In addition, the company currently expects to report record earnings for 2001.
Net income in the three months ended March 30, 2001, was $20.9 million, or 53 cents per diluted share, on sales of $880.3 million. This compares with $16.1 million, or 44 cents per diluted share, on sales of $758.8 million in the year-ago quarter. Diluted shares increased 20 percent from last year’s first quarter, as a result of a convertible note offering completed in June 2000.
Operating income in the quarter was $49.7 million, or 33 percent higher than in the 2000 quarter. For the latest quarter, operating margins were 5.6 percent compared with 4.9 percent at this time last year. This was the fourth consecutive quarter in which operating margins equaled or exceeded the company’s 5 percent target.
President and CEO Robert Grubbs said, As expected, this quarter mirrored the fourth quarter of last year. We experienced relatively good sales in most customer markets and regions of the world. In particular, we had strong sales increases in our international operations and our North American integrated supply business. As in the fourth quarter, we did not have the large dollar, low gross margin fulfillment orders booked during the second and third quarters of 2000. Importantly, we were able to generate operating margins of 5.6 percent for the second consecutive quarter. In addition, as we had anticipated, we were able to generate significant positive cash flow from operations and a substantial reduction in working capital.
Commenting on market conditions in the first quarter Grubbs said, The first quarter presented some very difficult conditions and challenges in the service provider market in North America. Despite these challenges, we were able to report 16 percent revenue growth on a company-wide basis. We believe this highlights two very important facts. Most importantly, it illustrates how the diversity of the markets, customers and geographic regions served can help us to weather more difficult economic times. Secondly, we believe it shows how, in difficult times, clearly focused strategies, strong value propositions and a sound financial position can be used to grow and take market share.
During the first quarter we reported further improvement in our international operations, commented Grubbs. In Europe, we posted a 21 percent rise in revenues versus the first quarter of last year, despite an 8 percent decrease in the euro between the two periods. The increase came from good growth in all communication customer markets. This improvement in our top line allowed us to report a 46 percent increase in operating profits for Europe, and operating margins of 4.7 percent.
In the emerging markets, we experienced 38 percent sales growth for the first quarter, Grubbs continued. Strong revenues in Latin America more than offset softer market conditions in Asia, which posted only low single-digit volume improvements. Higher sales generated $1.0 million in operating profits for the quarter, versus an operating loss of $.4 million in the year-ago period. This level of profitability equaled what we experienced for the entire year in 2000, giving us an excellent start for 2001.
There are two factors to keep in mind when looking at the coming quarter, Grubbs explained. First, last year’s second quarter sales of $920.9 million included $63 million of low gross margin fulfillment orders, which we do not expect to duplicate. Second, based on recent announcements from a number of service providers and telecommunications equipment manufacturers, we still may not have seen the bottom of the telecom equipment spending cycle. As a result, while we expect to report some sales growth between the first and second quarters of 2001, it appears unlikely that sales will exceed what we saw a year ago by any material amount.
More importantly, we are replacing the low gross margin fulfillment business from last year with more ‘normal’ volume. This should lead to both higher operating and net earnings for the second quarter versus 2000. However, diluted earnings per share are expected to be down slightly because we should have approximately 13 percent more fully diluted shares as compared with the year-ago period. As a result, we anticipate reporting second quarter diluted earnings per share in the range of 55 to 60 cents versus the 60 cents posted for last year’s second quarter, said Grubbs.
We entered 2001 expecting to generate diluted earnings per share of between $2.35 and $2.50. Based on the general slowdown in the U.S. economy¾particularly in the telecom and technology sectors¾our full-year outlook now is focusing on the lower end of this range. We still remain cautiously optimistic about the year despite the soft spots mentioned earlier. This optimism is based on continued growth and improvement in operating performance from our international operations, lower interest costs from improved cash flows, and a reduction in the number of outstanding shares effected late in the first quarter, said Grubbs.
During the first quarter the company announced two separate 1 million share repurchase authorizations. The company bought a total of 2,079,000 shares during the quarter, ending the period with 35,838,237 shares outstanding.
During the first quarter we repurchased 5 percent of our outstanding shares¾and simultaneously reduced outstanding borrowings by $51 million. The combination of strong quarterly earnings and lower debt allowed us to reduce the overall leverage in our balance sheet. As the year continues, we plan to generate significant cash flow from a combination of operations and further reductions in inventories. This should leave us with the financial strength to weather the near-term challenges of economic uncertainty while continuing to expand our business, Grubbs concluded.
