Technitrol's Q102 Results Exceed Expectations
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PHILADELPHIA--(BUSINESS WIRE)--April 22, 2002--Technitrol, Inc. (NYSE:TNL) reported a net loss, including restructuring charges and the cumulative effect of a change in accounting principle, of $20.9 million, or $.63 per diluted share, for its first fiscal quarter ended March 29, 2002.
On an operating basis (excluding previously announced restructuring-related after-tax unusual and infrequent charges of approximately $1.8 million, or $.06 per diluted share, and $15.7 million, or $.47 per share for the accounting change), net loss for the quarter was $3.4 million, or $.10 per diluted share.
All of the charges were in line with Technitrol's March 12, 2002 guidance, while the net loss per share before charges was less than the $.11-$.13 projected at that time.
As announced previously, the accounting charge is related to an impairment of goodwill at AMI Doduco resulting from adoption of FAS 142. It has no impact on operating profit or cash flows. As required under FAS 142, there was no goodwill amortization in the first quarter of 2002.
The restructuring-related charge is a continuation of efforts begun in early 2001 and intensified in the two most recent quarters to align all costs to anticipated base revenues in the company's markets. This charge includes pre-tax amounts of approximately $2.1 million at Pulse for severance and asset disposals and $0.5 million at AMI Doduco for additional employment reductions.
There were no material first-quarter provisions for inventory adjustments.
Estimated annual savings generated by the restructuring actions, most of which will begin to phase in during the second quarter of 2002, should exceed $2.2 million at Pulse and approximate $0.5 million at AMI Doduco.
Technitrol's consolidated first-quarter revenues were $93.4 million, compared with $103.3 million in the fourth quarter of 2001, reflecting sluggish demand in electronic components markets, particularly telecommunications, early in the quarter and continued weak demand in the electrical contact markets, especially Europe.
Excluding restructuring charges and the cumulative effect of the accounting change, earnings before interest, taxes, depreciation and amortization (EBITDA, defined as operating profit plus depreciation and amortization) were $1.1 million in the first quarter.
Technitrol Chairman and Chief Executive Officer James M. Papada, III said, ``We continued to face tough markets, particularly in the early part of the first quarter. As we discussed in the fourth quarter of 2001, we continued our intense, aggressive cost-down actions, maintained positive free cash flow and paid down more than a third of our debt. We will continue our cost-reduction effort in both of our businesses throughout the second quarter, after which we currently do not anticipate further material cost-down activities. In each business segment, we believe that markets have begun to firm, and we expect our streamlined cost structure to enable us to deliver significant operating profit growth on even modest sequential-quarter revenue increases going forward.
``Supplementing our efforts to fortify our balance sheet and maximize our potential for profitable growth, investors gave us a strong vote of confidence recently in the form of a successful follow-on stock offering,'' Papada said. ``We plan to apply the proceeds strategically to create value for our shareholders.''
Pulse
Pulse revenues were $45.1 million in the first quarter of 2002, compared with $55.4 million in the fourth quarter of 2001. Excluding charges for employee severance and asset writedowns in connection with ongoing right-sizing of the business, the segment's first-quarter operating loss was $4.2 million, in line with company expectations.
``In the closing weeks of 2001 and the early part of 2002, consistent with public statements from customers and peer companies, Pulse's order entry slowed considerably from the beginning of the fourth quarter of 2001,'' Papada said. ``But in early February, bookings began to gradually increase, and our eight-week rolling average book-to-ship ratio reached parity, and has remained at or above parity ever since. In the first quarter of 2002, Pulse's bookings increased on a sequential-quarter basis in all geographic regions for the first time in almost two years. We believe this reflects Pulse's aggressive design activities throughout 2001 as well as its continuous commitment to quality and customer service.
``We also believe that we're seeing the beginning of a slow, steady and gradual recovery in Pulse's traditional information technology markets, led by high-speed networking applications, voice over Internet technologies and filtered connector modules,'' Papada said. ``At this point, we expect to see modest revenue growth sequentially in the second quarter and for the remainder of 2002, but we stress the seminal adjectives slow, steady and gradual.
``In order to take full advantage of this anticipated revenue growth, we continued to aggressively reduce our employed capital and breakeven point during the first quarter,'' Papada said. ``Pulse's intensive cost-down activities, in the form of additional capacity consolidation and further reductions in cost of goods sold and operating expenses, will continue into the second quarter of 2002. We currently believe that virtually all material cost-down actions will be concluded by the end of the second quarter, at which point Pulse should be nicely positioned to take advantage of the modest sequential-quarter revenue growth that we believe will continue throughout this year.
``At the same time, Pulse has been busy winning designs in legacy markets as well as relatively new markets such as automotive, military/aerospace and consumer broadband,'' Papada said. ``In particular, we are pursuing several attractive European and Asian opportunities for our market-leading customer premises digital subscriber line filters and splitters.
``Throughout 2001 and early 2002, Pulse continued to invest heavily in software to drive supply chain, product data management and business information warehouse capabilities,'' Papada said. ``These investments are now behind us, and we believe they will create significant competitive advantages with OEM, contract manufacturing and distribution customers over the next several years.''
AMI Doduco
AMI Doduco reported its first sequential quarterly revenue increase since the first quarter of 2001. First-quarter 2002 revenues were $48.3 million, up from $47.9 million in the previous quarter, despite further weakening in the average value of the euro versus the dollar.
Excluding restructuring charges, the segment posted a slight first-quarter profit, compared with an operating loss of $0.7 million in the prior quarter. Had average fourth-quarter 2001 exchange rates been in effect in the first quarter of 2002, AMI Doduco's revenues and operating profit for the quarter would have been about 1.5% higher.
Operating profit was adversely affected by continuing difficulties with the integration and relocation of AMI Doduco's operations in France and Spain acquired in 2001 from Engelhard-CLAL, partly offset by further expense reduction initiatives begun in the first quarter.
``Happily, AMI Doduco plans to be substantially finished with these ECLAL-related integration and relocation efforts by the middle of 2002,'' Papada said.
``Consistent with published reports from our customers and North American and European industrial concerns in general, AMI Doduco's markets continued to be difficult, especially in the early part of the first quarter,'' Papada said. ``North American residential construction, appliance, automotive and electric power markets were steady, but not growing. Customers continued to draw on inventories built last year and to limit new orders for our products. The machine-tool and non-residential construction markets were anemic.
``In Europe, business in the first quarter was slow overall, also in keeping with published reports from customers,'' Papada said. ``The only notable exceptions were the electric power market, driven by infrastructure builds and upgrades, and automotive, where we see the highest levels of new product development activity, as evidenced by the continued growth of our component subassembly business. We also have finally begun to see significant design, quoting and order entry activity in the domestic Chinese markets where we are established as the only Western electrical contact manufacturer.
``As the quarter progressed, we saw a firming of our North American markets and a deceleration in the rate of decline in Europe,'' Papada said. ``Our market and customer survey activities lead us to believe that the outlook for AMI Doduco will improve gradually in 2002 with improving GDP fundamentals as indicated in recent industry reports. And if history is any teacher, meaningful improvement in the U.S. economy eventually will translate into European markets as well.
``AMI Doduco's very aggressive worldwide reorganization and cost-down actions, particularly in the first quarter and extending into the second, will reduce its breakeven point and put it in a good position to take maximum advantage of the revenue upside we see going forward,'' Papada said. ``Consolidation and cost-reduction activities will continue, and we currently anticipate that material unusual cost-down charges at AMI Doduco will conclude in the second quarter of 2002.
``Throughout the difficult year we had in 2001, AMI Doduco, as did Pulse, continued to invest in business system and information warehouse software,'' Papada said. ``As the tools embodied in these investments are mastered and put into daily practice worldwide, we believe they will accelerate our drive to higher operating profits.''
Second-Quarter 2002 Earnings Outlook
``Many companies, and we are no exception, learned a tough lesson in 2000 and 2001, and that is the practical impossibility of predicting inherently cyclical or GDP-driven business with any degree of certainty - up or down,'' Papada said. ``The prevailing tag line is `lack of visibility,' but there was no more `visibility' in 2000, the best of times, than there was in 2001, the worst of times. The only difference was that in the former case, one could see nothing bad, and in the latter nothing good. So chastened, we will continue to refrain from guessing at full-year 2002 revenue and earnings at this time.
``In the second quarter, we believe markets and business conditions will continue to be challenging and uncertain,'' Papada said. ``But we also believe that we have seen the worst of the downturn in both our businesses from a revenue and, therefore, an operating profit point of view. Our current expectation is for second-quarter revenues at both Pulse and AMI Doduco to be flat to modestly higher than in the first quarter. Assuming that this occurs, and given the anticipated positive effect of our cost-down efforts, we believe that our earnings per share will be in the range of $.01 to $.03, before restructuring charges.'' |
