Littelfuse, Inc. — Form 10-Q Summary
Reporting period: Third quarter ended September 26, 2015; comparisons are with the quarter ended September 27, 2014. Financial amounts below are in U.S. dollars.
Business context
Littelfuse designs, manufactures, and sells circuit protection products through Electronics, Automotive, and Electrical segments. Its markets include consumer electronics, automotive, industrial, mining, solar, and oil and gas. The filing is unaudited.
Financial performance and liquidity
| Metric | Q3 2015 | Q3 2014 | First nine months 2015 | First nine months 2014 |
|---|---|---|---|---|
| Net sales | $215.5 million | $217.6 million | $647.8 million | $645.4 million |
| Gross profit / margin | $86.2 million / 40% | $87.4 million / 40% | $247.8 million / 38% | $248.9 million / 39% |
| Operating income | $8.6 million | $40.1 million | $74.3 million | $107.4 million |
| Net income | $11.3 million | $29.9 million | $60.0 million | $79.9 million |
| Diluted EPS | $0.50 | $1.32 | $2.64 | $3.52 |
- Q3 operating income included a $30.2 million U.S. pension settlement charge. Excluding that charge, operating income was $38.8 million, about an 18% margin. The filing reports Q3 gross margin of 40%; excluding $1.2 million of production-transfer costs, it was 41%.
- Nine-month operating cash flow was $113.6 million, versus $103.8 million a year earlier. Capital expenditures were $35.0 million, compared with $19.4 million. Cash and cash equivalents ended at $336.6 million, up from $297.6 million at year-end 2014; exchange-rate changes reduced cash by $18.3 million.
- Total debt was $209.0 million, including $117.5 million classified as current. The company had $167.4 million of revolver capacity available and was in compliance with its credit covenants. Debt includes an $11.5 million China entrusted loan, offset by a corresponding intercompany loan asset.
- Current assets were $613.8 million and current liabilities $232.1 million; management reported a current ratio of 2.7. Approximately $317.5 million of cash was held by foreign subsidiaries, and the company did not expect to repatriate most of it.
- Dividends paid were $0.29 per share in Q3 and $0.79 per share year to date. The company repurchased 350,000 shares during the first nine months.
Changes versus comparable periods
- Q3 sales declined 1% as reported, but increased 4% excluding $9.9 million of unfavorable foreign-currency effects. Year-to-date reported sales were nearly flat; excluding $31.1 million of unfavorable currency effects, they increased 5%.
- Q3 segment sales: Electronics fell 5% (down 2% excluding currency), Automotive rose 1% (up 8% excluding currency), and Electrical rose 8% (up 12% excluding currency). Year-to-date, Automotive grew 3% and Electrical 3%, while Electronics declined 2%.
- Q3 net income fell 62%, primarily reflecting the pension settlement. Excluding that charge, operating income was below the prior-year quarter. Year-to-date net income fell 25%; the pension charge and currency effects on sales and gross profit were key factors.
- Year-to-date operating cash flow improved, while capital spending and share repurchases increased. Cash rose despite significant negative currency translation effects.
Outlook, commentary, and risks
- Management described economic signals as mixed and visibility as limited. Electronics book-to-bill was 0.95 in Q3, which management said was better than normal, but early Q4 order rates were relatively weak.
- Management expected normal sequential declines in Q4 sales and margins. Q4 included an extra week, expected to add approximately $10 million of sales; the sales outlook, including that week, was $212 million to $222 million. No full-year earnings guidance is stated in the provided filing text.
- The U.S. defined benefit pension plan was terminated and its liabilities settled in Q3 through lump-sum payments or a group annuity purchase. Littelfuse contributed $9.1 million to fully fund the plan on a buyout basis; settlement generated the $30.2 million pretax charge.
- On October 1, 2015, after quarter-end, the company acquired Italian sensor maker Sigmar, with approximately $6 million in annual revenue, for the Automotive segment. The filing text does not provide the purchase price.
- Key disclosed exposures include foreign-exchange movements, commodity prices, market demand, pricing competition, capacity constraints, and acquisition integration. A 10% commodity-price change was estimated to affect annual pretax profit by approximately $1.6 million for copper, $0.7 million for zinc, $0.6 million for silver, and $0.2 million for gold. The company reported no material changes to previously disclosed risk factors and no legal proceedings.
Important facts for investors to verify
- How much of the reported earnings decline is attributable to the pension settlement and other special charges, and what ongoing costs or cash obligations remain after plan termination?
- Whether weak early-Q4 order rates and Electronics demand affect the stated Q4 sales range and expected sequential margins.
- Whether segment growth, especially Automotive and Electrical, offsets Electronics weakness and continued foreign-exchange headwinds.
- Cash availability and capital allocation: most cash is held abroad, while debt includes a substantial current portion and the company continues dividends and repurchases.
- The Sigmar acquisition’s purchase price, financing, integration progress, and contribution to Automotive results; these details are not clear in this filing text.