Bel Fuse Inc (BELFA) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Bel Fuse first-quarter results conference call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded today, Thursday, April 30, 2009.

I would now like to turn the conference over to Dan Bernstein, President and CEO. Please go ahead.

Thank you, Chris, and we would like to welcome everybody to our conference call to review Bel's first-quarter 2009 results. Before we start, I would like to hand it over to Colin Dunn, our Vice President of Finance. Colin?

Good morning, everybody. Thanks, Dan. I will start with a Safe Harbor statement. Except for historical information contained in this conference call and today's news release, the matters discussed including statements regarding improved business conditions in the future are forward-looking statements that involve risks and uncertainties. Among the factors that could cause actual results to differ materially from such statements are the market concerns facing our customers, the continuing viability of sectors that rely on our products, the effect of business and economic conditions, capacity and supply constraints or difficulties, product development, commercializing or technological difficulties, the regulatory and trade environment, risks associated with foreign currencies, uncertainties associated with legal proceedings, the market's acceptance of the Company's new products and the competitive responses to those new products, and the risk factors detailed from time to time in the Company's SEC reports.

In light of the risks and uncertainties, there can be no assurance that any forward-looking statements will, in fact, prove to be correct. We undertake no obligation to update or revise any forward-looking statements.

Moving on to our first-quarter 2009 results, for the first quarter of 2009, our sales were $43.9 million, which was 28% lower than the $60.9 million that we recorded in the first quarter of 2008, and also 24% lower than the $58.1 million reported in our preceding quarter ended December 2008.

Sales for the first quarter of 2009 in all product groups were lower than the same period last year, and also lower than the fourth quarter of 2008. Profits in cost of sales fell into the quarter on an unaudited GAAP basis with net after-tax earnings of $800,000, which included a pretax gain of $4.6 million on the 2007 sale of property in Jersey City, New Jersey, partially offset by additional restructuring charges of $400,000 related to the closure of our manufacturing facility in Westborough, Massachusetts.

These results were lower than the net earnings of $2.2 million for the first quarter of 2008. Although gross margin in percentage of sales during the first quarter 2009 was lower than the same period last year, the gross margin percentage improved slightly in comparison to the fourth quarter of 2008, as we began to see benefits from the closure of the Westborough facility, and sharpened our focus on cost containment during the current economic downturn.

So to summarize in non-GAAP terms, for the first quarter excluding nonrecurring special items, Bel's after-tax loss would have been $1,557,000 or a loss of $0.13 per share.

Turning to G&A, the percentage relationship of selling, general and administrative expenses to net sales increased from 14.7% during the three months ended March 31, 2008, to 17.4% during the three months ended March 31, 2009. The dollar amount of selling, general and administrative expenses for the three months ended March 31, 2009 decreased by $1.3 million compared to the same period last year, due to several factors.

These factors included sales commissions decreased due to 2009 lower sales volume. Travel expenses reduced as management implemented travel restrictions during the first quarter of 2009. And general and administrative salaries decreased as a result of staff reductions in various locations.

Interest income. Interest income earned on cash and cash equivalents decreased by approximately $700,000 during the three months ended March 31, 2009, as compared to the comparable period in 2008. The decrease is due primarily to significantly lower interest rates on invested balances during the period.

Taxes. The provision for income taxes for the three months ended March 2009 was $1.6 million compared to $800,000 for the three months ended March 2008. The Company's earnings before income taxes for the three months ended March 2009 are approximately $500,000 lower than the same period in 2008.

The Company's effective tax rate, the income tax provision of percentage of earnings before provision for income taxes was 66.7% and 26.1% for the three months ended March 2009 and March 2008, respectively. The Company's effective tax rate will fluctuate based on the geographic segment in which the pretax profits have been earned.

Of the geographic segments in which Bel operates, the US has the highest tax rates. Europe's tax rates are generally lower than US tax rates, and the Far East has the lowest tax rates. The increase in the effective tax rate during the three months ended March 2009 as compared to last year's is attributable to increased earnings in North America, primarily due to the gain on sale of property and the losses in the Far East with minimal tax benefit.

The balance sheet, first looking at cash and equivalents. At the end of March 2009, our cash tax equivalent short-term investments and securities were $106.4 million, which was $13.7 million below our December 2008 balance at $92.7 million. From pure operations excluding inventory, accounts receivable and expected one-time adjustments, we have been running at a monthly negative cash flow of $700,000. Our immediate goal is to be cash neutral from pure operations. In the first quarter of 2009, Bill repurchased 6070 Bel Class A shares at a cost of $92,000.

Receivables and payables. Receivables net of allowances was $30.9 million at March 31, 2009, compared to $42.5 million at March 31, 2008. This is a reduction of $11.6 million. During the first quarter, receivables decreased by $15.1 million, mainly due to the decrease in sales.

Our accounts payable at March 2009 was $10.8 million. During the current global economic crisis, particularly in Asia, we continue to see many vendors attempting to shorten established credit payment terms or eliminate credit completely. During the first quarter our payables decreased by $3.5 million.

Turning to inventories. At the end of our first-quarter 2009, our inventories were $38.4 million, which was $4.1 million below March 2008, but a significant $7.8 million below December 2008. We are working through stock on hand and carefully managing production in light of the current economic situation.

Other balance sheet comments. For the three months ended March 2009, capital spending was approximately $400,000, while depreciation and amortization was $1.7 million. While we still spend capital where we see high in quick-pay periods, in the near term we will continue to be curtailing most capital spending.

Our per-share book value at March 2009 was approximately $18.76, including goodwill and intangibles. Excluding intangibles and goodwill, our per-share value is $17.46.

Now I will turn it back to Dan.

At this point in time, Chris, we would like to open up the phone line for any questions that might be out there.

(Operator Instructions) Sean Hannan.

Good morning, thank you. So gross margins, you did nearly 13% in the quarter. Is this a rate based on some of the cost actions you have taken and where we have gone in terms of mix something that you expect to be sustainable in the near term? Or are there other elements that were in the mix in the quarter and that we should be thinking of going forward?

Sean, we believe this didn't happen by accident, I think is your question. We have done a lot on reducing labor costs, particularly related to overtime in our manufacturing facilities. We have been working very hard to lower our overhead footprint in areas including property, and significantly the Massachusetts -- the elimination of manufacturing there is helping. We have reduced a lot of overhead personnel and continue to do that.

We are not seeing a lot of benefit from material costs, so we are not getting much of a push there. And prices have remained relatively stable through the period. So most of it is really coming from the labor and overhead savings we are getting through very concerted efforts to keep those -- get those costs down.

So just as a follow up on that, is there a way to perhaps provide a little bit more color in terms of the recent cost actions you have taken? You have been consolidating two facilities in southern China. Where do we stand in terms of all of these actions being completed, and how should we expect the magnitude of that to emerge within your model in the next quarter or so?

We would hope by the end of the third quarter that we had pretty much consolidated as much as we can consolidate. The problem we have with coming up with a course model is basically where sales and where price is going to be, and that is what we don't know. Again, our goal is to be cash neutral, but we just don't know. There is such limited visibility out there from a pricing standpoint and from a sales revenue standpoint, we just can't make those type of predictions.

But our major thing that we are focusing on over the next two quarters is the consolidating of our Southern China factories. Basically, we are moving about 1200 jobs into two different areas. The automated part will come into our main factory, which is about 200 people. The balance of people will be moving about a 12-hour difference than we currently are today in a low cost area. And I think that should be completed -- our goal is no later than the third quarter of this year.

So as we have exited March, how much do we anticipate that that has been completed? What is actually --?

To be honest with you, the move in China probably only about 20, maybe 10%, 20%. What we have done in China is the indirect labor have cut down substantially, eliminated all overtime, and that is what we have been working on initially.

The reason that we are a little slower than we would like is that when we moved the automation into our building in Southern China, the building wasn't up and running. And that is what we had to do is the buildout of the building before we could close down that operation. And now that that is almost completely done, we can start moving the automating equipment into the factory.

Okay, that is helpful. If we were to look at separately just one of your segments, is there a way -- can you discuss a little bit around the run rate of your power business exiting the quarter, as well as (multiple speakers) now today and how that compares versus a year ago?

I think they all stink, to be honest with you. There is not one group that is doing much better than the other groups. Across the board, we see substantial decreases, and we were hoping that power would be a little bit better. The only group that is doing a little bit worse than -- better but which means a lot less sales is the value-added [Malato] group. They are about the same type of sales, but everybody else is down roughly anywhere from 18% to 25%.

This is specific within power, or we are talking broad-based?

Broad-based, power, fuses. We can go anywhere. You know, once again, power might be the least at 18%, but someone else is 25%, so it doesn't really matter. We were somewhat disappointed because, as you know, we've been saying all along that we would hope that we would break even in power when it came to sales with such a new player in the marketplace.

Okay, that is helpful. Thank you.

(Operator Instructions) Todd Cooper.

Sean actually asked most of my questions, Dan and Colin, but one on the manufacturing front. What does your headcount look like relative to say, last quarter?

It is down 50%.

I think we are off about 3,500.

It is down -- from last quarter?

Yes, end of December.

I don't have that information in front of me, Todd, but I could get it for you. From last year, we are down probably 50%.

And you, I assume, dutifully notified your customers that you can't just snap back with reduction as their demand picks up?

We keep telling our customers that, and we keep telling them that our main driving product, the ICM, integrated connector module, is a labor-intensive product. And we keep telling them, but I don't think they listen very well. Once again, in power which is more automated and more SMT, if it ramps up is a lot easier in power and in fuses, circuit protection devices. But when it comes to magnetics, it is a whole different ballgame. And we keep trying to talk to our customers about this, but I don't think they get the message.

Are you or have you experienced an inventory replenishment phase at all?

We feel that -- what we are seeing, Todd, is we still have the base business that has been there and people are still buying, and we've still got some issues related to pushouts and all that. But the industry has changed a little bit over the last few months, in that we are seeing a flurry of smaller orders from customers where they want stuff tomorrow?

And so we have got all of this quick-turn stuff going on, and I think the customers can get away with it at the moment because most of the factories are not running at particularly high rates. So they have got their inventories way down, and they know at the moment they can just come in and drop a small -- relatively small order and someone will pick it up and they will get the product within a week or so, as opposed to more traditional 8- to 12-week lead times.

But we have not been -- our goal has been cutting down inventory as much as possible, just because again is we are just not getting any visibility from the customer what they need, and we just can't take those risks. Generally, we had no problem in the past when things are running nicely to maintain nice inventory levels to take care of the upsurge. But in this marketplace where nobody is giving us any visibility, the risks are too great to put inventory in.

Thanks very much.

Thanks, Todd. We appreciate the call.

Sir, there seems to be no further questions at this time.

Once again, we appreciate everybody joining us today, and we look forward to speaking to you next quarter.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.