Littelfuse, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended July 2, 2022; comparisons are to the periods ended June 26, 2021. Littelfuse manufactures components and modules serving electronics, transportation, and industrial markets.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First six months 2022 | First six months 2021 |
|---|---|---|---|---|
| Net sales | $618.4 million | $523.5 million | $1,241.8 million | $987.3 million |
| Gross profit / margin | $263.0 million / 42.5% | $197.4 million / 37.7% | $521.6 million / 42.0% | $357.9 million / 36.2% |
| Operating income / margin | $134.2 million / 21.7% | $96.3 million / 18.4% | $284.8 million / 22.9% | $172.7 million / 17.5% |
| Net income | $87.0 million | $82.1 million | $204.5 million | $139.8 million |
| Diluted EPS | $3.48 | $3.30 | $8.19 | $5.62 |
| Operating cash flow | Not separately stated for the quarter | $165.3 million | $126.3 million |
- Q2 sales rose 18.1%; first-half sales rose 25.8%. Management attributed growth to broad-based Electronics and Industrial demand, pricing, and Carling acquisition sales. Q2 included $57.8 million from Carling and a $16.4 million unfavorable foreign-exchange impact.
- Q2 gross margin increased 4.8 percentage points year over year, driven chiefly by volume leverage, price realization, favorable Electronics mix, and lower acquisition inventory step-up charges; higher commodity costs partly offset these benefits. First-half gross margin rose 5.8 points.
- Q2 operating income increased 39.4%, while net income increased 6.0%. Foreign-exchange losses and unrealized losses on an equity investment materially weighed on pretax results. First-half operating income increased 64.8% and net income increased 46.3%.
- First-half operating cash flow improved by $39.0 million, primarily from higher cash earnings, partly offset by increased working capital and higher incentive bonus payments. Investing cash outflow was $65.4 million, including $56.2 million of capital expenditures; financing provided $245.0 million.
Liquidity, debt, and capital allocation
- At July 2, cash and cash equivalents were $809.1 million. Total debt was $892.1 million, including $7.5 million current and $884.6 million long-term. The company had $600.0 million of unused revolving-credit capacity and was in compliance with debt covenants.
- A June 30 credit agreement amendment added a $300 million unsecured term loan, extended facility maturity to June 30, 2027, and made certain covenants less restrictive. The effective rate on revolving and term borrowings was 2.875%; a $200 million interest-rate swap was entered into to hedge floating-rate exposure.
- On July 18, 2022, after quarter-end, Littelfuse funded $100 million of 4.33% senior notes due 2032. On July 19 it acquired C&K Switches for $540 million, financed with cash and debt. These events are not reflected in the July 2 balance sheet.
- The company paid $26.2 million in dividends during the first half and announced a 13% quarterly dividend increase, from $0.53 to $0.60 per share, after quarter-end. No shares were repurchased during the reported periods.
Segments and material changes
- Electronics: Q2 sales of $358.2 million, up 10.1%; operating income was $106.0 million versus $74.2 million. Broad demand and pricing supported growth, partly offset by currency effects.
- Transportation: Q2 sales of $182.0 million, up 36.5%, substantially reflecting Carling. Operating income was $18.3 million versus $19.3 million. Passenger-car and automotive-sensor sales declined amid lower vehicle production and supply constraints.
- Industrial: Q2 sales of $78.2 million, up 20.7%; operating income was $15.3 million versus $8.4 million. Growth reflected stronger demand across end markets and pricing.
- Foreign-exchange losses were $14.1 million in Q2 2022 versus a $1.7 million gain in Q2 2021. Q2 also included $7.8 million of unrealized investment losses versus $1.3 million of gains in the prior-year quarter. The Q2 effective tax rate rose to 20.6% from 13.8%; management cited foreign-exchange losses without a related tax benefit. The first-half rate was 16.1%, partly reflecting a one-time deduction tied to dissolution of an affiliate.
Outlook, risks, and unusual items
- The filing provides no specific quantified revenue, earnings, or margin guidance. Management said cash, expected operating cash flows, available financing, and capital-market access should be sufficient for operations, investment, and debt obligations.
- Management identified continuing supply-chain, material, and transportation-capacity constraints and higher input and logistics costs. COVID-related shutdowns at certain China facilities in April and May had a modest Q2 financial impact, but further disruption remained uncertain.
- The Ukraine war had a modest reported impact, including changed shipping logistics, suspended sales into and purchases from Russia, and lower production at some OEM customers. Risks also include demand and macroeconomic conditions, pricing and competition, commodity and currency movements, integration of acquisitions, and other risks referenced in the company’s 2021 Form 10-K.
- Q2 included $4.8 million of acquisition-related legal, professional, and integration costs and $0.6 million of restructuring charges. First-half results also included $4.8 million of purchase-accounting inventory step-up charges. Carling’s purchase-price allocation remained preliminary; the filing says acquired tax-asset and liability valuations were not finalized.
- No material changes to the previously disclosed risk factors were reported; no legal proceedings or off-balance-sheet arrangements were reported. Management concluded disclosure controls were effective as of quarter-end.
Important facts for investors to verify
- How the $540 million C&K acquisition and subsequent $100 million note issuance affect pro forma debt, interest expense, and liquidity.
- Whether volume, pricing, and favorable product mix can sustain improved gross and operating margins as input, freight, and tariff costs evolve.
- Whether working-capital investment, particularly receivables and inventory, moderates and supports cash conversion.
- How currency losses, equity-investment valuation changes, and the higher Q2 effective tax rate affect future reported earnings.
- How supply constraints, China-related disruption, vehicle-production weakness, and acquisition integration affect segment performance and the company’s outlook.