Littelfuse, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended April 1, 2023; comparisons are with the three months ended April 2, 2022. Littelfuse designs and manufactures components and systems serving electronics, transportation, and industrial markets.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $609.8m | $623.3m | Down 2.2% |
| Gross profit / margin | $245.0m / 40.2% | $258.6m / 41.5% | Margin down 1.3 points |
| Operating income / margin | $110.6m / 18.1% | $150.6m / 24.2% | Down 26.5% |
| Net income | $88.7m | $117.5m | Down 24.5% |
| Diluted EPS | $3.54 | $4.70 | Down 24.7% |
| Operating cash flow | $53.4m | $51.7m | Up $1.7m |
Lower volume in Electronics and Transportation, plus higher operating expenses, drove the decline in operating income and earnings. Cost of sales was 59.8% of sales versus 58.5% a year earlier. Expenses included $3.3m of acquisition-related legal, professional, and integration costs and $1.9m of restructuring charges. The prior-year quarter included $4.8m of acquisition inventory step-up charges and a $7.2m tax benefit from a one-time deduction.
Segments and material changes
- Electronics: Sales of $358.6m, down 2.0%; operating income of $90.2m versus $120.6m. Distributor inventory rebalancing and softer consumer-facing, personal electronics, and telecom demand outweighed C&K acquisition sales and higher semiconductor volume.
- Transportation: Sales of $166.6m, down 9.7%; operating income of $8.5m versus $26.3m. Management cited softer commercial vehicle demand, customer and distributor inventory adjustments, and lower demand in China.
- Industrial: Sales of $84.5m, up 15.8%; operating income of $17.1m versus $12.5m. Growth reflected MRO/construction, renewables, and industrial safety demand, plus Western Automation.
- Sales declined 12.4% in Asia-Pacific and 1.4% in the Americas, while Europe grew 17.5%. Unfavorable foreign exchange reduced total sales by $10.0m, or 1.6%.
Cash, debt, and liquidity
Cash and cash equivalents were $425.1m at April 1, down from $562.6m at year-end. Total debt was $1,004.9m, including $137.9m current maturities; cash less total debt implies net debt of approximately $579.7m. The company had $600.0m of available revolving-facility borrowing capacity and reported compliance with debt covenants. The effective rate on revolving and term borrowings was 5.91%; a $200m interest-rate swap hedges floating-rate exposure.
Operating cash flow was $53.4m. Investing cash use was $183.2m, including $158.3m net cash for the Western Automation acquisition and $25.7m of capital expenditures. Financing cash use was $12.2m, including $14.9m of dividends. Management said cash, operating cash flows, funding availability, and capital-market access should provide sufficient funds for short- and long-term needs.
Acquisition, outlook, and risks
Littelfuse acquired Western Automation on February 3, 2023, for approximately $162m in cash (purchase consideration of $158.3m net of cash acquired). The business, assigned to Industrial, contributed $2.7m in sales and a $0.1m pretax loss after acquisition. Purchase accounting remains preliminary, particularly the valuation of certain income tax assets and liabilities. Management does not expect the acquisition to materially affect 2023 results.
The filing provides no specific sales or earnings guidance. Management described a challenging macro environment, including supply-chain disruptions, varied regional conditions, pockets of end-market softness, and the war in Ukraine. The company reported no direct operations in Russia or Ukraine; it cited modest effects from higher transportation costs and suspension of sales into and purchases from Russia. Other disclosed risks include demand and pricing, product quality, capacity constraints, foreign exchange and commodity movements, labor, regulation, and acquisition integration. The company reported no material change in risk factors from its 2022 Form 10-K, no material change in market-risk exposure, and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether weaker Electronics and Transportation demand and inventory adjustments persist, and the pace of recovery in operating margins.
- How much of the sales and earnings comparison reflects underlying demand, foreign exchange, acquisitions, and prior-year one-time items.
- Completion of Western Automation purchase accounting, integration progress, and its eventual contribution to Industrial results.
- Cash conversion and working-capital trends, alongside the upcoming 2023 maturity of Euro Senior Notes, Series A.
- Continued covenant compliance and the impact of borrowing costs; the filing reports $600m of revolver availability and a 5.91% effective rate on revolving and term borrowings.