Newport Corp. (Irvine, CA) reports it is taking action to cut costs by $5 million to $7 million on an annualized basis because of the recent market downturn. This includes a workforce reduction of 180 to 200 people, or approximately 10 percent of the firm's employees. Layoffs will be primarily in manufacturing and support capacities within Newport's Fiber Optics and Photonics Division. The company expects to record a charge in the third quarter of 2001 of approximately $1.0 million to $1.5 million for employee severance.
In addition, as a result of the changing market demand, the company said that it has recently begun an evaluation of certain product lines and the carrying value of certain inventory items. This evaluation is expected to result in a third-quarter 2001 noncash charge for writing down certain assets, which may include inventory, goodwill, and fixed assets. A precise calculation as to the total amount of the charge cannot be made until completion of the evaluation, but it is expected to be in the range of $6 million to $10 million.
Robert G. Deuster, president and chief executive officer adds, “While we do not currently anticipate any meaningful recovery in customer order patterns through the second half of 2001, we nevertheless expect to deliver double-digit growth in revenues and earnings before nonrecurring charges over our record-breaking performance in 2000. We believe that our revenues for the full year 2001 will be between $350 million and $360 million, within the range of analysts' estimates currently reported by First Call. Also, diluted earnings per share for the full year, excluding nonrecurring charges, is expected to be in the range of $1.10 to $1.15.”
Newport also has announced financial results for the second quarter and six months ended June 30, 2001. For the 2001 second quarter, net income rose 37 percent to $12.1 million, or $0.32 per diluted share, from $8.9 million, or $0.26 per diluted share, in the corresponding prior-year quarter. The 2000 results include the addition of Kensington Laboratories Inc., which was acquired in a transaction accounted for as a pooling of interests. In addition, results for the period include a provision for income tax on Kensington's results for which there was no corresponding amount required in the prior-year period.
On a proforma basis, including a tax provision on the results of Kensington's operations for the 2000 period, net income for the 2001 second quarter would have increased 75 percent from $7.0 million, or $0.20 per diluted share, in the second quarter of 2000.
Sales for the 2001 second quarter rose 62 percent to $98.9 million from $61.1 million a year ago. Results in the second quarter reflect a 66 percent year-over-year increase in sales to the fiberoptic communications market to $36.2 million and a 74 percent year-over-year increase in sales to the semiconductor capital equipment market to $28.2 million. Overall, these market segments constituted 65 percent of Newport's second quarter 2001 sales.
For the first half of 2001, net income totaled $19.1 million, or $0.50 per diluted share, on net sales of $205.6 million, compared with net income of $15.1 million, or $0.44 per diluted share, on net sales of $113.5 million for the same period in 2000. The results for the 2001 period include nonrecurring charges of $12.5 million recorded in the first quarter related primarily to acquisitions. Excluding the nonrecurring charges and including a tax provision on the results of Kensington&39;s operations for the 2000 period, net income for the first half of 2001 would have increased 129 percent to $27.5 million, and diluted earnings per share would have increased 106 percent to $0.72.
“Newport continued to generate strong year-over-year sales and earnings growth in its strategic markets during the second quarter,” notes Deuster. “As we mentioned previously, however, we also have experienced substantial declines in orders as well as an increase in cancellations, particularly from customers in the fiberoptic communications business.”
Total new orders received in the second quarter equaled $55.2 million compared with $90.9 million received in the first quarter of 2001 and $102.2 million from the prior-year second quarter. Including the approximately $13 million in cancellations recorded in the second quarter of 2001, net orders equaled approximately $42 million.
Orders from customers in the fiberoptic communications market were $11.9 million in the second quarter of 2001, compared with $35.1 million in the first quarter of 2001, and $43.2 million in the prior-year second quarter. Orders from customers in the semiconductor capital equipment markets were $16.8 million in the second quarter of 2001 compared with $20.2 million in the first quarter of 2001 and $32.7 million in the prior-year second quarter. Orders from customers in Newport's industrial metrology segment, were $26.5 million compared with $35.6 million in the first quarter of 2001 and $26.3 million in the prior-year second quarter.
Gross margin for the second quarter of 2001 was 41.5 percent compared with 47.3 percent in the prior-year second quarter. Gross margin for the 2001 period was negatively impacted by higher sales of lower margin semiconductor products as well as by higher manufacturing costs in the company's Fiber Optics and Photonics division. Furthermore, the company noted that gross margin for the 2000 period reflected significantly higher than usual margins at Kensington.
Selling, general and administrative (SG&A) expense for the second
quarter of 2001 totaled $18.2 million, or 18.5 percent of sales, versus SG&A expense of $12.1 million, or 19.8 percent of sales, in the second quarter of 2000. Approximately half of the increase in SG&A expense resulted from recently acquired businesses. The remainder of the increase primarily resulted from costs required to support the strong year-over-year sales growth.
Research and development (R&D) expense for the second quarter of 2001 increased 45 percent year-over-year to $8.2 million, or 8.3 percent of sales, compared with R&D expense of $5.7 million, or 9.3 percent of sales, in the second quarter of 2000. The increase related primarily to continued product development and enhancements, especially for the fiber optic communications market.
Operating income in the second quarter of 2001 increased 31 percent to $14.6 million compared with $11.1 million recorded in the second quarter of 2000.
Interest and other income, net of interest expense, consisting primarily of interest earned on marketable securities, totaled $3.5 million for the second quarter of 2001 compared with $0.6 million expense in the second quarter of 2000. The tax rate for the second quarter was 33.0 percent versus a proforma tax rate of 33.8 percent in the second quarter last year.
Deuster adds, “We firmly believe that, notwithstanding the current downturn, there will be a continuing need for fiber optic and semiconductor manufacturers to improve their process efficiencies and yields through automation. Accordingly, we will continue to focus on the development of future products and enhancements to maintain our position as a leading supplier of manufacturing and automation solutions to the fiber optic communications and semiconductor capital equipment markets.”