Belden Inc (BDC) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden Incorporated Conference Call. Just a reminder, this call is being recorded. At this time, you are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator instructions).

I would now like to turn the call over to Gray Benoist. Please go ahead, sir.

Thank you, Kelly. Hello and good morning, everyone. My name is Gray Benoist and I am the CFO at Belden. Thank you for joining us today for our First Quarter 2010 Earnings Conference Call. Joining me on the call today is John Stroup, President and CEO of Belden.

First, some logistics. We have posted a few slides on the web for your reference. To view, please go to investor.belden.com and sign on to the webcast. Please note that there is no www in that address, just investor.belden.com. Also, if you need a copy of our press release, you'll find it in that same location.

If you could now move to slide number two. During the call today, management will make certain forward-looking statements. I would like to remind you that any forward-looking information we provide is given in reliance upon the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The comments we will make today are management's best judgment based on information currently available. Our actual results could differ materially from any forward-looking statements that we might make.

However, the company does not intend to update this information to reflect developments after today and disclaims any legal obligation to do so. Please review today's press release and our annual report on form 10-K for more complete discussion of factors that could have an impact on the company's actual results.

This morning, John will begin with comments about the performance of the business in the first quarter. I will then review additional financial results and segment analysis for the quarter, then John will discuss our outlook for the business, and finally, we will open up the line for questions.

So at this time, I would like to turn the discussion over to our President and CEO, John Stroup. John?

Thank you, Gray, and thank you everyone for joining us. If you could please turn to slide three. We are extremely pleased to report 19% year-over-year organic revenue growth and adjusted margin expansion of 250 basis points, despite the negative effects of contracting in markets. Several factors drove this strong performance -- first, the quality of our improved global product portfolio due to the strategic acquisitions we made in the past few years had a positive impact on revenue and margins.

Second, our early recognition of the economic downturn provided us with an improved cost position. As a result, we continued investing in our long term strategic priorities, including our improved market delivery system. Third, we captured meaningful market share as a result of that improved system taking hold in the marketplace. And fourth, our continued improvement with lean enterprise allowed us to recognize most of the variable margin associated with the increased revenue.

Our overall revenue increased 22% year-over-year to $400 million. Organic revenue growth, that is excluding currency and acquisitions was a remarkable 19%. Although some of this growth was the result of higher copper prices and a few extra shipping days in the quarter compared to the same period a year ago, it was to a great extent the effect of share capture and our channel partners no longer destocking.

Order rates steadily improved throughout the quarter and we entered Q2 with a healthier backlog position. This gives us confidence that our second quarter is likely to benefit from seasonality, although muted, due to more days in the first quarter than prior years.

I'm now going to address the performance of our business from the perspective of our three global product groups, Cable, Connectivity, and Networking. Cable is our largest business both in terms of revenue and profit. Connectivity includes both industrial and enterprise connectivity and Networking includes our industrial networking as well as our wireless products.

I will address the performance of our networking group first. During the quarter, total revenue in this product category was $55.7 million, a year-over-year increase of 4%. Industrial networking generated revenue of $45.6 million, an increase of 10% year-over-year. As designed, we are benefiting from fast growing verticals such as large scale public transportation systems, alternative energy, and power distribution and transmission.

In Europe where we have a market leading position, we experienced better than expected demand for retrofitting train and metro stations with entertainment and information content systems. In Asia and the Americas, our market share is smaller but our organic growth continued to outpace the market and we expect this trend to continue.

The first quarter is seasonally the slowest for our wireless business. For that reason, the sequential comparison is difficult and not particularly meaningful. On a year-over-year basis, revenue and operating income improved $4 million and $5 million respectively as we benefited from the adoption of new revenue recognition rules pertaining to hardware products with embedded software.

Because of our decision to exit the low margin China carrier business and the continued weakness with our OEM partners, revenue adjusted for the impact of these deferrals was down slightly. However, Trapeze branded revenue growth in the United States was up an impressive 75%. Furthermore, we are currently working with Avaya on a new commercial agreement that we believe will have a positive impact on our full year results.

Next, I will speak to the performance of our connectivity group. During the quarter, the business delivered $47 million of revenue, an extraordinary gain of 41% year-over-year. Driven by a meaningful market recovery in industrial end markets, we enjoyed significant growth in Europe. This in combination with our prior year restructuring actions enabled our EMEA segment to deliver operating margin of 15%. Within North America, our enterprise connectivity business grew more than 70%. It is clear that our decision to integrate our North American enterprise sales force is allowing us to meet our market penetration goals and capture share.

Finally, I will address results from our cable group. Organic revenue growth in this business was 23%. After adjusting for the recovery of increasing copper prices, revenue growth was 14%. Given the continued market contraction, we are extremely pleased with this result. As you might expect, most of the benefits from our improved market delivery system execution are realized in this product group. Stronger than expected revenue in Asia combined with a weak non-residential market, however, has had a slightly negative impact on margin mix.

With that, I am now going to turn the call over to Gray for a more in-depth discussion of the business results. Gray?

Thank you, John, and good morning again, everyone. I will begin my comments with GAAP results for the quarter, followed by a review of our adjusted results of operations. Then, I will walk through our segment results, cash flow, working capital and asset management and close my remarks with comments on our global restructuring initiative and cost saving measures.

In the first quarter, GAAP revenue was $400.3 million and the company reported income from continuing operations of $11.9 million or $0.25 per diluted share. We incurred restructuring charges of $6.1 million pretax in the quarter, resulting from the execution of our global restructuring initiatives.

Among this quarter's charges are costs incurred in the continuing process to close one of our two manufacturing locations in Leominster, Massachusetts and the costs associated with our German connector assembly operations realignment. Additionally, GAAP sales reflect $5.9 million of revenue associated with the amortization of deferred revenue with $3.3 million of associated gross profit recognition in the wireless segment.

I will focus the remainder of my comments on adjusted results excluding these items. For your benefit, the reconciliation table between GAAP and adjusted results has been provided as part of today's press release. Additionally, these adjustments have been reconciled by reporting segment on page seven of today's slide presentation. We hope you find these disclosures helpful.

Turning to slide three, consolidated revenue in the first quarter was $394.5 million, an increase of 20% compared to the first quarter of 2009. Currency translation, based on both a year-over-year stronger euro and stronger Canadian dollar was favorable by $12.6 million or 3.8% in the period. Year-over-year first quarter revenue adjusted for currency, acquisitions and dispositions increased 19.3%. Consolidated revenue grew 1.3% sequentially. The first quarter strengthening of the US dollar generated unfavorable currency translation of $5.9 million, resulting on sequential sales growth of 2.1%.

Turning to slide four and the breakdown of our revenue by geography and vertical market. The geographic mix of revenue for the first quarter is shown on the left -- revenue in the United States was 43%, Canada 10%, Europe 22% and Asia 20%. Sales in the Canadian market continued to experience excellent growth for the fourth straight quarter. On a year-over-year basis, we experienced top line growth across all of our geographies in the first quarter, most notably as John discussed in Asia.

A pie chart at the top depicts revenue by vertical market. The industrial market rose to 47% of our business in the first quarter, up from 46% in the first quarter of 2009. Sales volume improved in both industrial connectivity and industrial cable as both channel inventory correction and expanded MRO businesses were witnessed in the quarter. The enterprise vertical, which includes our wireless segment accounted for 29% of our overall revenue, down 1 percentage point sequentially and 4 percentage points from the first quarter of last year. As John discussed, the non-residential market has experienced relative weakness, impacting category cable sales.

Revenue in the video, sound and security vertical increased 70 basis points to 12% of total revenue, from 11% in the fourth quarter and the transportation and defense market was flat at 4%. The consumer OEM vertical at 8% in the quarter was 220 basis points higher than the year ago quarter, reflecting the exceptional year-over-year growth at LTK. The pie chart on the right hand side depicts revenue by product line, which John discussed in his comments.

We now continue down the income statement and return to slide three please. Adjusted gross profit margin was 30.5% in the quarter, lower than the prior quarter gross margin of 31.8% and 60 points -- a 60 basis points decrease from the first quarter of 2009. However, when adjusted for higher copper pricing this quarter, gross profit margins expanded by 140 basis points year-over-year, despite unfavorable mix experience through higher than expected consumer market sales and lower enterprise business.

As I will discuss later in my comments, our lean enterprise focus in our 2008 and 2009 restructuring efforts were instrumental in delivering this improved performance. SG&A expenses in the quarter were $73 million or 18.5% of revenue, an increase as a percent of sales of 30 basis points sequentially but 200 basis points favorable compared to the first quarter of 2009. First quarter spending in R&D was $14.8 million or 3.8% of revenue, a decrease of $1 million sequentially and an increase of $100,000 year-over-year.

I bring to your attention a change in our financial reporting effective in first quarter. As a result of excellent performance and its close operational alignment with our German based ECS business group, our joint venture operation in China has met a level of materiality where consistent with GAAP inclusion as an element of our operating income is warranted. The joint venture will continue to be accounted for under the equity method, however, previously these results were reported in other income. Our presentation of prior periods has been updated accordingly.

I will now discuss debt and debt covenance, so if you can please turn to slide five. At the end of the first quarter, we had $544 million of total debt outstanding consisting exclusively of senior subordinated notes at a blended interest rate of 8%. During Q1, the company repaid the outstanding balance of $46.3 million drawn under the revolving credit facility. Our liquidity under the revolving credit facility as of the end of the first quarter was $189.6 million. Interest expense for the first quarter was $12.9 million and our interest coverage ratio was 3.4 times.

The company's debt to EBITDA leverage ratio at the end of the first quarter was 2.9 compared to 3.6 in the prior quarter. The improvement in the leverage ratio is approaching our general target of 2.5 times. Income tax expense during the quarter was $4.2 million and the adjusted results are 23.3% of pretax income for the quarter. The adjusted rate is lower than anticipated, primarily due to a more favorable jurisdictional mix of forecasted earnings.

It is interesting to note that a lower effective tax rate is a natural counter measure to this quarter's unfavorable gross profit mix through the relative strength of LTK. John will discuss guidance in a moment, but we're suggesting an annual tax rate of 28% for the year. Adjusted income from continuing operations for the first quarter was $14 million, and adjusted earnings per diluted share were $0.29.

If I could have you turn to slide six and seven, we'll discuss our segments. External revenue of the Belden America segment was $218 million in the first quarter, affiliate sales were $12.7 million, including affiliate sales, total first quarter revenue at Belden Americas increased 6.2% sequentially and 21.3% year-over-year. Through the first quarter, adjusted operating income for Belden Americas was $36.7 million or 15.9%, a sequential decline of 50 basis points.

The EMEA segment's first quarter external revenue was $91 million, a 1% increase sequentially and a 2.8% increase year-over-year. Including affiliate sales of $14.7 million, total revenue of EMEA decreased -- excuse me, 1.1% sequentially, but increased 4.7% year-over-year. Adjusting for currency translation and dispositions, year-over-year growth was 11.7%. First quarter adjusted operating income of the EMEA segment was $15.6 million or 14.8% of total revenue. This compares with $3.8 million or 3.8% of revenue in the first quarter of 2009 and $60.1 million or 15.1% of revenue in the fourth quarter of 2009.

The Asia-Pac segment had first quarter external revenues of $76 million, a decrease of 4.2% sequentially and an increase of 64% from the previous year. LTK sales, despite two weeks of shut down in February for the celebration of Chinese New Year grew sequentially by 1.8%, a complete reversal of previously experienced seasonal patterns. As a result, adjusted operating income for the first quarter was $7.3 million or 9.7% of revenue, down 370 basis points sequentially and 160 basis points year-over-year.

As we announced last quarter, Belden is an early adopter of the Financial Accounting Standards Board new revenue recognition rules, which impact the requirement to establish VSOE, vendor specific objective evidence, thereby eliminating much but not all of the deferred revenue the company is required to report. Under this guidance, the company no longer defers 100% of the revenue on bundled Trapeze sales which include post contractor customer support or PCS. Our GAAP results reflect this change in account.

During the first quarter, Trapeze external revenues were $10 million, a decrease of 16% from previous year. As John discussed earlier, the Trapeze branded business continues to perform well, growing 1% year-over-year. Adjusted operating losses in the first quarter were $6.5 million, a $1.7 million improvement for the first quarter of 2009.

If I can have you turn to slide eight please, we'll discuss free cash flow. The company had $239 million in cash at the end of the first quarter, $141.9 million is in depository accounts that are used in the day-to-day operation of the business and $96.9 million is in the short term investment accounts, primarily denominated in government issues.

Cash flow from operations was a negative $13.2 million during the quarter, and net of capital expenditures was negative $18.4 million. Our first quarter order pattern accelerated through the quarter and we used higher inventory and the associated higher quarter end receivable to maximize our ability to meet expanding customer requirements. We continue to be committed to annual cash flow in excess of net income for the full year 2010. Depreciation and amortization was $14.6 million in the quarter.

If I could have you turn to slide nine for a discussion of our inventory, working capital and PP&E turns. Inventory turns in the quarter were 7 turns, 1.6 turns higher than reported in the first quarter of 2009, and 0.3 turns less than the fourth quarter. Working capital turns for the first quarter were 9 turns, a 3.1 turn improvement year-over-year and a 1.9 turn decline from our extraordinary results in the fourth quarter. Property plant and equipment turns were 5.5 turns, 1.1 turns higher than the 4.4 turns in the year ago period and an encouraging 0.3 turns improvement from the fourth quarter.

And finally, to summarize our restructuring activities, could I have you please to turn slide 10? During the fourth quarter earnings call, we forecasted 2010 cost reduction benefits of $56 million. We're well on our way towards achieving that goal after generating $13 million in savings in the first quarter. This is a $7 million improvement for the first quarter of 2009 and effectively expanded operating profit margins by 180 basis points. The final elements of the restructuring plan are nearly completed with the peak benefits expected in the third and fourth quarters of this year.

At this time, I'd like to turn it back to our CEO John Stroup for a few remarks about our outlook for the second quarter of 2010. John?

Thank you, Gray. I will now say a few more words to summarize our first quarter performance and outlook. For the second quarter of 2010, the company expects adjusted revenue and EPS to be between $405 million and $415 million and $0.35 and $0.40 per share respectively. As mentioned earlier, we expect to realize the seasonal increase in revenue, however it will be less pronounced than prior years due to our accounting calendar.

For the full year, 2010, the company expects adjusted revenue and EPS between $1.58 billion and $1.63 billion and $1.45 and $1.60 respectively. This increased guidance, which includes the benefit of share capture and an improved effective tax rate, more than offsets the headwind from a stronger US dollar. We are pleased to share a strong first quarter results with our investors and we remain focused on delivering an outstanding year.

Thanks to all of you on the call for your interest in Belden. This concludes our prepared remarks, we now have some time for your questions. Our operator, Kelly, will remind you of the procedures for asking your questions.

Thank you. (Operator instructions).

Gray Benoist, your first question is coming from Matt McCall with BB&T Capital Markets.

Thanks. Good morning, everybody.

Matt.

Hi, Matt.

So John, you talked about expectations of a new agreement with Avaya and you talked about Trapeze profitability improvements. Can you tell me what the expectation is for Trapeze profitability in your new guidance and how your outlook may have changed for the better or for worse since the Q4 call?

Yes, our view on the performance of Trapeze for the full year of 2010 is the same we had entering in the year. So, as we'd shared with you and others, Matt, in December, it's our expectation that if you looked at how we exited the year in 2009 and compare that to the full year of 2009, that difference is the kind of improvement that we would expect for the full year of Trapeze, and that's completely unchanged.

The agreement that we're working with Avaya now, it's not yet complete. It is encouraging because it looks as though we might have been able to structure an agreement with Avaya that would be beneficial to both companies. Their acquisition and integration of Nortel is of course pretty consuming for them and our technology's important to them on a go forward basis. And I think that our new leadership has come up with what I think is a pretty good approach to how we can help each other out.

So, at this point, our views on Trapeze for the year are unchanged. Obviously, if we get a little bit of traction in the results in the second quarter with Trapeze because of this new agreement, there's always a chance we may be more optimistic.

Okay, so just to clarify, consistent with the message at Analyst Day, is that what you're referencing?

Exactly.

Okay. And then, last quarter I remember some conversation around maybe some reevaluation of your exposure to the new non-res construction market, I think the impact of the cyclical downturn was a bit surprising. Can you talk about maybe what you've determined since then if anything and what the outlook is for the enterprise segment through the rest of 2010?

Well, as we've mentioned before, the one area of our portfolio right now that is exposed to continued market weakness is the enterprise part of our business in non-residential expense. And that market is stable, I mean if you look at how that market performed in the first quarter compared to the fourth quarter for example, its rate of contraction has diminished significantly and I think that our view is that we probably have nearly found the bottom. But on a year-over-year basis, we did see contraction in enterprise that was pretty significant as we expected.

So, I wouldn't say that there's anything significantly different there than what we thought would be the case, but on a year-over-year basis, when you look at our results, what you see is that we get more revenue out of our LTK business than we did a year ago, less revenue out of our enterprise business, that does have a negative mix on our business. But as Gray said, we've got sort of a natural counter measure in that the tax rate at LTK is significantly lower than the tax rate in the US where most of our enterprise business is.

So, when we looked at our full year guidance, Matt and we made this -- we increased our full year guidance, it was really a matter of us recognizing that the tax rate is going to be better than what we thought it was going to be, that mix is probably not going to be quite as strong as we originally thought because of the LTK business surging, but we would see better top line.

Okay and then, one more and I'll hop off. Gray, I did -- I noticed the operating margin in Asia-Pacific on the slides was down, and I'm sorry, but I missed if you discussed what the -- even though there was a stronger top line, what was the -- is that the same mix that John's referencing, it was just more LTK year-over-year?

It certainly is and LTK's business model is just sharply different than the other two business models that are in Asia. The other two business models are the Belden brand that sells directly across all of the region and Asia and our industrial networking products which are also for the Asia market consolidated into that segment and it was disproportional. Again, sales sequentially were down 4%, yet LTK sales were up 1%. So, the mix shifted remarkably and quite unexpectedly. It was a seasonal pattern that we had not experienced and the strength of the markets that they were surveying really was a surprise to us. So, the majority of the effect was mix related.

Okay, thank you.

Sure.

And we'll take our next question from Shawn Harrison with Longbow Research.

Hi, good morning.

Hey, Shawn.

Hi, Shawn.

I guess my first question just has to deal with the industrial business. If you could maybe talk -- I know in some of the prepared remarks, you talked about stronger MRO related demand, but in terms of just what you're seeing is maybe in terms of a book-to-bill either regionally as well as has that outlook for products improved as you move to the first quarter and kind of into the back half of the year, kind of what the visibility looks like now?

Yes, our industrial business performed well in the first quarter, Shawn. As you know, we've got a variety of different product categories that we sell into that end market, cable, connector and networking. So, most notably, our industrial connector business was up 40% plus year-over-year. Our industrial networking business was up 10% year-over-year but in certain segments that are more industrial related, it was up more like 30% year-over-year. Our industrial cable business was strong and in almost every case, I think the book-to-bill was even above 1. So, we had a good first quarter in our industrial sector.

Okay, and then I guess the question I -- the follow-up question I had was to that -- have outlooks you received from customers in terms of just future project activity, did that improve as the first quarter progressed?

I would -- yes, I would say in addition to the quantities things I just shared with you, I would say that conversations with customs are generally positive. A year ago, of course, people were not spending money even if the projects made good sense. That's changed. I'd say the mood within the industrial end markets is significantly stronger. So yes, I mean I would say that the sentiment within the industrial area right now is quite positive.

Okay, and then two brief follow-ups. Operating expenses, they held firm quite nicely in light of the sales growth this quarter. Gray, maybe what is your expectation of SG&A on a dollar basis going forward? And then, the other question is just -- copper's been a little bit volatile here in the first quarter, but do you think you've gotten a pricing traction as the quarter progressed? I know you put through a number of price increases.

Let me take the latter, if I could Shawn, and I'll let Gray comment on OpEx. I think we're in good shape on pricing. I think that the actions that we took in the first quarter were appropriate and timely and I think we're in good sync right now with the copper inherent in our pricing and the copper inherent in our costs of goods sold. So, I think we feel -- we feel good about that.

On a year-over-year basis, it's a bit of a difficult comp only because the market last year was working really, really hard to hold their prices higher, particularly distributors and some of the people we compete with that have inventory turns that are half ours were working really, really hard to keep prices up and since we turned our inventory so much faster, we had a little bit of benefit a year ago. But from a pricing point of view, I think we feel real good where we are.

And then on the OpEx, for guidance right now, I think it's safe to assume that a flat level of OpEx is the general expectation. That said, with a couple of caveats. The first one is we have a list of projects that we'd like to invest in and here in the first quarter, we did turn the trigger on a couple of small elements of investment that we felt were important, most notably around the market delivery system. And where opportunities exist for us to be able to do so in a way that is natural, the way that is consistent with our business performance, we will do so. But for the current guidance, it's basically flat.

Okay, thank you very much.

Thank you.

And we'll take our next question from Gary Farber with CL King.

Yes, thank you. Can you discuss a little bit -- you said that sales orders accelerated through the quarter. Can you talk about what you've seen in the first month of the quarter, the second quarter?

Yes, we had good orders in the month of March and so far, the quarter pattern in April has been very consistent with that.

Okay and this 19% organic revenue number, that includes the benefit of copper in there?

Yes, it does. If you exclude the copper, the organic growth year-over-year is more like 12%.

Okay, so 12% would exclude currency, copper, it's the pure growth rate?

It would include currency, it would include acquisitions and divestments and it would include copper.

The 12% number I'm saying?

That's correct.

That includes foreign currency also?

It does.

So, what's the just core growth rate would you say of the business overall?

Well, the business performed 19% when you don't include the impact of copper and it performed at 12% when you do.

Right. Okay. And then, just lastly on acquisitions, if you could just sort of update us on your thought process.

Yes, I mean the plan of record is unchanged, we're active in seeking businesses that will improve our strategic cause, most notably businesses within emerging markets, India, Brazil, China, businesses that would enhance our already strong networking and connectivity business and good bolt on cable acquisitions that would not only help us strategically, but businesses that would take advantage of our business systems, particularly around lean and market delivery.

Great. Okay, thanks.

Thank you.

We'll take our next question from Anthony Kure with Keybanc.

Hi, good morning, guys. How are you?

Hi, Tony.

How are you?

Good, good. Thanks for taking my call -- thanks for taking my question. Just a couple things, just FX factored into the second quarter and full year guidance, could you break that out? What the expectation is?

The FX that we have currently in guidance is consistent with our first quarter close rate, alright. So, as the dollar relates both to the Canadian to which we've got fairly significant exposure and more notably to the euro, we're not projecting either improvement or detriment in the relationship of those currencies to the dollar. So, the rates as we close the books here in Q1.

Okay, so that -- that's for second quarter and for the full year?

And for the full year.

Okay.

We do the exact same thing with copper Tony, right? We don't project what copper's going to do.

Right.

So, we forecast and guide at the level of the current spot.

Okay. And then, pricing in the quarter, just to drill down a little bit more on the price increases. Could you just provide a little bit of color on when and during the quarter that you actually increase those and how they're sticking so far, so to speak? And is it different across geographies too?

Yes, it is. It is different across geographies. In general, I would say the area that is probably the toughest for us is Europe, mainly because some of our competitors aren't as attentive to dealing with their cost structure when they have downward volume. But we did successfully introduce price increases in Europe in March and they are sticking and we feel good about that situation. We were able to get after it sooner in America and Asia and again, we feel good about where we are.

So, I feel like we're right on top of it. I -- as you think about the cost of copper running through our income statement, I remind everybody that because we turned our inventory so much better than everybody else, we have just a shorter period there in terms of when we buy and when it goes through the income statement. Our cost of copper in our income statement and the cost in our prices are right where they should be.

Okay, and then the last question is just on the R&D expense in the first quarter. Did that include a turning on or turning off of that flexible engineering spend and just maybe talk about what that was in the first quarter and what's factored into your guidance for the second quarter, maybe.

That's a really great point, Tony, the difference between fourth quarter and the first quarter is just that, is hitting the variable piece in Q4 and not utilizing the variable piece in Q1. The year-over-year is basically flat.

Okay, and then any color on what might happen here going forward relative to that dynamic?

Again, it's to the point that I think we addressed on the previous question around OpEx. We have lots of projects that we'd like to turn the key on and implement. Most of them are on market delivery system, but that said, there's R&D projects as well. But only consistent with how the business is performing within the boundaries of the quarter.

Okay, thank you.

Thanks.

And we'll take our next question from Jeff Beach with Stifel Nicolaus.

Good morning.

Good morning, Jeff.

Hey, Jeff.

First of all, just on the overall macro outlook, I know that the last quarter you were not willing to assume much of a continued economic expansion through the year. You've raised your sales. Is it more specific performance or are you becoming more optimistic and building a more optimistic economic outlook into your guidance as well?

Jeff, I would characterize ourselves as still reasonably cautious on the macroenvironment. The performance that we delivered in the first quarter on a top line basis was predominantly done because of our initiatives. We had certainly year-over-year some channel corrections that we benefited from which we expected, so that was as we expected. The markets in general on a blended basis year-over-year did contract slightly. So, our top line growth was largely our execution and our view going forward is that we're going to continue to execute as we have been in the first quarter.

So, if for example, if non-residential were to start turning positive in the latter half of the year compared to prior year, that would be a benefit to us and that would be something we would reconsider from a guidance point of view if we were to get comfortable with that.

If you could make a guess at this, how much of your sales would you say is oriented around projects that a booking in the first quarter wouldn't deliver in the second quarter, it would be later than that. You have a guess on that?

Jeff, in general, we don't carry a lot of backlog. I mean, we just don't usually have a lot of backlog. Our backlog entering the quarter typically is going to be less than 20% of our revenue in the quarter. That's just typical and the amount of backlog we have scheduled beyond the quarter that we're entering is very, very small. So, we don't get that kind of visibility ever in our business. So, that's not unique to our situation right now.

So, what we have to rely on of course is our own funnel calculations, which we have good visibility to, our close rates and so forth. And those are all -- those are all behaving very well. And so, we have a situation where as I described earlier, our industrial markets are firming up nicely. The piece of our enterprise that's exposed to non-residential is still dealing with some issues as anybody is within non-residential and our execution right now on the share side is real good.

So, my point of view is the guidance that we've issued for the full year is grounded, it's based on execution and if there's a reason to be more optimistic on the macroenvironment, then presumably that's good news for us.

Right. Just one more question, you've super strong growth in North America connectivity, can you give us -- can you tell us what that sales level is or give us an idea of how much of the total connectivity now is coming out of north America and then looking through the remainder of the year, are you up against an extremely easy first quarter comparison and they get tougher through the year? Or is this really a surge in business?

Our enterprise connectivity business is largely North America, probably more than half in total in North America because the enterprise business that we have outside of North America is relatively small. That's different by the way on industrial connectivity where it's very strong in Europe. And I would say that the performance we saw in the first quarter on a year-over-year basis, we would probably see continued through the third quarter at a minimum and the fourth quarter, the comps might get a little tougher.

All right. Thanks a lot.

Thank you.

We'll take our next question from Nat Kellogg with Hudson Securities.

Hey, Nat.

Morning, guys. Just a couple quick ones. Gray, you may have mentioned this, I may have just missed, but the JV results, are those included in the Asia segment when you break it out on a geographic region?

The alignment of the JV goes with the ownership of the management of the JV and that's best GAAP practice, and the JV's managed by Europe.

Okay.

Now, it has to be consolidated into the European segment.

Okay. And that's just an operating income number? There's no sales consolidated in there as well, is there?

No, it's still accounted for under the equity method. So, it's just the proportional share of our after tax profit.

Okay, okay. That's great. That's helpful. And then, you guys sounded like you've been a little bit cautious about sort of the seasonal uptick from Q1 to Q2 and I realize part of that has to do with just the number of shipping days in the quarter and obviously that can affect things. But outside of that, from some of the other things that we've heard some folks say in a long a lot well detected, you think the economy's going to slowly cover -- recover, I would think that we could see a decent uptick.

So, just curious if this is really just sort of a shipping days issue or whether there's anything geographically things look maybe a little bit different for you guys or if you guys are just trying to be conservative because it's sort of tough to know how things are going to shake out?

Yes, I'd say our view is that the only thing really different is that our first quarter this year, compared to the second quarter this year, the number of days, the difference between that is less than what we've seen in previous years. So, from a mathematical point of view, you've got probably about 5% sequentially that you would have seen in prior years on days that you're not going to see this year.

Then, the other comment I would make is that as we emerge from some form of economic recovery and determining how buoyant that's going to be and how lasting that's going to be, I think that we are taking an approach that we would consider to be prudently cautious.

Okay, okay. And then, just on the Nortel/Avaya wireless side of things, just what is sort of a timeline on that agreement and when do you think that might be able to start to positively affect the results there?

I think the timing on the agreement is forthcoming, I think its weeks or days. We're very far down that road, we made good progress in Q1, we're just not -- it's not appropriate for us at this point to disclose anything. And as it relates to results, I think it would have an impact on Q2 results.

Okay, okay. All right, that's great. That's helpful. All right, well that's all I got. Thanks for taking my questions and I'll head back in the queue. Thanks guys.

Thank you.

Thanks, Nat.

And we'll take our next question from Shawn Harrison with Longbow Research.

Hi, just a few brief follow-ups. The sequential days headwind, is that about maybe 2.5 days that you're facing in terms of just more holidays in the second quarter?

Yes, we don't normally (inaudible - technical difficulty) yes.

The second question, just in terms of working capital days for the rest of the year. Kind of what would be the range in terms of a cash cycle that you're targeting?

Well, I mean the working capital turns that we had in the first quarter, I think you would probably agree was pretty strong, I mean compared to just about anybody we're with. We have very good performance. The only real difficult comp was sequentially because December we just blew it out. We just had great, great performance.

So, my point of view is that going forward, our working capital turns is going to be as good as Q1 with the chance of it being better than what we did in Q1. So, we always say that we're going to improve our inventory turns year-over-year one full turn. Obviously, we're off to a great start compared to where we were a year ago. So, that metric we're going to be able to hit without much difficulty and I think there's a good change that we can do better than what we actually did in Q1.

Okay. On the enterprise side, I mean are there any pockets of strength right now that you're seeing -- [Ann Exetter] mentioned earlier in the week some small pauses within the data center side or some government related spending, if you could just articulate are there any pockets of strength beyond the -- with the non-residential aspect serving as --?

There's no question about that. I mean the market is not entirely uniform. There are pockets of strength. Governments a good example of where there's been some strength, data centers there's been some strength. And by the way, I should mention that the business is performing very well. We did take share again in that segment.

So, it's not a matter of us being disappointed in the business, it's just a matter of us seeing this cycle run its course and we all know that non-residential is sort of following the housing market and we're just being realistic about the fact that we have to deal with that. But in the first quarter, there were some pockets of strength, our team executed really well. Given the environment, I'm really proud of how they did and obviously the results on our connector business was very encouraging.

Okay. And then lastly, getting back to the wireless business, maybe I missed it in the prepared remarks, but what was the driver of the decline in EBIT quarter-over-quarter? And then, I just want to be crystal clear, your comments at the Analysts Day I think pointed to potentially getting that business very close to break even, exiting the year. Is that still -- is that the point you were alluding to in terms of how profitability should track?

Sure, the first question is sequentially its all revenue that drove the change in operating income in the wireless business from Q4 to Q1. So, it's entirely revenue. Revenue was lower in Q1 compared to Q4. I mentioned in my prepared remarks that Q1's typically the weakest seasonally. So, the sequential comparison is a little bit difficult. But from a profitability point of view, it's all revenue and the biggest issue that we had from the revenue side, as we talked about before, is the OEM business, which we think we're going to be very close to addressing.

And then, in terms of our outlook for the year, yes. I mean, our outlook for the year in the Trapeze business is unchanged for 2010. We would -- we would very much like to see the business exit the year break even and we'd like to see the business perform this year substantially better than what it did in 2009.

Okay, thank you very much again.

Thanks, Shawn.

Mr. Gray Benoist, there are no further questions at this time. Please continue.

Well, thank you very much, Kelly, and everybody else for your good questions this morning. If we didn't get to you, please give us a call this afternoon. Thanks again for joining us on the Belden Earnings Conference Call. We sincerely appreciate your interests and we'd be happy to entertain a call for follow-up questions. This concludes our call, thank you very much.

Thank you, ladies and gentlemen, this concludes our call for today. You may now disconnect from the call and thank you for participating.