Littelfuse, Inc. — 2019 Q2 Form 10-Q
Reporting period: Second quarter and six months ended June 29, 2019. Littelfuse manufactures circuit protection, power control and sensing products, reported through Electronics, Automotive and Industrial segments. Amounts below are in U.S. dollars; financial statement figures are unaudited.
Financial performance
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Net sales | $397.9m | $459.2m | $803.4m | $877.0m |
| Gross profit / margin | $141.8m / 35.6% | $169.0m / 36.8% | $297.0m / 37.0% | $318.6m / 36.3% |
| Operating income / margin | $52.6m / 13.2% | $59.6m / 13.0% | $113.3m / 14.1% | $97.2m / 11.1% |
| Net income | $43.8m | $42.3m | $80.8m | $78.4m |
| Diluted EPS | $1.75 | $1.67 | $3.23 | $3.12 |
- Q2 revenue fell 13.4%; management attributed the decline chiefly to lower Electronics and Automotive volumes, including electronics-channel inventory reductions and weaker global auto production, plus $7.9m of unfavorable foreign exchange.
- First-half revenue declined 8.4%, including $17.9m of unfavorable foreign exchange. Sales decreased in all three segments. Q2 year-over-year segment declines were 13.3% in Electronics, 14.6% in Automotive and 9.1% in Industrial.
- Q2 gross margin declined 1.2 percentage points, reflecting lower volume, unfavorable price and mix, and restructuring costs. First-half margin increased 0.7 points, principally because 2018 included a $36.9m IXYS inventory step-up charge.
- Q2 operating income decreased 11.7%, while net income rose 3.5%; lower non-segment charges and a $3.6m foreign-exchange gain (versus a $3.2m loss in Q2 2018) supported the bottom line. First-half operating income rose 16.6%, substantially reflecting lower prior-year IXYS-related charges and reduced operating expenses.
Cash, liquidity and capital
- Cash and cash equivalents were $474.8m at June 29, 2019, versus $489.7m at December 29, 2018. Total debt was $686.9m, including $10.0m current maturities; cash less total debt was approximately $212.2m net debt.
- Current assets were $1,039.5m and current liabilities $266.4m. The company reported $531.1m of available revolving-credit borrowing capacity, with $0.1m in letters of credit, and compliance with credit and note covenants.
- First-half operating cash flow was $80.1m, down from $140.9m, which management attributed to lower earnings and higher working capital, particularly supplier-payment timing. Investing cash use was $19.8m, including $25.2m of capital expenditures and $6.4m proceeds from property and other sales. Financing cash use was $75.6m, including share repurchases, dividends and term-loan payments.
- The company repurchased 268,130 shares for $45.5m during the first half. The board approved a 12% quarterly dividend increase, from $0.43 to $0.48, on July 24, 2019, payable September 5, 2019.
Material changes, outlook and risks
- Management said it was pursuing cost savings and IXYS integration synergies through restructuring and reorganizing manufacturing, selling and administrative functions. First-half restructuring charges were $8.4m; remaining employee-termination payments were expected primarily by December 2019. A European automotive-sensor manufacturing facility closure contributed $1.7m of termination costs.
- Other unusual items included a $2.8m impairment of certain investments and a $2.6m loss on disposal of Microwave Technology, Inc. The MWT sale closed April 26, 2019; a company director was co-owner of the buyer.
- The company adopted lease accounting guidance at the start of fiscal 2019, recognizing operating lease assets and liabilities; management reported no income-statement or cash-flow impact from adoption. At June 29, operating lease liabilities totaled $26.0m.
- No specific forward financial guidance is provided in the supplied filing text. Management stated that cash, expected operating cash flows, borrowing availability and capital-market access were expected to support operations and obligations.
- Risks cited include product demand and market acceptance, economic conditions, competition and pricing, product quality or recalls, capacity and supply constraints, foreign-exchange and commodity movements, restructuring execution, and achieving and integrating IXYS’s expected benefits. Management reported no material change to previously disclosed risk factors or market-risk exposure, and no material change in internal controls.
Important facts for investors to verify
- Whether weaker electronics demand, channel inventory reductions and lower auto production persist, and how they affect volumes, pricing and segment margins.
- Whether IXYS integration and restructuring deliver the anticipated savings, including costs and timing of the facility closure.
- Drivers of the sharp first-half operating cash-flow decline and whether working capital normalizes.
- Debt maturities, covenant headroom and liquidity under different operating conditions; the filing reports covenant compliance at quarter-end.
- Details and implications of the MWT related-party sale and the investment impairments.