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Source: TTM Technologies.
Printed circuit board maker TTM Technologies (TTMI 0.45%) just reported results for the third quarter of fiscal year 2014. The quarter was a mixed bag, beating Wall Street's revenue targets but falling short of earnings projections.
Analysts were expecting adjusted earnings of $0.15 per share on roughly $340 million in total sales. Hitting these targets would have amounted to flattish sales year over year, coupled with mildly higher earnings.
Instead, TTM saw earnings fall 7% to land at $0.13 per diluted share, while revenue rose 2% and stopped at $345 million.
The revenue bump broke a three-quarter trend of sales shrinking year over year. TTM CEO Tom Edman explained this strength with solid demand across all end markets, led by particularly copious orders for cell phone circuit boards. Customers in the networking sector also came up big this quarter.
However, margins fell short of management's own expectations. Edman pinned this problem on a five-day power outage that interrupted new product lines in an Asian manufacturing center. Product yields are now back to normal, but TTM was unable to completely cover the temporary supply shortfall. As such, Edman expects stronger profit margins in the upcoming quarter.
The recently announced acquisition of rival circuit board manufacturer Viasystems (NASDAQ: VIAS) will not affect fourth-quarter results, given that the deal shouldn't close until the first quarter of 2015. The $927 million merger of near-equals gives TTM more exposure to several key markets, led by Viasystems' large presence in the automotive sector.
The deal will also double TTM's annual sales, but the combined company's profit margins should initially be lower than TTM's margins as a standalone business.
Of course, the companies expect cost savings as overlapping functions are eliminated and economies of scale start kicking in. If everything works out according to plan, first-year cost savings should increase 2015 earnings by $25 million. Over the past four quarters, the two companies combined for net non-GAAP losses of $10.3 million, so the simple synergies of executing this merger properly could provide a serious boost to TTM's low-margin, high-volume operations.
