Littelfuse, Inc. — Q3 2022 Form 10-Q
Business context and period: Unaudited quarter ended October 1, 2022; comparisons are with the quarter ended September 25, 2021. Littelfuse operates in Electronics, Transportation, and Industrial markets.
Financial performance
| Metric | Q3 2022 | Q3 2021 | First nine months 2022 | First nine months 2021 |
|---|---|---|---|---|
| Net sales | $658.9M | $539.6M | $1,900.6M | $1,526.9M |
| Gross profit / margin | $256.8M / 39.0% | $214.6M / 39.8% | $778.4M / 41.0% | $572.4M / 37.5% |
| Operating income / margin | $121.9M / 18.5% | $120.1M / 22.3% | $406.6M / 21.4% | $292.8M / 19.2% |
| Net income | $75.5M | $92.1M | $280.0M | $231.9M |
| Diluted EPS | $3.02 | $3.69 | $11.21 | $9.31 |
| Operating cash flow | — | — | $313.4M | $240.7M |
- Q3 sales rose 22.1%; nine-month sales rose 24.5%. Acquisitions contributed substantially: Carling added $58.8M of Q3 sales and C&K added $37.9M. Unfavorable foreign exchange reduced Q3 sales by $21.5M.
- Q3 gross margin declined 0.8 percentage points, including a 1.0-point impact from acquired inventory step-up charges. Nine-month gross margin improved 3.5 points, primarily on volume leverage and price realization.
- Q3 operating income increased only 1.5% as higher gross profit was largely offset by higher operating costs; operating margin fell 3.8 points. Q3 net income declined 18.0%, with management citing $15.0M of higher foreign-exchange losses and increased interest expense.
- Nine-month foreign-exchange losses were $40.1M versus $8.3M a year earlier. Other expense also included $13.7M of unrealized investment losses, compared with unrealized gains of $9.2M in the prior-year period.
Cash, debt, and liquidity
- At October 1, cash and cash equivalents were $474.0M, compared with $478.5M at January 1, 2022. Total debt was $985.8M, up from $636.9M; long-term debt was $975.6M.
- Current assets were $1,431.3M and current liabilities were $448.8M. The company reported $600.0M of available revolving-credit capacity, no letters of credit outstanding, and compliance with debt covenants.
- Nine-month investing cash outflow was $610.0M, including $532.8M net cash paid for acquisitions and $77.8M in capital expenditures. Financing cash inflow was $321.9M, including a $300M term loan and $100M of senior notes. Dividends paid were $41.1M.
- Working capital absorbed cash: receivables increased $56.4M and inventories increased $83.8M in the cash-flow statement. Management attributed higher operating cash flow versus 2021 to stronger cash earnings, partly offset by working-capital needs and higher incentive payments.
Material changes, outlook, and risks
- C&K Switches was acquired July 19 for $540M cash, funded with cash and debt. Its preliminary purchase allocation includes $278.0M of goodwill and $254.7M of intangible assets. The acquired business contributed $37.9M of quarterly sales and a $6.1M pretax loss since acquisition. Purchase accounting and integration costs affected reported results.
- Transportation sales were boosted by Carling; passenger-car and automotive-sensor sales faced customer inventory rebalancing, softer demand, and vehicle-production constraints. Electronics and Industrial benefited from demand, volume, and pricing.
- Management said supply-chain constraints had eased relative to prior quarters and expected ongoing improvement through the remainder of 2022. The filing provides no quantified earnings or revenue guidance.
- Management cited continuing COVID-related costs and uncertainty, supply and transportation constraints, macroeconomic volatility, and the war in Ukraine. The war had a modest reported impact, including higher shipping costs, suspended Russia sales and purchases, and lower production at some OEM customers. Foreign-exchange movements remain a material earnings and sales risk.
- The C&K purchase-price allocation remains preliminary. The company reported no material changes to risk factors from its prior Form 10-K, no legal proceedings, and no off-balance-sheet arrangements.
Key facts for investors to verify
- How much of sales and earnings growth is organic versus acquisition-related, and how C&K integration and synergies progress.
- Whether working capital—particularly inventory and receivables—converts into cash as demand and supply conditions evolve.
- The sensitivity of earnings, debt service, and reported equity to foreign-exchange movements, interest rates, and investment valuations.
- Final C&K purchase accounting, including acquired intangible values, goodwill, and related amortization and integration costs.
- Whether management’s expectation of improving supply constraints and continued debt-covenant compliance is borne out.