Vishay Intertechnology, Inc. — Q2 2020 Form 10-Q
Business context and period. Vishay manufactures discrete semiconductors and passive electronic components for industrial, automotive, computing, consumer, telecommunications, power-supply, aerospace, and medical markets. This unaudited report covers the 13-week fiscal quarter ended July 4, 2020, and the six fiscal months then ended; comparisons are primarily with the quarter ended June 29, 2019 and the corresponding six months.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $581.7m | $685.2m | $1,194.6m | $1,430.4m |
| Gross profit / margin | $130.7m / 22.5% | $174.6m / 25.5% | $277.9m / 23.3% | $385.8m / 27.0% |
| Operating income / margin | $40.8m / 7.0% | $79.5m / 11.6% | $88.2m / 7.4% | $187.2m / 13.1% |
| Net earnings attributable to Vishay stockholders | $24.7m | $44.5m | $51.9m | $119.9m |
| Diluted earnings per share | $0.17 | $0.31 | $0.36 | $0.83 |
Quarterly revenue fell 15.1% year over year and 5.1% from Q1 2020. First-half revenue declined 16.5% year over year. Management attributed the declines and lower margins primarily to reduced sales volumes amid COVID-19 disruptions and the preceding slowdown in demand. Q2 SG&A was $89.1m, down from $95.1m a year earlier; Q2 included $0.7m of restructuring and severance costs. The quarter also included a $1.1m loss on early extinguishment of debt.
Cash, liquidity, and debt
- Operating cash flow for the first six months was $124.9m, compared with $135.8m a year earlier. Capital expenditures were $48.8m versus $70.1m; company-defined free cash was $76.3m versus $66.1m.
- At July 4, cash and cash equivalents were $599.9m and short-term investments were $157.2m. Long-term debt carrying value was $438.5m; management’s non-GAAP net cash and short-term investments measure was $318.7m.
- Current assets were $1.623bn and current liabilities $503.4m, a reported current ratio of 3.2:1. The company reported no revolving-credit borrowings at quarter-end and approximately $622m of usable facility capacity.
- The company repurchased $75.8m principal amount of 2025 convertible notes for $70.7m in Q2. First-half debt repurchases also included $14.3m principal amount of 2041 debentures. The company reported covenant compliance, with interest coverage of 13.37:1 and leverage of 1.49:1.
Material changes and business trends
- Q2 orders weakened: the overall book-to-bill ratio was 0.82, down from 1.17 in Q1, and backlog fell to $914.3m from $1.005bn. Management cautioned that backlog orders may be canceled or rescheduled.
- All six product segments reported lower Q2 revenue than in the prior-year quarter. Capacitors had the largest year-over-year segment revenue decline, 24.7%; Resistors fell 15.1%, Optoelectronic Components 19.0%, Inductors 15.4%, Diodes 12.6%, and MOSFETs 7.7%.
- COVID-19 caused temporary manufacturing closures and reduced-capacity operations, including disruptions at facilities in China, the Philippines, and Malaysia, as well as customer and shipping interruptions. Q2 COVID-related costs in cost of products sold were $0.9m, partly offset by $0.7m of SG&A benefits. First-half figures were $4.1m of product-cost charges and $0.4m of SG&A benefits.
- First-half cash flow and free cash were affected by $16.3m of withholding and foreign taxes on $104.1m repatriated to the U.S. The company said this completed its cash repatriation program. Substantially all cash and short-term investments were held outside the U.S.
Outlook, commentary, and risks
- For Q3 2020, management forecast revenue of $580m–$620m and gross margin of 22.8%, plus or minus 70 basis points, assuming a USD/EUR exchange rate of 0.87. The filing states interim results are not necessarily indicative of full-year results.
- Management expected approximately $110m of 2020 capital spending and approximately $55m of 2020 dividend payments, subject to Board approval. It expected its cost-reduction programs to be fully implemented by December 2020; the programs were expected to reduce annual costs by approximately $15m.
- Management described liquidity as significant and the COVID-19 economic impact as expected to be temporary, while noting uncertainty about the duration and effects. Risks include further demand or pricing declines, manufacturing and supply-chain disruption, higher shipping costs, customer credit exposure, foreign exchange, tariffs, and possible asset impairments.
- Insurance generally excludes pandemic losses; any potential recovery would not be recognized until contingencies are settled. The company reported no material developments in previously disclosed legal proceedings. It also reported no material changes in market risks since year-end 2019.
Important facts for investors to verify
- Whether Q3 revenue and gross-margin guidance is achieved, and how demand, orders, book-to-bill, and backlog develop.
- Whether COVID-related operating disruptions and costs persist, particularly at constrained facilities and in automotive, industrial, and other affected end markets.
- The sustainability of margins and segment performance as volumes recover or weaken, and the effect of pricing, mix, shipping costs, and cost reductions.
- Debt repurchases, cash held overseas, revolver availability, covenant headroom, and the timing and funding of future debt, dividend, or investment needs.
- Execution and realized savings from the restructuring program, alongside the stated capital-expenditure and dividend expectations.