Molex Beats With Record Result - Analyst Blog

Molex Inc. (MOLX) company reported second quarter 2011 earnings per share of 46 cents comprehensively beating Zacks Consensus Estimate of 42 cents per share. It also exceeded the high end of the guidance.

The EPS included the impact of legal costs related to unauthorized activities in Japan of $2.7 million ($1.7 million after-tax or 1 cent per share). EPS increased marginally by 2.2% sequentially and soared significantly by 91.7% year-over-year.

It was the second consecutive quarter that the company reported record results. New product launches and expansion of customer base continued to help the company drive better results and management now banks upon these factors for a strong second half to this fiscal year.

A Look into the Quarter

Following the like of EPS, revenue also exceeded the higher end of the guidance provided on October 26, 2010. Revenue increased marginally from prior quarter but reported a 23.6% year-over-year growth to $901.5 million. Revenue reached its record levels and it also surpassed the Zacks Consensus Revenue Estimate of $872 million.

Gross profit increased 27.5% year-over-year to $271.0 million and gross margin increased 1.0 percentage points compared to same quarter last year to 30.1%.

Operating profit increased 286.2% to $109.3 million compared with $28.3 million last year same quarter. Operating margin also increased 8.2 percentage points to 12.1% year-over-year.

Orders for the quarter were in line sequentially and increased 12% year-over-year to $872.0 million. Backlog decreased 7.1% sequentially to $413.7 million, and the reported book-to-bill ratio was 0.97. Effective tax rate for the quarter was 30.3%.

Looking Forward

While providing the guidance for the next quarter, management considered seasonal trends and uncertainty in the global electronics markets. Management expects the revenue to be in the range of $850 to $890 million and the EPS in range of 39 cents to 43 cents for the next quarter, assuming foreign currency rates and commodity prices. Management has assumed an effective tax rate of 30%.

Moving forward, management is confident of improved and robust performance given the low cost platform, strong balance sheet, strong presence in Asia and significant growth opportunities in the expanding global electronics market.

Management also believes that the purchase of Luxtera's optical cable business will enable it potential growth now and for next generation technology and will also give the company offering in high speed cable business.

Conclusion

Estimates for the quarter had been stable in the run-up to the earnings release, with 2 analysts increasing estimates in the last 30 days. The full-year estimate for next year has been trending up in recent days, with 2 positive and 1 negative revision in the last thirty days.

The current Zacks Consensus Estimate for 2012 of $1.93 is up from $1.92 thirty days ago. The full-year Zacks Consensus Estimate for 2011 also increased by a penny to $1.72 over the past month.

Molex faces competition from Amphenol Corporation (APH) and Thomas & Betts Corp. (TNB), among others.

We currently have Zacks #3 Rank for Molex which translates into a Hold rating on short term basis. New products strategy, restructuring actions, end market and geographic diversification, as well as the strong balance sheet are strong aspects of the company  and we prefer to keep a Neutral recommendation for long-term.