Belden Inc (BDC) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to this morning's Belden Incorporated second-quarter earnings conference call. Just a reminder, this call is being recorded. For opening remarks and introductions, I will now turn the call over to Mr. Matt Tractenberg. Mr. Tractenberg, please go ahead.

Thank you, Debbie. Good morning everyone, and thank you for joining us today for Belden's second-quarter 2012 earnings conference call. My name is Matt Tractenberg, and I am Belden's Director of Investor Relations. With me here this morning are John Stroup, President and CEO; and Henk Derksen, CFO. John will provide a strategic overview of our business, and then Henk will provide a detailed review of our financial and operating results, followed by question-and-answer. We issued our earnings release earlier this morning and we have prepared a slide presentation that we will reference on this call. The press release and the presentation are available online at Investor. Belden.com. Please note, there's no www in that web address, just Investor. Belden. Com.

Turning to slide 2 in the presentation, during this call, Management will make certain forward-looking statements. I would like to remind you all 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. Actual results could differ materially from any forward-looking statements that we make, and the Company disclaims any obligation to update this information to reflect future developments after this call. For a more complete discussion of factors that could have an impact on the Company's actual results, please review today's press release, and our annual report on Form 10-K.

During this call, Management will reference certain non-GAAP financial information. In accordance with Regulation G, we have provided a reconciliation of the most closely-associated GAAP financial information to the non-GAAP financial information we communicate. This reconciliation is in the appendix of the presentation, and has been posted separately to the Investor Relations section of our website. I will now turn the call over to our President and Chief Executive Officer, John Stroup. John?

Thank you, Matt. I'm pleased with our second-quarter results, and I want to thank all of our associates for their commitment and execution of our strategic priorities. That includes the global deployment of our market delivery system, lean enterprise, and talent Management initiatives. Please turn to slide 3 in our presentation for a review of our second-quarter highlights.

A strong positive for the quarter was margin expansion both sequentially and year-over-year in all segments. Our gross margin increased 220 basis points to 31.4%, up from 29.2% during the same period last year, and up 90 basis points sequentially. We attribute this improvement to a richer mix of end markets, price, and productivity gains -- which together more than offset the unfavorable operating leverage from continued inventory adjustments by our customers and channel partners. Operating margins increased to 12.1%, up 260 basis points sequentially, and up 120 basis points from 10.9% in the second quarter of 2011. The improvement is a result of the aforementioned gross margin expansion, coupled with disciplined SG&A investment. Our performance is progressing toward our goal to reach operating margins in the 13% to 15% range.

Additionally, I'm pleased that we were able to close the acquisition of Miranda. We look forward to a smooth integration, and the exciting opportunities that lie ahead for the combined business. Our strong balance sheet allowed us to concurrently continue the execution of our share repurchase program as we purchased 776,240 shares of Belden common stock, for $25 million during the quarter. Our guidance will be discussed at the conclusion of our prepared remarks.

Please turn to slide 4 to review the second-quarter income statement. Revenues for the quarter totaled $484 million, down $52.3 million, compared to $536.3 million in the second quarter of 2011, and up 4% sequentially. It's now clear that the early spring accelerated our normal seasonality, and that had a dampening impact on sequential growth. Adjusting for acquisitions and currency, revenue declined organically by 7.1% year-over-year. After adjusting for the effects of copper, revenue declined organically by approximately 4%.

As you may recall from last quarter's call, our customers and channel partners increased inventory balances this time last year, in anticipation of robust demand and the possibility of supply shortages. During the second quarter of 2011, our customers and channel partners increased inventory balances by approximately $17 million, and reduced inventory balances by approximately $9 million in the second quarter of 2012. This decline in inventory balances during the quarter was approximately $6 million more than we had anticipated when issuing our second quarter guidance. After adjusting for all these effects, organic revenue growth was approximately 0.5%.

Weakness in Southern Europe and China was partially offset by strong performance in the Americas and Germany, with revenues up approximately 3% and 2% respectively year-over-year, after adjusting for copper, currency and changes in inventory balances. Our ability to improve financial results in this challenging macroeconomic environment is a testament to our improved business portfolio, robust business systems, and a talented team. We believe we're navigating the current business climate well, and we are driving productivity through our lean enterprise initiatives to ensure continued funding of the commercial strategies propelling us forward.

All of us at Belden are proud to provide shareholders with healthy earnings, even in this challenging environment. Earnings per diluted share for the quarter were $0.92, compared to $0.52 per diluted share in the first quarter 2012 and $0.72 per diluted share in the second quarter of 2011. As Henk will describe in detail, the effective tax rate for the quarter was lower than the 25% rate estimated in the Company's previous guidance, due to the timing within the year of favorable discrete tax items, which had a positive impact of $0.17 per diluted share. These discrete items were already incorporated into our full-year guidance, but uncertainty of timing precluded us from including it in our second-quarter guidance.

Please turn to slide 5 to review our second-quarter revenue mix. While we saw no change in our product platform mix this quarter, we did see favorable mix from an end market perspective. I'll provide some color on that in just a minute. Organic revenue, after adjusting for changes in customer and channel partner inventory balances, was up approximately 3% in networking and down approximately 5% in connectivity year-over-year. Excluding the impact of a softer mobile crane end market in China, served through our joint venture, industrial networking would have increased approximately 4% year-over-year.

The decline in connectivity revenue was due primarily to softness within the enterprise end market, and the enactment of some trade policies by certain Latin American governments to protect indigenous suppliers. Our cable platform, meanwhile, grew approximately 1% when adjusting for copper and changes in inventory balances during the quarter. We believe our product portfolio is solid, and we remain confident that favorable product mix will be a positive driver to operating margin expansion.

Let's move on to our segments, beginning with Asia-Pacific. Revenues declined approximately 9%, when adjusted for copper. This decline is largely attributable to deliberate actions we took to improve profitability in our consumer electronics business. Our revenue in this vertical market declined approximately 10% year-over-year, after adjusting for copper. This had about a 120 basis point favorable impact on operating margins in the segment. I'd like to congratulate the team in Asia for an operating profit margin of 11.3% for the quarter, an improvement of 470 basis points over the first quarter, and an improvement of 180 basis points year-over-year.

Moving on to EMEA. Revenues in this segment declined year-over-year by approximately 9% when adjusted for acquisitions, currency, and copper, and were up approximately 2% when adjusted for changes in customer and channel inventory balances. For the second straight quarter, we saw pronounced differences in performance across regions within EMEA.

In Southern Europe, which continues to be challenged by a financial crisis and government-imposed austerity measures, revenues declined organically 23% year-over-year. This decline was partially offset by strong organic growth in the UK of 19%, where we benefited from our proud tradition as the preferred cable supplier to the Olympic broadcasting services. Germany, even with the economic challenges Europe is experiencing, was able to post year-over-year revenue growth of approximately 2% for the quarter, after adjusting for copper, currency, and inventory adjustments.

In the Americas segment, which includes the United States, Canada and Latin America, we also saw the benefit of our globally-diversified portfolio. For the quarter, our Americas segment generated revenues of $318.7 million, an increase of approximately 3% year-over-year, after adjusting for currency, copper, and changes in customer and channel inventory balances. After adjusting for copper, organic revenues declined 6% year-over-year in the United States. However, sell-through with our US channel partners was a robust 8%, highlighting the temporary disconnect between end user demand and shipments to our channel partners. We are particularly pleased with our acquisition and integration process as evidenced by our performance in Brazil, where as a result of the Poliron acquisition, second quarter copper adjusted revenue was up approximately 65% year-over-year.

Finally, let's review revenues from a vertical market perspective, where we experienced some shifts in our revenue mix. With the deliberate contraction of our consumer electronics business, that end market now comprises just 6% of our total revenue. Performance within the enterprise market was approximately flat year-over-year, after adjusting for copper, currency and changes in customer and channel inventory balances. Revenue from the industrial market was up 6% on a similar basis, driven by robust demand from our global account customers, and the oil and gas and transportation end markets.

Turning to slide 6 for our key performance indicators. Inventory turnover was 7.2 in the second quarter, down slightly year-over-year and up almost a full turn sequentially. Although inventory declined 9% year-over-year due to our continued focus on manufacturing cycle time reductions, turns are down slightly due to demand volatility and economic uncertainty. I'll now ask Henk to provide additional insight into our second-quarter financial performance. Henk?

Thank you, John. I'll start my comments with a detailed review of our income statement. A discussion of our segment results, the balance sheet, and close with our cash flow performance. Please turn to slide 7. Second-quarter revenue totaled $484 million, down $52.3 million year-over-year, or 9.7%. Revenues were unfavorably impacted by currency translation of $14.4 million year-over-year, as a result of strengthening of the US dollar. This includes unfavorable impacts of our euro, Canadian dollar, Brazilian real denominated sales of $12.5 million, $2 million, and $2.3 million respectively.

Acquisitions completed in 2011 contributed $300,000 to our second-quarter revenues. After adjusting for currency and acquisition, organic revenue declined 7.1% year-over-year. After adjusting for unfavorable impact of lower copper, revenue was down 4%. After further adjusting for an unfavorable channel inventory correction of approximately $26 million year-over-year for the quarter, channel-adjusted revenue was up 50 basis points. On a sequential basis, revenue increased $19.7 million or 4.3% from $464.3 million to $484 million. After adjusting for the effects of currency translation, organic revenue was up 5% sequentially. On a copper adjusted basis, revenue growth was approximately 4% sequentially.

Channel inventory depletion continued during the second quarter at a similar rate as in the first quarter, resulting in [adjusted results] of approximately 5%. Gross profit margins at a record 31.4% increased 220 basis points year-over-year and 90 basis points sequentially. On a currency and copper-adjusted basis, gross margins increased 170 basis points year-over-year and increased 110 basis points sequentially. During the second quarter, we benefited from rising, combination with input costs with the combined impact of 60 basis points, productivity had a favorable impact of 50 basis points, and the Company's ability to sell into more attractive end markets had a favorable impact on gross profit margins of 70 basis points.

Second-quarter SG&A expense was $77.9 million, or 16.1% of revenue. An improvement of 40 basis points year-over-year, and 180 basis points sequentially. We implemented responsible cost measures to ensure a strong position going forward while maintaining our strategic investments. For the second quarter of 2012, we recognized $2 million in operating income on our investment in our Hirschmann joint venture that services the Chinese crane manufacturing market.

The decrease of $1.9 million year-over-year and $0.7 million sequentially negatively impacted operating profit margins by 40 and 20 basis points respectively. I'm pleased with the second quarter's operating profit margins of 12.1%, up 120 basis points year-over-year, and 260 basis points sequentially. On a sequential basis, operating income was up $14.4 million or 33%, compared to a revenue increase of $19.7 million or 4.3%. Our ability to continue to drive margin expansion through productivity and end market mix, despite the absence of [Lavigne Colt] during the quarter validates that the business model is solid and is delivering results.

We believe we are on track to accomplish our goal of operating profit margins in the 13% to 15% range by 2013. The effective tax rate for the second quarter was 8%, which was lower than the 25% rate estimated in the Company's previous guidance due to the timing within the year of favorable discrete tax items which had a positive impact of $0.17 to earnings per diluted share. For financial modeling purposes, in the third quarter exclusive, of the Miranda acquisition, we suggest using a 29.5% effective tax rate, which will result in annual rate of 23% for the full year. Including the Miranda acquisition, however, due to tax benefits associated with the acquisition structuring and other integration planning, we suggest using a consolidated third-quarter effective tax rate and a resulting annual rate of 25% and 20% respectively.

Turning to slide 8, for the segment revenue mix. On a consolidated basis, we saw a pause in our product portfolio transformation. Within EMEA, our sales from our networking platform declined from 35% to 32% during the second quarter. This temporary shift was driven mainly by inventory reductions and the impact of a softer mobile crane market. We are pleased with the improvements in Asia-Pacific where as a result of active portfolio management within our consumer electronics end market, our percentage of networking and connectivity revenues increased from 19% to 23% for the region.

Turning to slide 9 for segment results. We continue to view our business as a diversified portfolio with exposure to distinct end markets and geographies, each subject to unique drivers. This allows balance across the business and less volatility, stemming from concentration in any one specific region. In our Americas segment, external revenues totaled $308.8 million. Affiliate sales were $9.9 million total, revenues were $318.7 million. Second quarter external revenues decreased 5.2% year-over-year, and increased 3.1% sequentially. After adjusting for the effects of acquisitions, currency and copper, year-over-year revenues declined by approximately 1%. After further adjusting for these types of channel inventory, revenues in the Americas grew by approximately 3% year-over-year.

Second-quarter 2012 operating income was $44 million, or 14% of revenue, up 180 basis points year-over-year, when adjusting for effects of currency and copper, driven largely by favorable pricing and lower input costs, with the combined impact of 90 basis points and stronger demand in a higher-margin industrial end market with an impact of 100 basis points. Sequentially, operating income improved 240 basis points, when adjusting for the effects of currency and copper, as a result of productivity with an impact of 120 basis points, favorable end market mix with an impact of 60 basis points, leverage on growth with an impact of 40 basis points, and favorable pricing and lower input costs from the impact of 20 basis points. The team is executing well, as evidenced by the ability to achieve operating margins within our long-term goal of 13% to 15%.

In our EMEA segment, second-quarter 2012 external revenues totaled $93.4 million. Affiliate sales were $30 million, and total revenues were $123.4 million. External revenues declined 19.1% year-over-year, and declined 0.8% sequentially. After adjusting for acquisitions, currency and copper, and channel inventory, external revenues increased approximately 2% year-over-year and increased approximately 1% sequentially. Operating income in the second quarter 2012 was $21.1 million, or 17.1%, up 300 basis points year-over-year, driven by productivity with an impact of 150 basis points, and mix, with an impact of 100 basis points. Sequentially, operating income improved by 280 basis points, driven by productivity, impact of 120 basis points, and mix with an impact of 170 basis points.

In our Asia-Pacific segment, second-quarter external revenues totaled $81.9 million, affiliate sales were approximately $1.4 million. And total revenues were $83.3 million. Second-quarter external revenues were up 16.1% sequentially, and down 13.8% year-over-year. After adjusting for currency, copper and channel inventories, revenues declined approximately 9% year-over-year, largely as a result of de-emphasizing our consumer electronics business in the region, as well as softer demand for our products that we sell into industrial end markets in China.

Second-quarter operating income was $9.4 million or 11.3%, up almost 80 basis points year-over-year, largely due to those steps taken within our consumer electronics business, with an impact of 120 basis points. Sequentially, operating income was up 490 basis points, when adjusted for the effects of currency and copper, largely due to favorable mix and productivity, with a combined impact of 280 basis points and [leverage involved] with an impact of 210 basis points.

Although we are disappointed with the organic revenue growth within this region, we believe that the improvements in the portfolio and ability to restore profitability to an acceptable low double-digit percentage is promising and allows for further upside as 2012 resumes. As discussed on our last call, we are evaluating strategic alternatives for our consumer electronics business, and are confident that we are close to a resolution. We will communicate the details as they become available.

If you will turn to slide 10, I will begin with our balance sheet highlights. Cash and cash equivalents totaled $337.3 million at the end of the second quarter, down $32.7 million from the first quarter after funding $25 million during the second quarter to support our share repurchase program, and up $8 million year-over-year. Working capital turnover was 7.6 turns this quarter, down 0.9 turns from the first quarter, which is consistent with seasonal patterns and down 0.5 turns year-over-year. Days sales outstanding was 61 days in the second quarter, a 1-day improvement year-over-year and a decline of 4 days sequentially, mainly due to the timing of shipments during the quarter.

Based upon our strong current cash position and liquidity available under our unused credit facility at the end of the second quarter, the Company had $592 million of dry powder. Due to partially funding the Miranda transaction in July of 2012 with a $250 million Canadian term loan at an a attractive interest rate, we have been able to retain our capacity under our unused credit facility of roughly $390 million. This capacity, in addition to our current excess cash of approximately $165 million, allows us to continue our M&A strategy in combination with our share repurchase program.

Please turn to slide 11 for a few cash flow highlights. Cash flow from operating activities year-to-date for 2012 was $30.6 million, compared to $31.2 million in the year-ago period. Net capital expenditures year-to-date totaled $21.4 million, compared to $30.7 million in the year-ago period. We continue to make strategic investments during the quarter by acquiring access to wireless technology of $4 million that will expand our innovative product offering within our industrial networking portfolio.

Year-to-date free cash flow of $9.2 million decreased by $8.3 million, compared to the same period a year ago, in part as a result of funding the additional strategic investments mentioned above. As you can see on this slide, our free cash flow generation typically follows a seasonal pattern, favoring the second half over the first half of the year. This is mainly a function of annual commitments, resulting in additional outflows in the first half of the year. We remain confident that we will, as consistent with prior years, achieve our annual goal of free cash flow in excess of net income.

As we indicated in the second quarter 2011 earnings release, our Board of Directors authorized a $150 million share repurchase program. This program is open ended. In the second quarter, we purchased 776,240 shares of Belden common stock for $25 million under this authorization, totaling 3.05 million shares repurchased under this program at an average price of $32.76 per share. This leaves $50 million remaining available under this program.

That completes my prepared remarks. I would now like to turn this call back to our CEO, John Stroup, for the outlook and his closing comments. John?

Thank you, Henk. Our guidance includes the acquisition of Miranda Technologies. As is often the case with the acquisition of high-growth and high-margin technology companies, purchase accounting will require us to create and record intangible assets. Unlike goodwill, these assets are amortized. For the purpose of better understanding and evaluating the performance of this acquisition, we have excluded this non-cash amortization from our guidance, and will adjust for them in our future reported results. For consistency, we have also excluded from our guidance the small non-cash impact from the amortization of intangible assets from prior acquisitions. And we will exclude such amortization from our adjusted results going forward.

In order to provide insight into what changed since our last earnings call, please turn to slide 12 for the full-year 2012 outlook. Relative to our prior full-year revenue guidance offered on our first quarter call, we now expect 2012 adjusted revenue to be between $1.95 billion and $1.97 billion. This includes approximately $80 million from Miranda after adjusting for revenue deferrals, and an unfavorable impact of $20 million and $30 million from copper and currency respectively. Additionally, due to the uncertain macroeconomic environment, we believe a conservative revision to revenue of $60 million to $80 million is appropriate.

Relative to our prior full-year EPS guidance offered on our first-quarter call, we now expect adjusted income from continuing operations per diluted share to be between $2.95 and $3.05. This includes $0.14 from Miranda results adjusted for amortization of intangible assets, other impacts of purchase accounting, and revenue and cost of sale deferrals, and a $0.15 favorable impact from the exclusion of the amortization of intangibles from prior period acquisitions. A reduction in the full-year effective tax rate from 25% to 23% is more than offset by a stronger US dollar. The lower revenue resulting from the revised outlook is expected to impact us by an additional $0.07 to $0.12 per share. In response to the uncertain environment during the third quarter, we anticipate several restructuring actions, the investment of $15 million will have a $20 million benefit, some of which will be in 2012, and the remainder in 2013.

Please turn to slide 13. We now expect our third-quarter adjusted revenue, including Miranda, to be between $490 million and $500 million, and adjusted income from continuing operations per diluted share to be between $0.69 and $0.74. That concludes our prepared remarks. Debbie, please open the call to questions.

(Operator Instructions)

We'll go first today to Stephen Fox with Cross Research.

Two questions, John. First of all, on the inventory side, you referenced some channel inventories being worked down, and then there was different dynamics by region with that. I was just trying to understand, going forward, are you assuming any kind of restocking in the channel, or do you think the channel's at reasonable levels for the demand environment? And then secondly, just looking at the industrial and enterprise markets for the second half of the year, could you just talk about some of your expectations for dynamics that are going to drive growth, or maybe that are hindering growth now, based on the economy? Thanks.

Okay. Sure, Steve. So on the inventory side, we think that the current inventory level that our channel partners are holding in aggregate are appropriate. So we're not expecting any restocking in the second half. This quarter's impact from channel inventory, as Henk said, was approximately $26 million, $17 million of it was a build a year ago, $9 million of it was a draw this quarter. Inventory turns for our channel partners right now are within the normal range, but probably slightly towards higher end of turns as they're trying to navigate through an uncertain economic environment. They obviously don't want to hold more inventory than we need. So at this point, we're not expecting any increased stocking of inventory, and we're expecting that the inventory levels will remain fairly constant.

On the back half from a vertical market point view, we had another good quarter in our industrial business. When adjusted for inventory, copper growth was 6%. It was strongest in the United States, at around 3%. On the enterprise side, we were about flat in the second quarter, when adjusting for copper and FX and channel inventory. Our view is that, in both of these markets, we would expect the most likely outcome is that we would see performance similar to what we saw in the first two quarters. We have, of course, taken some proactive cost actions, so that if things were to deteriorate, we'd be ready. Some of the leading indicators, we look at like ABI for enterprise, have been declining. That gives us some concern. PMI for industrial has softened a little bit recently. But as I mentioned earlier, our sell-through data in the US was up 8% in the quarter, and we think that that's a clear indication that we continue to drive share in an end market point of view, and we think as the channel inventory adjustments begin to subside, the organic growth rates that's implied in our full-year guidance will look better than they did the second quarter.

Thank you very much. And then just lastly, on Miranda assumptions, is there any growth expectations built into those numbers for the second half of the year versus what they did in the second half of last year?

So there's certainly growth from what they did in the first half. They typically see seasonal improvement from first half to second half. Our revenue guidance for Miranda, I think in the second half at this point, implies very shallow growth year-over-year in the second half. And that has to do with some conservatism perhaps, but also the fact that although they're seeing pretty good demand in Europe, surprisingly right now, there has been a little bit of trepidation in the US and Asia. Although recently, we've seen some of that improve. So growth in the second half for Miranda is pretty shallow.

Thanks again.

We'll go next to Matt McCall with BB&T Capital Markets.

This is actually Jack Stimac on for Matt today. I just wanted to get -- start with a clarification on the tax benefit during the quarter. I think John, you had said that it was originally included in your previous outlook, but then as I look at kind of the bridge, it looks like there's an $0.08 kind of change. So was the entire thing included, and it just came early or I guess how does that $0.08 figure into what was already baked in?

So it was included in the full-year guidance. So our full-year guidance was 25%, and this item was included. It did happen though sooner than we had anticipated. The difference on the full year from 25% to 23% actually had to do with the benefit associated with the acquisition of Miranda. The way we structured the acquisition, we're going to be able to repatriate cash in a way that's going to have a less of an impact on our tax rate than what we had expected. So that's the benefit.

Okay. That's helpful. So then just as far as the impact of copper, having a record gross margin during the quarter, with pricing in the industry do you have any kind of outlook as to if you can maintain those levels, or how should we think about that?

Well, if you look at our margins, when you adjust them for copper and currency, that had about a 50 basis point benefit year-over-year. And of course we saw significantly greater benefit in our gross margins year-over-year. So you can attribute 50 BPs to that. But everything else is real performance. And we feel real good about it.

We feel like we're driving the things that we promised. We're seeing continued improvement in our mix of end markets. As Henk said, we have seen two quarters in a row in terms of a pause on the product platform favorability, but we expect that will kick in, which will be even more favorable. And we continue to drive productivity. So we feel really good about all those things, and I think we're just gaining a lot of confidence in terms of our ability to achieve 13% in 2013.

Okay. That's helpful. The last one from me, just kind of a follow-up on a question from the previous caller related to the inventory correction. I think, looking through the transcript from last quarter, I think you had said that you didn't really expect much of a correction this quarter, so maybe you could just kind of let us know what changed and kind of what gives you the confidence that things kind of are where they need to be now?

We thought that there would be approximately a $6 million impact sequentially from Q1 to Q2 in terms of inventory reduction and it ended up being more than that. It's a hard thing to predict. Our general rule is, we want our channel partners to hold the correct amount of inventory. We have an upper and lower control limit, with each of our channel partners, on what we consider to be appropriate, and if they go outside that band we start asking questions. I think what's happening right now is all of our channel partners are going from where they were a year ago, where they were heavy on inventory, because they were pretty optimistic about the economy, and they were worried about supply shortages, because of the tsunami in Japan and some of the tornadoes in the Southern part of the United States, to an environment now where they're fairly cautious about demand, and of course, since some of the inventory is cable, therefore copper based, they're worried about the effect of declining inventory balances in the face of an economic downturn. So I think they're within the normal range right now. I think there's always a chance that they could take their inventory down a little bit, but at this point I think they're pretty well sized.

Okay. Great. Thanks for taking my questions.

We'll go next to Shawn Harrison with Longbow Research.

I guess I know you've only had Miranda here for a little over a week or two, but you previously had an initial EPS accretion forecast of $0.45 on a non-GAAP basis for 2013. How do you feel about that forecast now, given a little bit of trepidation in the market, and then within that, what should we use, Henk, for the all-in Belden interest expense for the third quarter?

I'll let Henk take the interest expense question. You're right, we've only had it for a couple of weeks, so it's hard for us to give a lot of deep insight. So far, the integration has gone really well. The business is very much what we thought it would be, very, very high quality management team, great products. And at this point, Shawn, the only thing that I think we're watching closely is whether or not the end market is going to pause slightly because of the economic consideration. So at this point, I don't have reason to change the 2013 outlook. We'll obviously update 2013 later in the year. We'll give you more update at that point. But I don't have any reason to change my point of view on what I had communicated at the time we announced the transaction.

And on the interest rate, Shawn, Miranda acquisition funded through a Canadian term loan of about $250 million, will add roughly $2.5 million of interest expense to the third quarter.

Okay. And then as a follow-up in terms of the cost savings, the $20 million in fiscal 2012 and 2013, if we look regionally, how should we expect those savings to break out within North America, EMEA and Asia?

So they're not perfectly proportional. Probably a little bit more in Europe as a percentage of revenue than you might see in the other areas, principally, because we think what's happening in Southern Europe is, I'll call it semi-permanent, or there's not a good view on it getting any better any time soon, and of course, it takes a little bit more cost to get the benefit out of Europe. So a little bit more in Europe than you might see in the US and Asia, but there are cost reductions there as well. So if you were to take it as a percentage of revenue, you'd have roughly half of it in the Americas, 25% in Europe and 25% in Asia. I'd probably juice up Europe a little bit, and probably take down the other a little bit.

Okay. Very helpful. And finally, the one point that wasn't covered in terms of Henk's discussion of working capital, or maybe I missed it, was just AR ticking up a little bit. Is that just a seasonal dynamic that we would expect to normalize in the back half?

Yes, it is. It is, Shawn. There's about two to three days, roughly $20 million to $25 million of timing, shipments later in the quarter, the second quarter that we will collect in Q3.

Okay. Thanks so much.

We'll go next to Anthony Kure with KeyBanc.

Just wanted to follow up on the restructuring side. I think the benefit is going to start in the third quarter and the fourth quarter. Just if you could provide a little bit of -- or maybe the second half, what the benefit will be. We'll see the balance in fiscal 2013, I assume?

Yes. So Tony, the way we're thinking about it is the actions that we're taking now are principally to benefit us in 2013. And also, to offset some of the temporary cost measures that we took in the second quarter. So I don't think you're going to see a big benefit in the second half compared to what we delivered in Q2, but I think you'll find it will come in different pockets. So we were managing our expense structure closely in Q2, because of some concerns on top line.

The actions that we're taking now will have some benefit in the second half, but in some cases, they'll offset some of the things we already did in the second quarter. And then you'll see more benefit into the second half. Now, if you look at our change in outlook, you see that we suggest a $60 million to $80 million decline in revenue compared to prior guidance and only $0.07 to $0.12. You can do the math pretty easily. If you use 25% fall-through on the $60 million to $80 million, you're looking at anywhere from $15 million to $20 million of fall-through. The math on that would suggest that we're offsetting some of that with cost reduction.

Okay. And then I guess as I look forward to the full year, and if I take the mid point of your third-quarter guidance at the top line, let's start with the top line, if I take the mid-point of the guidance, and then if I assume that Miranda just -- you talked about what you're expecting on the top line in the back half being $80 million, that's maybe two months of that falls in the third quarter and three months of that falls in the fourth quarter, would it be enough to buck the normal trend of a seasonal decline in the fourth quarter on the top line, or do you still think that seasonality is going to result in a sequential decline in the fourth quarter on the top line?

When you look at third and fourth quarter, you're right, there's a stub period in the third quarter. Therefore, we would expect to see an increase in revenue from Q3 to Q4 from Miranda. There is some seasonality from Q3 to Q4 in the Americas, not so much in Europe. So I think that will -- I haven't done the math on this. My guess is the top line in fourth quarter will actually be similar to what it was in third quarter.

Along those same lines, would the mix benefit from more Miranda actually result in a similar flat 3Q or 4Q earnings, or would actually increase?

I think that you're probably looking at a third and fourth quarter that are pretty similar.

Okay. And then last question is just on industrial networking, or I'm sorry, networking overall, down for the second consecutive quarter on a year-over-year basis, big decline in Europe. Is this a function of exports to Asia being weaker, because correct me if I'm wrong, but I think Asia itself networking was up year-over-year, could you just speak to what's going on in networking?

Our networking business in the second quarter year-over-year, when you adjust for channel inventory was up 3%. That's on a consolidated basis.

Okay.

It was actually up 5.5% in Europe when you adjust for inventory. And we had one global account customer that really built inventory balances significantly a year ago in the second quarter because of concerns of supply shortages, and they've been taking that inventory down pretty significantly. The bigger issue we have on growth for networking year-over-year is actually in Asia. It's down 7% when you adjust for channel, and that has a lot to do with the fact that the government, at least through the first half, had slowed spending on transportation applications and some infrastructure applications. We continue to think, though, that that's going to start getting better. Whether it gets better in the third or fourth quarter, it's not entirely clear to me but I think we continue to feel confident that the China government will stimulate and we'll begin to see better numbers out of Asia at least in the first half of next year.

Okay. Great. That was helpful. Thank you.

We'll go next to Brett Feldman with D.A. Davidson.

First on the guidance for Q3, are you projecting sort of a more of a normal tax rate?

That's correct. For our organic business, excluding Miranda, we are guiding a tax rate of 29.5%. Including Miranda, the tax rate would come down to 25%. So on a consolidated basis, including Miranda, 25%.

Got it. And then clarification from me. I guess the 13% to 15% operating margin target by 2013, is that exclusive or inclusive of amortization?

So the target that we established, we were I'd say silent on that point. Our view is that in 2013, with the acquisition of Miranda, which does exclude the amortization of intangibles, that we'll have an ability to get within that range. But I would say that, as we continue to enrich our portfolio, we would expect to be at the high end of that range, and we would also expect for us to reconsider whether that range is appropriate. As we compare ourselves to our peers, we're already in an operating margin higher than Mobilux. We're obviously not quite yet at an operating margin of Amphenol, but those are the kinds of people we like to hang around with.

Okay. Thank you.

We'll go next to Alek Gasiel with Barrington Research.

Just a couple questions. I guess one, just talking about the SG&A level in the second quarter, I know Henk had commented that it was going to be up incrementally. Is that just due to sales being lower than expected and productivity?

Mainly a function, Alex, of proactive cost measures. We generated $77.9 million of SG&A in the second quarter. Off of $83 million in the first quarter and we think we will sustain that level of SG&A going forward.

Going forward. But that's not including Miranda. That's just --

That's correct, Alex.

And then on the JV, just looking at that in the back half of the year, what would be an acceptable level? Should it be down a little more going into the back half, or if you can provide any color, that would be great.

I think $2 million of income from equity generated in the second quarter is a good proxy for the rest of the year.

Okay. And then on the consumer electronics, can you provide any update of what strategic plans down the roads. I know you talked about that, this is an area that really won't get to the 13% to 15% margin target, looks like it's something you would exit down the road. I don't know if you can provide any more information on that.

I think what we can say at this point is we made progress in the second quarter. I feel good about the progress we made in the second quarter. And as soon as we're in a position where we can share more information with you, we will. And hopefully that will be soon.

Okay. One last question. I know you may have already provided this. But just looking at the back half of the year and just looking at it by region, it sounds like the Americas doing well, Europe not as well, and Asia somewhat well. Is that fair to say, or if you can provide anything else to that?

In the back half, the comps are going to be a little different. In the first half you had channel inventory build all through the first half. When you look at the channel-adjusted growth numbers, it's a little bit different story. You're right in the first -- in the second quarter Americas was up 3% on a channel adjusted basis, EMEA was roughly flat and Asia was down. I think in the second half, I think you're going to continue to see something similar. I think we feel good about the business in the Americas in the second half. I think the dynamics in Europe are going to be probably similar to where they are now, maybe slightly worse in southern Europe and at some point I think Germany might be under a little bit of pressure. But I think we feel like the situation in Asia is likely to get better and if Asia gets better that has a positive impact on our German business.

Great. Thank you so much.

(Operator Instructions).

We'll go next to Jeff Beach with Stifel Nicolaus.

You've talked a lot, but could you expand a little bit more on some of the end markets, specifically in China and overall Europe, and then just bring that in and talk about the $60 million to $80 million reduction in revenues, give us an idea of the primary couple of pockets where that's occurring?

Okay. So the industrial market in the second quarter globally was pretty good. So that's been a theme. At this point we don't really see any reason why that would change substantially. I think we're all a little bit cautious that maybe it's going to slow down, but the industrial market had another good quarter globally, really strong in the US, reasonably strong in EMEA. Not quite as strong in Asia, by the way, Jeff, but reasonably good.

The enterprise market was a little bit tough in the second quarter. That was probably the piece of the business that we continue to be most concerned about. As you know, Jeff, the ABI came down again, and so that's a business where we think that it's not likely to improve significantly, and it was a part of our consideration, as we looked at our guidance. And then the other big thing as related to our guidance, of course, was Southern Europe. So Southern Europe has been down now two quarters in a row. It was down substantially, 20%, in the second quarter. And so as we looked at Southern Europe, as we looked at enterprise globally, as we looked at the possibility of the industrial business growth beginning to decelerate slightly, that's really what drove our decision to take a look at our back half revenue guidance, and take what we thought was a more conservative approach.

And then specifically the trends you're seeing in China, is at this point going into almost halfway through the quarter, is China looking like it's going to strengthen from here forward or is it too early to tell?

I think it's too early to tell. I can tell you, though, that if I look at my consolidated orders, Jeff, through the month of July, they're on track with my guidance. So that's obviously always a vote of confidence that you're seeing the order rates that you need to get there. As it relates to a full recovery or improvement in China, it's too early for me to say that I've seen that.

All right. Thanks, John.

Ladies and gentlemen, with no other questions in queue, I'll turn it back to Mr. Matt Tractenberg now for closing remarks.

Thank you, Debbie. That's going to conclude our call for today. Thank you all for joining us this morning. Have a great day, everyone.

Ladies and gentlemen, we thank you for your participation. This does conclude today's conference. Have a great rest of your day.