Littelfuse, Inc. — Q3 2021 Form 10-Q
Business context and reporting period
Littelfuse designs and manufactures circuit protection, power control, and sensing products across its Electronics, Automotive, and Industrial segments. This unaudited filing covers the quarter ended September 25, 2021, and compares results with the quarter and nine months ended September 26, 2020.
Financial performance and position
- Revenue: Q3 net sales were $539.6 million, up 37.8% year over year; nine-month sales were $1.527 billion, up 46.1%. Growth reflected higher volumes across segments, favorable foreign exchange, and Hartland Controls sales of $29.3 million in Q3 and $72.3 million year to date.
- Profit and margins: Q3 gross profit was $214.6 million (39.8% gross margin), operating income $120.1 million (22.3% operating margin), and net income $92.1 million; diluted EPS was $3.69. Nine-month net income was $231.9 million and diluted EPS $9.31. Q3 year-over-year growth: operating income 86.0%, net income 66.3%, and diluted EPS from $2.25 to $3.69.
- Cash flow: Nine-month operating cash flow was $240.7 million, versus $164.3 million in 2020. Capital expenditures were $57.5 million; acquisition spending was $110.6 million. Cash provided by operations less capital expenditures was approximately $183.1 million, before acquisitions and other investing activity.
- Liquidity and debt: Cash and cash equivalents were $690.7 million at quarter end; total debt was $647.7 million, including $27.6 million current and $620.1 million long term. The company had $600 million of available revolving-credit capacity and reported compliance with debt covenants. Current assets were $1.436 billion and current liabilities $421.6 million.
- Segments: Q3 sales were Electronics $347.2 million (+36.0%), Automotive $124.4 million (+18.8%), and Industrial $67.9 million (+115.7%). Electronics generated $100.5 million of segment operating income; Automotive $15.8 million; Industrial $6.6 million.
Material changes versus the prior comparable period
- Q3 gross margin rose to 39.8% from 35.5%, primarily from volume leverage and favorable product mix, particularly in Electronics. Higher prices also contributed; higher transportation, duty, tariff, and commodity costs were offsets.
- Q3 operating margin increased to 22.3% from 16.5%. Nine-month operating margin rose to 19.2% from 9.3%; the 2020 comparison included $36.1 million of impairment charges, including a $33.8 million goodwill impairment.
- Nine-month working-capital needs increased with sales growth: cash-flow statement changes included $83.8 million used by receivables and $71.2 million used by inventory, partly offset by higher payables.
- Debt declined from $687.0 million at December 26, 2020 to $647.7 million, including $30 million of revolving-credit repayments. The company paid $36.6 million in dividends and made no share repurchases during the first nine months of 2021.
Outlook, management commentary, risks, and unusual items
- The filing provides no numerical earnings or revenue guidance. Management said available cash, expected operating cash flows, borrowing capacity, and capital-market access should support operations and obligations in the short and long term.
- Management reported continuing supply-chain and transportation-capacity constraints, with higher transportation, raw-material, and other input costs. Semiconductor shortages were constraining vehicle production, particularly in Europe and North America. COVID-19-related disruption and associated costs could continue; the magnitude and duration were uncertain.
- Foreign-exchange results were a headwind: Q3 recorded a $3.2 million loss versus a $6.2 million gain a year earlier; nine-month results were an $8.3 million loss versus a $9.6 million gain. Nine-month other income included investment gains, partly offsetting those losses.
- Hartland Controls was acquired January 28, 2021, for a purchase price of $112.3 million. Its results are included in Industrial. The filing reports $6.8 million of year-to-date noncash inventory fair-value step-up charges and $3.4 million of year-to-date acquisition-related legal, professional, and integration expenses.
- On October 20, 2021, Littelfuse agreed to acquire Carling Technologies for $315 million in cash, subject to working-capital adjustment, customary closing conditions, and regulatory approvals; closing was expected in Q4 2021.
- A U.K. pension annuity transaction was expected to reduce the pension obligation by approximately $55 million. Management estimated a one-time, noncash settlement charge of $18–$22 million in Q4 2021; actual timing and amount could differ.
- The filing reported no material changes to previously disclosed risk factors, no legal proceedings, and no off-balance-sheet arrangements. Management concluded disclosure controls were effective.
Important facts for investors to verify
- How much of the strong sales and margin growth reflects durable demand and pricing versus COVID-19 comparison effects, favorable mix, and acquisition contribution.
- Whether supply constraints, vehicle-production weakness, and higher input and freight costs affect future volumes, margins, or customer inventories.
- Carling’s final purchase terms, financing, regulatory approvals, closing, and expected contribution to results.
- The final timing and amount of the U.K. pension settlement charge, and the related pension funding impact.
- Cash conversion and working-capital trends, including receivables and inventory growth, alongside planned capital spending, dividends, and acquisition funding.