Methode Electronics Inc. is spinning off its optical products business into a new company that will go public later this year.
The spin-off will include most of the Chicago-based interconnect maker's optoelectronics division, as well as subsidiaries such as Methode Communications Modules and Bandwidth Semiconductor LLC, said president James W. McGinley. Methode said an initial public offering is slated for sometime after the beginning of its new fiscal year in May.
The company today also reported earnings for the third quarter ended Jan. 31, which included an increase in sales and earnings, but a slight dip in gross margin year-over-year.
Because it's in the registration phase, or "quiet period," of its IPO filing, Methode is keeping mum on many details of its future plans. However, McGinley did outline some strategies, indicating that as the company goes forward it will look for acquisition targets in the evolving optoelectronics market.
"That's where we plan to be very active," McGinley said, adding that the challenge facing the spin-off will be finding enough engineers.
The spin-off will offer about 15% of its common stock during the IPO, and Methode expects to distribute the remainder to its stockholders in a tax-free transaction at a later date.
Some of the top customers served by the optical products business include OEMs such as Alcatel, Cisco, Lucent, and Nortel. McGinley said these customers would most likely remain after the IPO.
Methode's optical segment had strong sales in the third quarter, with revenue up 62%, to $21.3 million, and profits up 21%, to $2.75 million, over the same period last year.
However, sales in Methode's electronic segment dropped 1%, to $75.4 million, compared with the same period last year, while profits were up 3%, to $12.8 million.
Overall, for the third quarter, the company reported a 5.8% revenue increase to $102 million, from $96.3 million the previous year. Earnings per share increased to 21 cents, a penny higher than last year's EPS.
Gross margin for the quarter dropped to 23.5%, however, from about 24.3% a year ago.
Strong drivers in sales came from the company's optoelectronic transceivers line, which experienced a 120% increase in shipments for the quarter.
"In Methode's electronic segment, sales of interconnect devices and controls for the automotive industry were up slightly in the third quarter over the prior-year period, with profits up over 15%," McGinley said. "Early in fiscal year 2000, we instituted a number of initiatives to better control our costs, and we have made progress in reducing scrap while increasing productivity and quality."
McGinley said the fourth quarter will result in strong sales, but added that losses relating to recent optical product-related investments may bring the company up short on earnings compared with last year.