to the guidance pattern we established previously. As mentioned earlier, this is a tough cycle, but nothing lasts forever. We are certain that markets for electronic products will return to long-term historical average annual growth levels (15%-20%), but we are not clairvoyant, and so we don't know when.''
Balance Sheet Notice
On Technitrol's March 30 balance sheet, approximately $38.4 million of outstanding debt is classified as current liabilities due to a timing issue occasioned by the expiration of current credit facilities in 2001.
Upon the completion of a new global, multi-currency facility, scheduled before the end of the second quarter, an amount of subsequent outstanding balances will be reclassified as long-term debt on the company's June 29, 2001 balance sheet.
Cautionary Note
Statements in the above report are ``forward-looking'' within the meaning of the Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties.
Actual results may differ materially due to the risk factors listed below as well as others listed from time to time in Technitrol's SEC reports including, but not limited to, those discussed in the Company's 10-K report for the year ended December 29, 2000 in Item 1 under the caption ``Factors That May Affect Our Future Results (Cautionary Statements for Purposes of the `Safe Harbor' Provisions of the Private Securities Litigation Reform Act of 1995).''
These risk factors include, but are not limited to, the following:
Changes in capital spending levels for information technology, which would affect demand for our electronic components;
Changes in spending for construction and electrical infrastructure, or in demand for vehicles, appliances, machine tools and commercial controls, which affect sales of our electrical contact products;
Changes in incoming orders or in lead times to delivery requested by customers;
Other changes in markets or economic conditions that may affect product demand or financing terms;
Rapid technological change that could cause obsolescence of or reduction in demand for our products;
Fluctuations in the price of our products;
The timing of our customers' product introductions;
Changes in gross margin due to sales mix, method of distribution or the acquisition of businesses with lower-margin or higher-margin product lines;
The capacity and efficiency of our manufacturing operations;
Our ability to obtain sufficient quantities of raw materials;
Our level of success in integrating acquisitions;
Political, regulatory and currency risks associated with operating in foreign countries;
Strains on our operations, information systems and human resources associated with rapid growth;
Information technology issues related to our computer systems or those of our suppliers or customers; and
Legal liabilities or changes in liabilities unknown to us at the present time.
Based in Philadelphia, Technitrol is a worldwide producer of electronic components, electrical contacts and assemblies and other precision-engineered parts and materials for manufacturers of networking, broadband/Internet access, telecommunications and computer equipment, electrical switching devices, and other products. For more information, visit Technitrol's Web site at technitrol.com.
Investors: Technitrol's quarterly conference call will take place today at 5:00 p.m. Eastern Time. The dial-in number is 612/332-0630. Also, the call will be broadcast live over the Internet. Visit technitrol.com. On-demand Internet and telephone replay will be available beginning at 9:00 p.m. today and concluding at midnight, April 30. For telephone replay, dial 320/365-3844 and enter access code 580722. |
