Belden Inc (BDC) 2013 Q1 法說會逐字稿

Ladies and gentlemen, thank you to standing by. Welcome to this morning's Belden Inc. conference call. (Operator Instructions).

I would like to turn the call over to Mr. Matt Tractenberg. Please go ahead, sir.

Thank you, Lisa. Good morning everyone. Thank you for joining us today for Belden's first quarter, 2013 earnings conference call.

My name is Matt Tractenberg and I'm Belden's Director of Investor Relations. With me here this morning are John Stroup, President and CEO and Henk Derksen, Belden's CFO. John will provide a strategic overview of the business and 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 two in the presentation, during this call 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. 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 10K. Additionally, during today's call, management will reference adjusted or 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 would now like to turn the call over to our President and Chief Executive Officer, John Stroup. John?

Thank you, Matt. And good morning, everyone. We are excited to have entered a new phase in our transformation. Evolving into a provider of the innovative signal transmission solutions that meet the unique needs of our customers within the attractive end markets of broadcast, enterprise, and industrial. Several key events took place in the second half of 2012, including the acquisitions of Miranda, and PPC, the divestiture of Thermax and Raydex, and the sale of our consumer electronics cable business.

Following these strategic actions we successfully transitioned nearly 35% of our revenue to higher margin products applied to faster growing markets. Belden's balanced portfolio of innovative solutions now provide the most attractive growth and profitability profile in the Company's history. With this business portfolio in place, we have aligned our organization to even better execute Belden's strategic plan and are now organized around the following four segments. Broadcast, enterprise connectivity, industrial connectivity, and industrial IT. We're happy to report that we completed this internal transition during the first quarter.

The business environment is generally as we expected. Our broadcast and enterprise platforms were impacted by soft demand. In the case of our broadcast platform, it was due to a typical cyclical pattern following a year with the Olympics and a major U.S. election. For our enterprise segment we continue to be impacted by soft, nonresidential spending. Despite demand weakness in Europe, both industrial segments performed extremely well in the quarter. Our end market and geographic balance is clearly making the difference in the consistency of our results.

We continue to execute our strategic plan well and made further improvements to our business portfolio. Consumer electronics is no longer a part of our business and we now include PPC for a full quarter. This allowed us to achieve gross margin levels that are again best in class, 34.5% for the period. Operating margins of 13.1% is a company record for any first quarter and proof of the transformation taking place. Our recently increased goal of 14% to 16% is now within reach. We see additional opportunities to leverage SG&A investment on organic and inorganic growth which should translate into expanded operating profit margins.

Please turn to slide three in our presentation for a review of our first quarter highlights. As a reminder, I'll be referring to adjusted results today. I'm pleased with the first quarter revenue, an increase of 16.1% year-over-year to $510.4 million. Operating profit margins also increased year-over-year by 400 basis points to 13.1%. We attribute the increase in margins to organic and inorganic improvements to the portfolio, a richer mix of in-markets and productivity gains in the quarter.

Income from continuing operations per diluted share totaled $0.84 for the quarter, up 82.6% over last year's $0.46 per diluted share on solid results from newly acquired companies and productivity gains. And finally, we repurchased 613,000 shares of Belden common stock for $31.25 million. For both programs combined we have purchased a total of 4.32 million shares almost 9% of the outstanding shares.

We continue to believe that buying back Belden's stock paired with the purchase of attractive businesses is an effective use of capital and will continue to drive shareholder value. Please turn to slide four to review the first quarter income statement. Revenue for the quarter was up $510.4 million was up $70.8 million or 16.1% compared to $439.6 million in the first quarter of 2012.

Adjusting for acquisitions and divestitures, revenue declined less than 1%. After further adjusting for copper, currency and inventory changes at our partners and customers, revenue was essentially flat year-over-year. While Europe, representing 18% of consolidated revenue, remains challenged with revenue down by 9% from a year ago period, pockets of strength around the world remain. Southeast Asia grew by 15.2%. The Middle East grew by 11.6%. Mexico by 11.3%. Brazil's increased by 6.1%. China was up by 2.1%.

The U.S. by almost 1% year-over-year, all on a organic basis. Profit levels exceeded our expectations and highlights the strategic actions that have taken place over the last year. With industry leading gross margins of 34.5% and operating margins of 13.1%, approaching our newly stated goal of 14% to 16%, I'm confident that Belden is on track to deliver increased shareholder value to our investors. Please turn to slide five. I will now provide insight into our business segment results. These platforms are how we are organized and will allow Belden to better execute its strategic plan. Broadcast revenue in the quarter was $158.5 million as compared to $70.1 million in the year ago period.

Results from both Miranda and PPC are in line with our expectations and have contributed approximately $100 million of revenue to this segment from the year ago period. Broadcast markets in the first half of 2012 benefited from events, including the Olympic games and the U.S. elections with an anticipated, unfavorable impact of approximately $4 million to $5 million in the quarter on a year-over-year basis. The secular tail winds are intact and we're looking forward to this newly combined business reaching its full potential.

As a result of acquiring and integrating PPC, organic growth was negatively impacted by product rationalization decisions that enhanced our competitive posture and increased profitability. Operating margins at 13.3% are already accretive to consolidated results. Enterprise connectivity continues to experience weakness from the nonresidential market. Revenue was $116.6 million down 6.2% from $124.4 million in the first quarter of 2012.

After adjusting for copper, currency and inventory adjustments at our partners and customers, revenue declined by approximately 4.6% year-over-year in line with the market that we serve. Operating margins of 7.7% for the period, while below our corporate average, are in line with the conversation offered at our investor day in December. We continue to see opportunity for margin expansion within the segment by focusing on attractive applications and geographies. Industrial connectivity had revenue for the quarter of $176.7 million an increase of 4.2% from $169.6 million in the year ago period. After adjusting for copper, currency and inventory adjustments at our partners and customers, revenue increased by approximately 5.5% year-over-year, clearly outperforming our markets. Additionally, I'm pleased with year-over-year revenue growth of 14% within our global accounts program for this segment. Operating margins were 14% for the period, already at the low-end of our long-term corporate goal. Margins were up on higher volume and productivity gains in the quarter.

Industrial IT revenue of $58.5 million grew by 15% year-over-year from $50.9 million in the first quarter of 2012. We're proud of the 73% organic growth within the Asia Pacific region, affirming the solid demand for high quality networking solutions from Belden into transportation, energy and industrial environments. Operating margins were 17.6% for the quarter up 480 basis points as a result of operating leverage.

On a consolidated basis, I'm extremely pleased with the results of our two industrial segments. In combination with the contribution from Miranda and PPC, we were able to offset weak, nonresidential spending and an extremely soft European economy. I also believe that we've exceeded our commitment of 2% growth from our share capture programs. I will now ask Henk to provide additional insight into our first quarter financial performance. Henk?

Thank you, John. I start my comments with results for quarter. Followed by a review of our operations and segment results, a discussion of the balance sheet, and close with our cash flow performance. As a reminder, I will be referencing adjusted results today. Continue on slide five. First quarter consolidated revenues of $510.4 million. Revenues for the quarter grew 16.1% year-over-year from $439.6 million in the prior year.

We benefited from the addition of Miranda and PPC during the quarter as compared to the year ago period with an impact of $99.7 million. Additionally, the revenue from our consumer electronics business is no longer included in our results with an unfavorable impact of $24.7 million year-over-year. Organic growth, adjusted for changes in copper prices declined 80 basis points year-over-year. After further adjusting for changes in inventory at our partners and customers, revenues for first quarter were essentially flat.

As highlighted by John, year-over-year revenues were unfavorably impacted by contractions in European and enterprise end markets offset by strong execution on share capture programs within our industrial segments. On a sequential basis revenues increased by 6.1%, a result of PPC now being included in our results for a full quarter, marginally offset by the exclusive of consumer electronics. Resulting in a net positive impact of $27.1 million for the quarter. On a sequential basis, organic growth, when adjusted for changing copper prices was slightly up. Gross profit margins at 34.5% increased 430 basis points year-over- year and more than 30 basis points sequentially.

We benefited from inorganic activities which added 410 basis points year-over-year and 150 basis points sequentially. First quarter, SG&A expenses were $91.4 million or 17.9% of revenues. R&D expenses for the quarter were $20.3 million or 4% of revenue. SG&A and R&D expenses increased year-over-year and sequentially as a result of the inorganic activities with a combined impact of $21.9 million and $4.5 million, respectively. After adjusting for the impact of currency and inorganic activities, SG&A and R&D expenses combined were down more than $5 million year-over-year and flat sequentially.

These reductions are consistent with commitments we made in August and we remain diligent in our cost controls. First quarter 2013, we recognize $2.3 million in operating income from the equity method investment in our Hirshmann joint venture that services the Chinese crane manufacturing market. I'm pleased with the first quarter operating profit margins of 13.1% up 400 basis points year-over-year and 160 basis points sequentially. Our ability to expand margins, including execution of inorganic activities coupled with productivity gains demonstrates the attractiveness of the new business model.

Net interest expense for the quarter was $15.8 million, a result of several financing activities designed to fund our acquisition strategy. Net interest expense increased year-over-year by $4.2 million and $2.4 million, sequentially. Our weighted average cost of debt was 5.7% at the end of the quarter, an improvement of 300 basis points from the year ago period. We expect interest expense to be approximately $19 million a quarter going forward. The adjusted effective tax rate for the first quarter was 24.7%, in line with the 25% rate estimated in the Company's guidance.

For financial modeling purposes for the second quarter and the full year 2013, we now recommend using a 25% effective tax rate. These rates are incorporated in our guidance that John will share with you in a few moments. Let me now discuss revenues and operating results by business segment. Our broadcast segment generated revenues of $158.5 million during the first quarter. Revenues increased by $88.4 million compared to the first quarter of 2012. The acquisition of Miranda and PPC contributed $99.7 million to this business as compared to the year ago period and performed in line with our expectations.

Broadcast markets in 2012 benefited from both the Olympic games and U.S. election cycle, with an unfavorable impact to the first quarter of approximately $4 million to $5 million on a year-over-year basis. Additionally, organic revenues were unfavorably impacted by approximately $2 million to $3 million as the deliberate product rationalization occurs as customers moved from legacy products to our recently acquired PPC solutions. And finally, deliver portfolio management to enhance profitability within Belden's legacy cable offering negatively impacted goals by approximately $2 million to $3 million.

On a sequential basis, revenues increased by $39.6 million. Acquisitions contributed $51.4 million to the sequential increase. I'd like to note that the seasonal pattern exists within this business where Q4 strength in revenue is typically followed by seasonal decline in the first quarter of each year. This pattern is responsible for approximately $8 million to $10 million on a sequential basis. Operating profit margins within the broadcast segment were 13.3% for the quarter, up from 3.1% during the year ago period and up 140 basis points sequentially.

This business enjoys a leading market position, provides attractive operating profit margins and has significant upside ahead as it becomes proficient with Belden's proven business systems. Our enterprise connectivity segment generated revenues $116.6 million during the first quarter. Revenues decreased by $7.8 million compared to the first quarter 2012 and increased by $2.3 million on a sequential basis.

Revenues, after adjusting for copper, currency and inventory adjustments at our partners and customers, declined by 4.6% in the year ago period, in line with the end markets that we serve. Operating profit margins of 7.7% contracted slightly from a year ago period on lower volume and was partially offset by cost measures taken in 2012. On a sequential basis, we saw an improvement of 60 basis points in profitability levels mainly driven by leverage and volume. While our markets are likely to remain challenging throughout the remainder of this year, we continue to be diligent in our cost control and our focus on share capture programs to drive results.

Our industrial connectivity segment generated revenues of $176.7 million during the first quarter. Revenues increased by $7.1 million compared to the first quarter 2012 and increased $9.2 million on a sequential basis. Revenues, after adjusting for copper, currency and inventory adjustments at our partners and customers, increased by 5.5% from the year ago period, outperforming the market in which we operate. Organic revenue growth rate, after adjusting for copper, currency, and inventory changes at our partners and customers, varied across major geographies.

We attribute the solid performance to a robust increase in the month in the Americas of 8.5% year-over-year while we generate approximately 73% of revenue for the segment. Operating profit margins of 14% increased by 240 basis points from 11.6% in the first quarter of 2012 driven by leverage on gold and productivity gains. I'm pleased with the performance of this business and encouraged by the operating margins, already at the low end of the long-term goal of 14% to 16%. The industrial IT segments generated revenues of $58.5 million during the first quarter. Revenues increased $7.7 million compared to first quarter 2012 and increased $2.3 million on a sequential basis.

Organic revenue increased by 14.3% from the year ago period, significantly outperforming the market in which we operate. The Asia Pacific region, representing more than a quarter of the segment revenue, drove the strong performance year with 73% organic growth year-over-year. Operating profit margins of 17.6% increased by 480 basis points year-over-year and increased 30 basis points on a sequential basis driven by leverage and growth.

If you will please turn to slide six I will begin with our balance sheet highlights. Our cash and cash equivalence balance was $469.4 million at the end of the first quarter. This is an increase of $74.3 million in the fourth quarter of 2012. Inventory turns were 6.2, a decline 0.4 turns year-over-year and an improvement of 0.1 turn sequentially. Days sales outstanding was 54 days in the first quarter, a four day improvement year-over-year.

Working capital turnover was 6.8, own 0.6 turns sequentially and 2.2 turns year-over-year. I'd like to remind you that as we acquire attractive companies like Miranda and PPC, they are often diluted to our working capital turnover performance. For example, working capital turnover, excluding both acquired businesses would have been 11.3 in the fourth quarter of 2012 and 9.4 in the first quarter of 2013. We look forward to seeing improvement lean enterprise techniques will have on their performance.

Total outstanding debt principal increased to $1.33 billion as a result of a Euro denominated bond offering in March. We were able to secure EUR 300 million or $386 million of that at very attractive rates. During the quarter, we used $194 million of these funds to repay a revolving credit facility used to purchase PPC in December. Additionally, we settled a tax matter that required a payment of $30 million. Also, as a result of the sale of Thermax and Raydex last quarter, a gain was realized and a tax payment made of approximately $38 million. Finally the acquisition of Softel in January and the continuation of a share repurchase program in the quarter consumed $40 million in total.

As a result of recent financing activities, the company had $451 million of [dry powder] at the end of the first quarter. This will allow us to continue our M&A strategy in combination with the share repurchase program. The balance sheet is in excellent shape and we are currently at our net leverage ratio growth of 2.5 times net debt to EBITDA. Please turn to slide seven for a few cash flow highlights. Cash flow from operating activities for the first quarter, excluding the previously mentioned tax payments was negative $3.2 million. Net capital expenditures for the quarter totaled $5.4 million compared to $7.5 million last year.

Free cash flow of negative [$8.6] million is in line with seasonal patterns and includes additional working capital funding for the newly acquired companies. We remain committed to our goal of free cash flow in excess of net income for the full year. For the quarter, we purchased approximately [613,000] shares of Belden common stock for $31.25 million on both the previous authorization as well as the recently announced extension. This brings the combined program to date shares repurchased to 4.32 million shares at an average price of $36.17 per share.

We now have $193.75 million remaining available under the current program. That completes my prepared remarks. I would now like to turn this call over back to our CEO, John Stroup for the outlook and his closing comments. John?

Thank you, Henk. Please turn to slide eight for our outlook regarding the second quarter 2013 results. We're off to a great start in 2013 with an outstanding portfolio and an improved organization structure. We continue to emphasize our strategic initiatives, including our market delivery system and lean enterprise. Although the global macro economic environment has proven challenging and difficult to predict, we feel confident that our portfolio, business system, and focus on execution provide a level of stability and predictability that investors can appreciate.

Therefore, we are increasing our earnings outlook for the full year. We expect our second quarter 2013 revenues to be between $530 million and $540 million and adjusted income from continuing operations per diluted share to be between $0.90 and $0.95. For the full year of 2013, the Company expects revenues to be between $2.07 billion and $2.12 billion and adjusted income from continuing operations per diluted share to be between $3.49 and $3.69. That concludes our prepared remarks. Lisa, please open the call to questions.

[Operator Instructions]. Mr. Tractenberg, for your first question we'll go to Matt McCall with BB&T Capital Markets.

Thank you. Good morning, everyone. So first wanted to hit on the U.S. outlook a little bit. There's a debate out there about non res and the outlook and I know you talked about continued weakness. Just curious about what's assumed in the guidance, specifically on the enterprise side and maybe if you can talk about your understanding or your belief about what part of the business is directly tied to non res and where you can see growth maybe from some other secular trends beyond construction.

So our assumption right now for non res spending is that the environment is unlikely to change significantly in either direction. We don't expect it to get significantly worse nor do we expect it to get significantly better. I think the team will deliver seasonal improvement Q1 to Q2. That's our assumption. I think that we have reason to believe that share capture will occur in the business in the second quarter as well as the back half. That assumption is in our guidance.

We do have some exposure to data centers which is, of course, more positive although that remains a relatively small portion of our business today and it's difficult for that small piece to overwhelm the non residential piece. So when you look at our enterprise connectivity business, which is approximately 20% of our top lying revenue, I think the expectation is that you would not see anything more than typical seasonal patterns from Q1 to Q2.

And then, John, on the profitability side there, I know you said it's within targets right now. Are you kind of at the mercy of the cycle or at the mercy of the top line to get some improvement there? And I was going to ask a question about the $5 million of savings on the SG&A line you had recognized, maybe tied in. Is there any incremental savings coming that could boost that margin or are we kind of just waiting on growth?

Clearly the margins of that particular platform are not acceptable. None of us are happy with 7.7% operating margin and I don't think that we would ever feel as though we're the victim of anything, including a cycle, a business cycle. So the team is working hard to develop the right kinds of actions to improve the operating margins in the business. Scale, of course, would help. And to the extent that we capture share we'll be able to create scale. Clearly more activity in emerging markets is important.

And maybe the most important thing is improving product mix. Because you can imagine that our systems sales and our connector sales drive a lot of the gross margin and we need to grow the business and drive margin expansion without increasing SG&A investment. So it's my expectation that margins will improve sequentially from Q1 to Q2 and we'll continue to see improvement in margins going forward.

Okay. Thank you, John. And the one final one. The seasonal pattern may be just an update there about what to expect. It looks like the guidance implies some seasonal softness in the back. Is that -- if my math is right, is that because of a weaker back half outlook or is that because that's how the normal seasonal pattern would play out?

Our guidance is incorporating what we would consider to be normal seasonality. However, with the addition of Miranda and PPC, our seasonal pattern has changed from what you might be familiar with. So -- and I should also mention that the divestiture of our consumer electronics business has also impacted our seasonality. So Q2 has historically been our strongest quarter from a demand point of view. That should continue. Q3 tends to be a little bit weaker because of Europe.

However, our PPC business tends to be a little bit stronger in Q3 and then our Miranda business tends to be a little bit stronger in Q4. So our guidance is consistent with what we believe our seasonal patterns to be today and consistent with what we communicated both in December as well as the earnings release for the fourth quarter.

Okay. Thank you, John.

And we'll now go to Brent Thielman with D. A. Davidson.

Hi, good morning. On the enterprise connectivity segment, just to follow up there, is that segment presumably see some leverage to improve non res construction? What sort of margins is the existing portfolio capable of hitting? Or maybe asked another way, is it capable of being in that target margin range for the consolidated business?

Yes, I think it is. I think it can be within the 14% to 16%. I don't think it's going to happen, though, quickly. The gross margins are a little bit shallow compared to where you'd like them to be, compared to the 14% to 16% range. So we're going to have to see some improvement in gross margins, which I think will largely come from a richer mix of connectivity within the business.

And then our SG&A is going to need to improve as well, which I think is going to have to come from greater focus and execution in emerging markets as well as share capture in our developed markets. So it's going to take some time for us to get into that 14% to 16% range. But as we go from 8%, which is where we are in the first quarter, up to the low end 14%, I think you're looking at 600 basis points, probably, roughly equal between gross margin improvement as well as improvement from SG&A leverage.

Okay. Understood. And then on the broadcast solutions segment, adjusted operating margin was up nicely compared to Q4. Is that just due to the PPC acquisition? Is there anything else in there that helped? And then is this the sort of margin range we can expect, I guess, at least in the near term going forward?

Yes. The lion's share was the benefit of PPC, sequentially. No question. And I think that 13% operating margin I'd like to hazard is maybe on the low end of what you should expect. Because the first quarter tends to be the weakest quarter for Miranda, which is a high margin business. So I'd like to see us move up from that 13% in the second quarter.

Okay. If i could sneak one more in, too. Just on that segment, you mentioned the unfavorable comparisons due to Olympics and election. Outside of some secular drivers there, is there anything significant in terms of upcoming cyclical drivers we should be thinking about that could have an outstanding impact going forward?

Not in 2013 other than the fact that there are investments being made in Brazil currently for the Olympics and as well as the World Cup -- actually reverse order. World Cup and then the Olympics, which you might start seeing some benefits towards the second half of this year or early next year. But if you look at the patterns, the cyclical patterns of the broadcast business, the year following the Olympics and the presidential election are typically quite a bit weaker and then you start to see improvement. But then, as I said from a seasonal point of view, the Miranda business typically does better in the back half and particularly in the fourth quarter. So our guidance has incorporate all that.

Okay. Thank you.

You're welcome.

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

Good morning, everyone.

Hi, Shawn.

Hi, Shawn.

First question, just on copper, maybe you could put this to bed. I've been getting a lot of incoming questions on the potential impact. I know your exposure is down. But just maybe talk through how declines in copper spot prices work its way through your model.

Of course, Shawn, they have no impact on net income or operating profits, as we mentioned, I think, countless times. So -- and I know that is a common misunderstanding because people often compare us with the wrong kinds of companies. But our model has no impact on copper in terms of operating income or net income. As copper falls, our operating margins will benefit slightly, they'll expand slightly. And as copper increases, our margins will decline slightly. And that's really the only impact. And, of course, as our portfolio has changed in a favorable way that impact is even more subdued than it was previously.

Okay. Helpful. Two follow ups. Maybe if you could give some detail on the acquisition completed during the quarter. And then, secondly, just kind of talk about what you're seeing within your industrial exposure on both, I guess, a global basis, maybe dipping into each of the regions.

So your first question, Shawn, about -- I want to make sure that I've captured your first question correctly.

The acquisition during the quarter.

(Inaudible) we'll talk about that one (inaudible). So Softel was an acquisition, a bolt on that we made to complement the Miranda investment. It's unique technology. It's technology that's used in closed captioning which is becoming a more important application driver locally as people around the world are adopting and having access to television. So they actually help automate the closed captioning that you see on your television and on your other devices that you watch video content. So that was that investment. We think that's a good investment. It should stimulate more Miranda growth and also protect our competitive edge.

Regarding the industrial connectivity business, the business was really strong, both platforms, really strong year-over-year. As I mentioned on an organic growth basis, the industrial business was up 5.5% when you adjust for copper as well as changes in inventory and the industrial IT business was up 14% organically. And pretty broad based. I would say that, as we mentioned, really strong growth in Asia of industrial IT. It was up 73% year-over-year on an organic growth basis. The Americas and EMEA were up more sort of modest numbers, up 2% and 1% respectively between Americas and EMEA.

And then our industrial connectivity business was strongest in the Americas, up 8.5%. It was flat in Europe. And I think given the macro economic environment in Europe, that's pretty good news. We mention to people, though, that we have a really strong presence in Germany. And Germany benefits from the export to other countries. Our German business, by the way, was flat year-over-year.

So when we talk about Europe being down 9% or 10%, that's (inaudible) Germany, it's flat. So, obviously, in the southern European markets it didn't do so well. So we were very, very pleased with the performance of our industrial businesses. We believe we clearly outperformed the markets and I think if you look at any industrial company and the kind of struggles some companies are having in this quarter with their industrial demand, we're real happy with that performance.

I guess on that last comment, John, the PMIs have come down a little bit. Have you seen -- do your customers get any more cautious or is it still kind of the tail wind years that you experienced in the first quarter?

No. I think the environment is pretty steady. I think the tail wind, as you describe is sort of self-made luck. I think that we've done a good job of picking good markets. I think we've done a good job of picking the right customers and I think within those customer relationships we're penetrating and gaining share. And I think that's the reason why our growth numbers in these platforms are so much better than most of the people you would typically compare us to.

And we're not really seeing, yet, any changes in behavior. There's obviously some concerns about China slowing, there's concerns about whether or not industrial CapEx then may subdue. Obviously that could happen and if it were to happen, we're not immune to it. But at this point, I would say based on customer conversations I'm not seeing anything different than what we've seen in the last six months.

Very helpful, John, thanks.

Thank you.

I will now go to Noelle Dilts with Stifel Nicolaus.

Hello, Noelle?

Looks like she has removed herself from the question queue. Operator: (Operator Instructions). We will now go to John Quealy with Canaccord Genuity.

Hi. Good morning, folks. Just on the guidance. So the confidence gives you some opportunity to raise the bottom end of the guidance. Can you talk about is it the potential you are seeing in the growth end of the business, especially the industrials really outperforming or can you talk about -- especially with Europe being weak and really doesn't seem to be bottoming, just talk about is it growth outperforming risk to the down side or have you seen, basically, the worst of the channel you're seeing so far? That would be helpful first.

Sure. So as we thought through the guidance for the full year I think there were a couple of things that sort of popped out. The first is that we obviously had very strong markets in the quarter and we believe that is going to continue. We feel like those are steady, they are real and they are sustainable, so that gave us confidence. Secondly, there's actually a little bit of channel decline, inventory decline in the quarter. We had assumed there would be none. We hit our revenue numbers even though there was about $4 million of channel reduction, inventory reduction of the channel.

And we think that that's mainly behind us, we are not going to see much negative there. As then as we sat down with our businesses and listened to them about their business plans, about their share capture programs, about their productivity programs it was really pretty difficult for us not to raise the low end of the guidance. So, we just feel like the business is performing well. We feel like the things that we had identified generally are working. We are not, obviously, perfect. We have issues that we need to address and opportunities for improvement but we feel like, in total, the business is performing well.

And moving to broadcast, it is one of the areas that's had a lot of construction going on from a portfolio perspective. Can you talk about, in terms of additional accretion potential in that, is there more internal streamlining to do whether it is a leadership perspective or change in philosophy there? But, again, the numbers are very good, year-on-year but you what can we look for once the business sort of settles down after a lot of puts and takes in the portfolio?

Well, first of all, I would like to just make the comment that we have really outstanding leaders in our broadcast businesses. The people that run our businesses Miranda, outstanding leader, PPC an outstanding leader and the gentleman that runs our Belden branded cable business they are all really, really seasoned effective leaders and so we have the opportunity to continue to leverage that.

We clearly have the opportunity to increase our share outside of our developed markets. I believe we will do so. These businesses, although they were run well, didn't have the kind of global scale that Belden has and I think that is an opportunity. As Henk mentioned their level of proficiency with Belden business systems is, obviously, still relatively new and nascent so that is an opportunity. Lots and lots of commercial synergies yet to be realized.

We realized some in the first quarter but there is more to go after. So I do believe the margins are going to go up. I think the margins are going to be at the high end of the range. I think they're going to be closer to 16% than they are going to be to 14% and I believe we will get there based on the current management team.

Okay, great. And then my last question. Henk, in terms of -- you did the transaction and debt this past quarter. When you look out in the markets any other potential transactions? I know the dry powder is still pretty good on the credit side of the balance sheet but what should we be thinking about from a corporate structure side for the next several quarters?

Our capital structure has a configuration that fits the corporation long-term. The main objective was to get balance within geographies where we generate cash and have debt to service. So we accomplished that through the Euro debt offering so we are pretty pleased with the capital structure at the moment. It provides plenty of opportunity to support the corporation in its M&A strategy and allows for continuation of the share repurchase program.

Perfect. Thanks, guys. Good job.

Thank you.

Thank you.

And we will go back to Noelle Dilts with Stifel Nicolaus.

Thanks. Sorry about that. I was cut off before. And I apologize if I've missed this question. I was curious, if you haven't commented, if you could comment on what you are seeing your channel partners do with their inventories here in the second quarter?

So not a lot of movement, Noelle. The total impact globally was about $4 million. And so that is not an awful lot, $4 million reduction in inventory. I would say that their management of inventory right now is very consistent with what we have seen over the last couple of years. They don't want to hold anything more than they need to. We have more drop ships to customers directly than we have had in the past. They are, obviously, watching commodity prices not wanting to overexpose themselves to products that could lose them value. So, really, no change.

Inventory turns at our channel partners are at historic highs and that's led us to believe that it's unlikely that we would see any further reduction unless there is a shock in the macro economic environment. So I think that things, from an inventory point of view in our channels, are just fine.

Okay, great. And then you did ramp up the share repurchase a bit this quarter from kind of the $25 million per quarter rate. I know you didn't buy back any shares in the fourth quarter. Was that a pickup or can we expect maybe a higher rate going forward?

Yes. You're right, Noelle. The fact that we are at [6.25] than we had been previously is recognition that we missed out in Q4 and so we would like to take the opportunity to get that back.

Okay. Thanks.

Thank you.

And that concludes today's question and answer session. If you have any further questions, please contact Investor Relations. Mr. Tractenberg, please continue.

Well, Lisa, thank you very much. That concludes our call today. I want to thank everybody for participating in today's earnings call. If you have any questions, like Lisa said, please reach out to the IR team here at Belden. Have a great day, everyone.

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