Vishay Precision Group, Inc. — Form 10-Q Summary
Business Context and Reporting Period
VPG designs, manufactures, and markets precision sensors, sensor-based measurement systems, specialty resistors, and strain gages. Its reportable segments are Foil Technology Products, Force Sensors, and Weighing and Control Systems. The filing covers the 13-week fiscal quarter and six fiscal months ended July 1, 2017, compared with July 2, 2016. The interim financial statements are unaudited.
Key Financial Metrics
| Metric | Q2 2017 | Q2 2016 | Six Months 2017 | Six Months 2016 |
|---|---|---|---|---|
| Net revenues | $62.3 million | $58.0 million | $122.1 million | $114.6 million |
| Gross profit | $24.8 million | $21.5 million | $47.3 million | $41.3 million |
| Gross margin | 39.7% | 37.1% | 38.7% | 36.0% |
| Operating income | $5.6 million | $1.7 million | $9.4 million | $2.7 million |
| Operating margin | 9.1% | 2.9% | 7.7% | 2.3% |
| Net earnings attributable to VPG stockholders | $3.6 million | $1.9 million | $5.6 million | $2.3 million |
| Diluted EPS | $0.27 | $0.14 | $0.42 | $0.18 |
| Operating cash flow | Not separately provided | Not separately provided | $7.3 million | $0.3 million |
Q2 segment revenue was $29.3 million for Foil Technology Products, $15.7 million for Force Sensors, and $17.4 million for Weighing and Control Systems. Q2 segment gross margins were 41.9%, 28.9%, and 45.8%, respectively.
At July 1, 2017, cash and cash equivalents were $63.2 million, compared with $58.5 million at December 31, 2016. Total debt was $33.6 million, down from $36.2 million. Management-defined free cash was $4.5 million for the six-month period, calculated as operating cash flow less capital expenditures plus asset-sale proceeds. The current ratio was 4.0 to 1.0.
Material Changes Versus the Prior Comparable Period
- Q2 revenue increased 7.5%, driven by higher volume in all three segments. Six-month revenue increased 6.5%.
- Q2 gross margin improved 260 basis points, and six-month gross margin improved 270 basis points, primarily from higher volume, manufacturing efficiencies, and cost-reduction benefits.
- Foil Technology Products was the strongest growth segment, with Q2 revenue up 15.6%, supported by Pacific Instruments revenue and higher Asian test-and-measurement demand.
- Force Sensors revenue increased 1.7% in Q2, while Weighing and Control Systems revenue increased 0.7%; both were affected by unfavorable foreign-currency effects.
- Operating income increased substantially as a result of higher gross profit, the absence of prior-year acquisition costs, and lower restructuring costs.
- Q2 restructuring costs declined to $0.3 million from $1.0 million; six-month restructuring costs declined to $0.9 million from $1.7 million. No acquisition costs were recorded in 2017.
- The effective tax rate increased to 24.9% in Q2 and 27.8% for the six months, compared with a prior-year Q2 tax benefit-driven rate of negative 43.7% and a six-month rate of 1.2%.
- Foreign currency reduced Q2 revenue by approximately $1.3 million and reduced six-month revenue by approximately $2.4 million versus the comparable periods.
Guidance, Outlook, Risks, and Unusual Items
The filing does not provide specific full-year revenue or earnings guidance. Management expects current cash, available credit facilities, and projected operating cash flow to satisfy liquidity needs for at least the next 12 months. The company continues to pursue automation, manufacturing transfers, facility consolidation, cost reductions, research and development, and strategic acquisitions.
Backlog increased to $67.5 million at the end of Q2 2017 from $51.4 million a year earlier, and the company-wide book-to-bill ratio was 1.08. Management cautions that orders may be canceled or rescheduled and that backlog is not necessarily indicative of future revenue.
- VPG remains exposed to foreign-currency volatility; currency movements produced a Q2 foreign-exchange loss of $0.3 million and a six-month loss of $0.6 million.
- Restructuring programs may generate additional severance and facility-closure costs. The restructuring liability was $0.5 million at July 1, 2017.
- Credit facilities mature or terminate in December 2020, include financial maintenance covenants, and restrict cash dividends. VPG reported compliance with its covenants at quarter-end.
- Approximately 94% of cash was held by non-U.S. subsidiaries, and repatriation could result in additional taxes.
- Goodwill impairment, acquisition integration, new-product development, competition, technology changes, economic conditions, and the execution of cost-reduction programs remain material risks.
- A holder exchanged approximately $1.3 million of exchangeable notes for 57,729 common shares. Approximately $2.8 million of exchangeable notes remained outstanding at July 1, 2017.
- The company is evaluating several new accounting standards, including revenue recognition, leases, pension-cost presentation, goodwill impairment, and business-combination guidance.
Important Facts for Investors to Verify
- Whether improved gross margins and operating margins are sustainable after restructuring benefits and favorable volume effects.
- The durability of Foil Technology Products growth and the contribution from Pacific Instruments.
- Foreign-currency impacts, particularly exposure to the British pound, euro, Canadian dollar, Israeli shekel, and other operating currencies.
- Backlog conversion, order cancellations or rescheduling, and segment book-to-bill trends.
- Compliance with credit-agreement covenants and the company’s ability to continue reducing debt.
- Future restructuring charges, facility-consolidation plans, and potential effects on customer service and production capacity.
- The effect of tax-rate normalization following the prior-year valuation-allowance release.
- The eventual accounting impact and adoption method for the new revenue-recognition standard.