Vishay Precision Group, Inc. — Form 10-Q Summary
Business context and reporting period
VPG designs and manufactures precision foil technology products, force sensors, and weighing and control systems for stress, force, weight, pressure, and current measurement applications. The filing covers the fiscal quarter and six fiscal months ended June 28, 2014, compared with June 29, 2013.
Key financial metrics
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Net revenues | $65.2 million | $62.8 million | $126.2 million | $120.3 million |
| Gross profit | $24.7 million | $21.6 million | $46.7 million | $41.5 million |
| Gross margin | 37.9% | 34.3% | 37.0% | 34.5% |
| Operating income | $4.8 million | $2.8 million | $7.8 million | $4.1 million |
| Net earnings attributable to VPG | $3.5 million | $1.3 million | $5.2 million | $1.7 million |
| Diluted EPS | $0.25 | $0.09 | $0.37 | $0.12 |
| Operating cash flow | Not separately provided | Not separately provided | $4.9 million | $4.0 million |
- Q2 revenue increased 3.7%; six-month revenue increased 4.9%. Volume was the primary driver, while average selling prices were slightly lower.
- Q2 operating margin improved to 7.3% from 4.4%; six-month operating margin improved to 6.2% from 3.4%.
- SG&A increased to $19.9 million in Q2 and $38.6 million for the six-month period, primarily from higher personnel costs.
- Cash and cash equivalents were $72.5 million at June 28, 2014, compared with $72.8 million at December 31, 2013. Current assets were $186.1 million versus current liabilities of $44.3 million, producing a current ratio of 4.2 to 1.0.
- Total debt was $25.0 million, down from $27.1 million at year-end. Management reported net cash of $47.4 million, a non-GAAP measure.
- Capital expenditures were $3.4 million, resulting in management-defined free cash of $1.5 million after operating cash flow, capital expenditures, and asset-sale proceeds.
Material changes versus the prior comparable period
- Foil Technology Products revenue increased 14.3% in Q2 and 10.6% year to date, with Q2 gross margin improving to 40.2% from 38.1%.
- Force Sensors revenue increased 5.5% in Q2 and 2.8% year to date. Q2 gross margin improved to 21.9%, but six-month gross margin declined to 21.6% from 23.7% because of higher fixed manufacturing and labor costs.
- Weighing and Control Systems revenue declined 9.3% in Q2 and 0.5% year to date, although gross margin rose to 48.2% in Q2 and 47.5% year to date.
- Prior-year results included $2.3 million of Q2 and $3.5 million of six-month KELK acquisition purchase-accounting adjustments in cost of products sold, plus $0.2 million and $0.7 million of acquisition costs. These items make reported margin and earnings comparisons more favorable in 2014.
- The company recorded $0.3 million of restructuring costs during the first six months of 2014, primarily for employee termination costs at its Canadian subsidiary. Approximately $0.2 million had been paid by quarter-end; remaining payments were expected through the remainder of 2014 and the first quarter of 2015.
- Foreign currency translation produced $1.4 million of other comprehensive income in Q2 and $1.2 million year to date, compared with losses in the prior-year periods.
Guidance, outlook, commentary, and risks
- No specific revenue or earnings guidance was provided. Management expects cash, available credit facilities, and projected operating cash flow to satisfy liquidity needs for at least the next 12 months.
- Management cited improved Q2 volume across segments, lower fixed manufacturing costs, ongoing automation, product innovation, manufacturing transfers to lower-cost countries, and potential strategic acquisitions as growth and profitability initiatives.
- The consolidated book-to-bill ratio was 0.98 in Q2 2014, and backlog was $65.2 million. Management characterized demand as returning to a normal level; backlog may be canceled or rescheduled and is not necessarily predictive of future revenue.
- The company is implementing a corporate-entity reorganization expected to be completed in Q4 2014. Q2 tax expense included a $1.9 million discrete charge related to foreign earnings previously considered permanently reinvested and a $2.0 million discrete benefit from reversing a U.S. foreign tax credit valuation allowance.
- Risks include economic conditions, foreign exchange volatility, acquisition integration, product development and competition, ERP implementation and manufacturing inefficiencies, cost-reduction execution, production transfers, labor issues, and potential restructuring costs.
- VPG was in compliance with its credit agreement covenants at June 28, 2014. The principal credit agreement matures in 2018; an Israeli revolving facility of up to $15.0 million terminates November 30, 2014 and had no balance outstanding.
- Approximately 88% of cash was held by non-U.S. subsidiaries, and repatriation could create additional tax costs. The filing states that there were no material changes to previously disclosed market risks or risk factors.
Important facts for investors to verify
- Whether improved Foil Technology Products performance and Q2 volume trends continue, particularly with the consolidated book-to-bill ratio below 1.0.
- Whether the Weighing and Control Systems revenue decline persists despite strong reported margins.
- The sustainability of reported earnings after excluding prior-year KELK purchase-accounting adjustments and considering the 2014 discrete tax items.
- Execution of the Canadian restructuring, additional manufacturing consolidations, cost transfers, and ERP-related initiatives.
- Availability and tax implications of cash held outside the United States, including the effect of potential repatriation.
- Completion and financial effects of the planned corporate-entity reorganization in Q4 2014.