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Belden’s Broadcast Evolution

ST. LOUIS, MO.—For more than a century, Belden was synonymous with wire and cable. At the 2012 NAB Show, the company suspended a metal cocoon chair from its newest mic cable to highlight the strength, based on the 100 percent certainty that people would sit whenever possible.

This was after Belden had branched out into industrial automation with the 2007, $260 million Hirschmann acquisition. Belden was still a wire and cable company as far as the broadcast industry was concerned.

Meanwhile, in what seemed to be another universe, Miranda was on the move, impelled by a shareholder rebellion. The Montreal, Quebec, company was a major hardware vendor in the TV sector, particularly after acquiring the Nvision router business in 2008 for $40 million. Miranda ended 2011 with record revenues of $176.8 million, an operating margin of 14 percent, around 700 employees and business around the world.

Belden, by comparison, ended 2011 with $1.98 billion in revenues, an operating margin of around 9 percent, and 6,800 employees worldwide. Cable comprised around 70 percent of revenues; networking and connectivity accounted for the rest.

On June 5, 2012, Belden announced it would buy Miranda for $331 million or $16.32 a share. (CD-to-USD at historical exchange rate.) It said the acquisition would boost networking and connectivity revenues by a third.

Belden traded that day at around $31, versus more than $71 mid-day May 12, 2014—an increase outpacing the S&P 500 and the Dow Jones in the same period by nearly a factor of three. (Belden also bought PPC, a privately held broadband connectivity company, for $515 million Dec. 12, 2012. PPC posted revenues of $238 million for 2012 with an operating margin of 22 percent.)

Just before the NAB Show this year, Belden closed its $220 million acquisition of Grass Valley, one of the more recognizable names in the broadcast equipment business. Grass had been sold by Thomson in 2010 to private equity firm Francisco Partners for $100 million. It had 942 employees. Revenues were not released, but Belden President and CEO John Stroup said combining it with Miranda took it from a $200 million to a $500 million company. (See Q&A: Belden CEO John Stroup.)

Miranda and Grass Valley combined are now branded with the GV name and positioned as a one-stop shop for television technology, from camera systems to playout and nearly every point in between—including the cable.

The new GV also signaled a move into software-as-a-service by offering Stratus playout functionality in the cloud. The software business in general is a lower revenue prospect than a dedicated hardware business, but offers gross margins in the area of 90 percent versus (very generally) the mid-50s for TV hardware.

Grass Valley as an acquisition will be integrated into Belden under its Lean Enterprise approach, whereby goods basically are manufactured to order. The process is “right on schedule,” Stroup said on the company’s May 2 earnings call. *

“The team began the process actually prior to the close,” he said. “We’ve already started the process of integrating and seeing the benefits of scale and synergy in all areas that are working on some of the manufacturing integration.”

Broadcast revenue for the first quarter of 2014 was $166.5 million as compared to $158.5 million last year, up nearly 5 percent. Grass Valley’s contribution was estimated to be around $65 million, while Miranda grew nearly 19 percent year-over-year based on recovery in Europe.

“We’ve also seen some nice benefit of synergies from a commercial point of view. But some of it does have to do with the market as well,” Stroup said.

Broadcast operating profit margin was 14 percent, up 70 basis points year-over-year and currently at the low end of Belden’s corporate goal, Stroup said. Broadcast order rates in broadcast accelerated in the quarter, up year-over-year by 13 percent in March and 7 percent in April.

“So I would say, good order trends in broadcast… gives us reason for optimism going forward,” Stroup said.

Revenues for Belden’s two other divisions fell. Enterprise generated $108.4 million, down 4.5 percent; and Industrial did $159.3 million, down 4 percent, both adjusted for copper and currency.

Combined first quarter revenues were $488.3 million, down 3.1 percent from 1Q13 adjusting for copper and currency, on account of U.S. weather patterns, Stroup said. Gross margin was 36 percent; operating margin, 13.1 percent. Inventory turned over 5.7 times during the quarter.

“The growth environment remains mixed with improved demand in Europe up 3.7 percent and China up 5.1 percent. This offsets softer performance from regions including United States and Canada down 4.5 percent where the majority of the channel inventory reduction occurred, and Latin America down 1.9 percent, all on a year-over-year basis,” Stroup said.

Cable, once the entire identity of the company, now comprises 35 percent of revenues, Stroup said.

* Transcript provided by Seeking Alpha.