Littelfuse, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 30, 2019; comparisons are with the three months ended March 31, 2018. Littelfuse manufactures circuit protection, power control and sensing products and reports Electronics, Automotive and Industrial segments. Dollar amounts below are in millions unless noted.
Financial performance
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Net sales | $405.5 | $417.8 | -2.9% |
| Gross profit / margin | $155.2 / 38.3% | $149.6 / 35.8% | Margin +2.5 pts |
| Operating income / margin | $60.7 / 15.0% | $37.6 / 9.0% | +61.5% |
| Net income | $37.0 | $36.0 | +2.7% |
| Diluted EPS | $1.48 | $1.45 | +$0.03 |
| Operating cash flow | $30.9 | $69.3 | -$38.3 |
Sales declined primarily due to $9.9 million of unfavorable foreign exchange and weaker passenger-car and automotive-sensor volumes, partly offset by higher semiconductor sales associated with IXYS. Segment sales were Electronics $265.4 million (+0.4%), Automotive $113.5 million (-10.0%) and Industrial $26.6 million (-2.4%).
Operating income and margins improved substantially, mainly because Q1 2018 included a $17.9 million IXYS inventory step-up charge and materially higher acquisition-related expenses. Operating expenses fell 15.6% to $94.6 million. The reported improvement therefore includes significant prior-period comparison effects; management also cited lower operating income across all segments.
Pre-tax income was $46.4 million, versus $44.6 million. Q1 2019 included foreign-exchange losses of $4.2 million (versus gains of $10.6 million in Q1 2018), a $2.8 million impairment charge on certain investments, and a $2.6 million loss on disposal of Microwave Technology. The effective tax rate was 20.3%, compared with 19.3%.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $476.6 million at quarter-end, down $13.1 million from December 29, 2018. Current assets were $1,030.1 million and current liabilities $269.6 million.
- Total debt was $686.5 million, including $10.0 million current and $676.5 million long-term; cash less total debt implies net debt of approximately $209.9 million. The $700 million revolving facility had $699.9 million available, with $0.1 million in letters of credit. The company reported covenant compliance.
- Operating cash flow was $30.9 million; investing cash use was $14.2 million, including $14.1 million of capital expenditures; financing cash use was $31.3 million. Management attributed lower operating cash flow primarily to higher working capital and timing of customer and supplier payments.
- The company repurchased 79,916 shares for $13.6 million during the quarter and paid $10.6 million in dividends. A new authorization permits repurchases of up to 1 million shares from May 1, 2019 through April 30, 2020.
Material changes, outlook and risks
- In April 2019, the company announced the closure of a European automotive-sensor manufacturing facility and estimated related restructuring costs of $5 million to $7 million. Q1 restructuring charges were $2.7 million; the company also recorded $2.4 million of IXYS integration charges.
- The company completed the sale of Microwave Technology on April 26, 2019, following a March agreement; the Q1 disposal loss was $2.6 million. The company disclosed that a board member co-owned a company that agreed to purchase the business.
- Adoption of lease accounting on December 30, 2018 added operating lease right-of-use assets and liabilities; at March 30, lease liabilities totaled $27.4 million. Adoption had no reported income-statement or cash-flow impact.
- No quantified earnings or revenue guidance is provided in the filing. Management expects cash, operating cash flows, available financing and capital-market access to support operations, capital spending, investments and debt obligations. It expects restructuring actions and IXYS integration to generate cost savings, but gives no quantified savings outlook.
- Forward-looking risks include demand and economic conditions, competition and pricing, quality or supply disruptions, foreign-exchange and commodity movements, restructuring costs, pension returns, regulatory changes, and the ability to integrate IXYS and realize expected synergies. The filing reports no material change in risk factors or market-risk exposure and no legal proceedings.
Important facts for investors to verify
- Whether Automotive demand, especially passenger-car and automotive-sensor volumes, stabilizes, and how much of the sales decline reflects currency versus underlying demand.
- How sustainable reported margin and earnings improvement is after adjusting for the unusually high IXYS-related charges in the 2018 comparison period.
- Whether working-capital timing reverses and operating cash flow recovers; Q1 cash generation was well below the prior-year quarter.
- Actual costs, timing and savings from the announced European plant closure and other restructuring and IXYS integration actions.
- Debt repayment, share repurchases and dividends relative to cash generation, and continued compliance with debt covenants.