Littelfuse, Inc. 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report on Form 10-Q for Littelfuse, Inc., covering the period ended June 27, 2009. Littelfuse designs, manufactures, and sells circuit protection devices for the electronics, automotive, and electrical markets globally. The company operates three business segments: Electronics, Automotive, and Electrical.
Key Financial Metrics
| Metric | Three Months Ended June 27, 2009 | Six Months Ended June 27, 2009 |
|---|---|---|
| Net Sales | $101.4 million | $185.8 million |
| Gross Profit | $25.4 million (25% margin) | $43.7 million (24% margin) |
| Operating Income (Loss) | ($3.5) million | ($13.6) million |
| Net Income (Loss) | ($2.6) million | ($10.4) million |
| Diluted EPS | ($0.12) | ($0.48) |
| Cash and Equivalents | $48.3 million (as of June 27, 2009) | |
| Total Debt | $73.6 million ($68.0M Term Loan + $5.6M Revolving) | |
| Operating Cash Flow | ($4.2) million used (Six Months) |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 32% year-over-year for the quarter and 34% for the six-month period, driven by weak global demand in the electronics and automotive sectors and unfavorable currency effects.
- Profitability: The company reported an operating loss of $3.5 million for the quarter, compared to operating income of $13.3 million in the same period in 2008. Gross margins compressed from 32% to 25% due to loss of operating leverage and restructuring charges.
- Segment Performance:
- Electronics: Sales down 36% (quarter) and 37% (YTD).
- Automotive: Sales down 40% (quarter) and 45% (YTD).
- Electrical: Sales increased 8% (quarter) and 13% (YTD), aided by the inclusion of Startco acquisition sales.
- Restructuring: The company incurred approximately $3.0 million in current restructuring charges during the quarter related to facility closures in Europe, Asia, and the U.S.
Outlook, Risks, and Management Commentary
- Outlook: Management expects weakness in automotive and electronics markets to continue through 2009 and into 2010 due to the global economic downturn. The electrical business may also face headwinds from declining non-residential construction.
- Cost Reduction: The company is executing a plan to reduce operating expenses by approximately $20 million and manufacturing costs by $10 million in 2009, in addition to $20 million in savings from manufacturing transfers to low-cost locations. Capital spending for 2009 is expected to be approximately $21 million.
- Liquidity: The company maintains $75.0 million in available borrowing capacity under its domestic revolving credit facility and is in compliance with all debt covenants. Cash balances decreased by $22.6 million during the six-month period.
- Risks: Key risks include continued economic weakness, foreign exchange fluctuations (significant exposure to the Euro), commodity price volatility (copper, zinc), and the successful integration of recent acquisitions.
Investor Verification Checklist
- Verify the sustainability of the $30 million in targeted cost savings for 2009 amidst declining sales volumes.
- Monitor the progress of manufacturing transfers to China, Mexico, and the Philippines to ensure projected savings are realized.
- Assess the impact of foreign currency fluctuations on future earnings, given 66% of sales are outside the U.S.
- Review the timeline for the completion of restructuring programs in Europe and Asia to confirm cash outflow schedules.
- Track the recovery of the automotive and electronics end-markets to gauge revenue stabilization.