Vishay Intertechnology, Inc. — Form 10-Q Summary
Reporting period: Fiscal quarter ended September 30, 2017; year-to-date results cover the nine fiscal months ended that date. Comparisons are with the quarter ended October 1, 2016 and the corresponding prior-year nine-month period, unless noted. Vishay manufactures discrete semiconductors and passive electronic components across five segments: MOSFETs, Diodes, Optoelectronic Components, Resistors & Inductors, and Capacitors.
Financial results and position
| Metric | Q3 2017 | Prior-year comparison |
|---|---|---|
| Revenue | $677.9 million | $592.0 million; up 14.5% |
| Gross profit / margin | $189.3 million / 27.9% | $153.9 million / 26.0% |
| Operating income / margin | $92.3 million / 13.6% | $57.2 million / 9.7% |
| Net earnings attributable to Vishay stockholders | $64.4 million | $36.4 million |
| Diluted EPS | $0.41 | $0.24 |
| Cash dividend per share | $0.0625 | $0.0625 |
For the first nine months, revenue was $1,929.0 million, up 10.1%; operating income was $239.1 million versus $147.2 million; and net earnings attributable to Vishay stockholders were $157.3 million versus $97.5 million. Diluted EPS was $1.01 versus $0.65. Year-to-date gross margin increased to 27.1% from 25.0%.
- Cash flow: Nine-month operating cash flow was $245.8 million versus $213.1 million. Company-defined free cash was $162.5 million versus $133.0 million. Capital expenditures were $84.8 million.
- Liquidity and debt: At September 30, cash and cash equivalents were $575.4 million and short-term investments were $668.2 million. Debt carrying value was $356.9 million; company-defined net cash and short-term investments were $886.6 million. The current ratio was 4.3:1.
- Balance sheet changes: Inventories rose to $437.6 million from $381.2 million at year-end 2016; accounts receivable increased to $329.4 million from $274.0 million. Total assets were $3.334 billion.
Material changes and operating trends
- Management attributed higher revenue mainly to increased volume; year-over-year price declines partly offset growth. Demand was strong across most end markets, with distributors, particularly in Europe and Asia, driving elevated orders.
- Company backlog rose to $1.122 billion from $1.034 billion in the prior quarter. The Q3 book-to-bill ratio was 1.11, down from 1.27 in Q2 but still above 1.0. Management reported longer lead times, some supply shortages, and product lines operating at or near capacity.
- All five segments reported higher Q3 revenue year over year. MOSFETs posted the strongest reported growth, with revenue up 24.4% and gross margin improving to 25.5% from 16.2%, supported by volume and cost-reduction initiatives. Optoelectronic Components’ gross margin rose to 37.7% from 33.3%; Capacitors’ margin declined to 20.3% from 21.3%.
- Foreign currency translation increased reported Q3 revenue versus both the prior quarter and prior-year quarter. Management said euro-based sales and expenses substantially offset one another overall.
Outlook, commentary, risks, and unusual items
- Q4 2017 guidance: Revenue of $645 million to $685 million and gross margin of 26% to 28%, using Q3 exchange rates. Management expected 2017 free cash generation in line with its historical experience, while cautioning that a worsening economic environment could affect cash generation.
- Capacity and demand: The company was expanding manufacturing capacity and output to address demand, but acknowledged delivery delays and shortages. Backlog orders may be cancelled or rescheduled, often without penalty, and are not necessarily predictive of future revenue.
- Cost programs: The extended MOSFETs program is expected to involve total cash charges of $26–$27 million; additional annualized savings of approximately $8–$9 million were largely achieved by Q3. The 2015 global programs target approximately $35 million in annual savings at current volumes, with expected cash costs of about $30 million.
- Unusual items: Nine-month results included a $7.1 million loss on disposal of an equity-method investment. The filing notes unresolved investee contingencies that could require an adjustment, but does not expect their resolution to have a material effect. Nine-month tax expense included $3.1 million related to remeasurement of the deferred tax liability for the cash repatriation program.
- Debt and conversion: Debentures due 2040 and 2042 were convertible under the terms described in the filing; no conversions had occurred. Management intended to repay principal in cash and settle any excess conversion value in shares, potentially using the revolving credit facility. A portion was classified as temporary equity.
- Principal risks: Results remain exposed to global economic and end-market demand, competition and typical product-price erosion, foreign-exchange movements, capacity constraints, execution of cost programs, and acquisition and integration risks. The company reported no material change to previously disclosed risk factors or market risks. It was in compliance with credit-facility covenants at quarter-end.
Important facts for investors to verify
- Whether strong orders and the $1.122 billion backlog convert to shipments, given lead times, capacity limits, and customers’ cancellation or rescheduling rights.
- Whether Q4 revenue and gross-margin guidance is achieved, and whether volume and efficiency gains continue to offset pricing pressure and inflation.
- How working-capital growth, particularly inventory and receivables, affects future operating cash flow and free cash.
- Progress against restructuring costs and savings targets, including remaining MOSFETs and global cost-reduction activity.
- Potential cash funding needs if convertible debentures are converted, and the implications for borrowing, share dilution, and liquidity.
- Whether distributor incentive estimates, foreign-currency effects, repatriation taxes, or the equity-investment contingencies produce material future adjustments.