Vishay Precision Group, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Vishay Precision Group designs, manufactures, and markets precision sensors, sensor-based measurement systems, specialty resistors, and strain gages. Its segments are Foil Technology Products, Force Sensors, and Weighing and Control Systems. The filing covers the fiscal quarter ended March 28, 2015, compared with the quarter ended March 29, 2014.
Key Financial Metrics
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Net revenues | $56.6 million | $61.0 million | Down 7.3% |
| Gross profit | $20.8 million | $22.0 million | Down 5.7% |
| Gross margin | 36.7% | 36.1% | Up 0.6 percentage points |
| Operating income | $2.0 million | $3.0 million | Down 34.9% |
| Operating margin | 3.5% | 5.0% | Down 1.5 percentage points |
| Net earnings attributable to VPG stockholders | $0.7 million | $1.7 million | Down 59.2% |
| Diluted EPS | $0.05 | $0.12 | Down $0.07 |
| Cash flow from operations | $(3.4) million | $2.0 million | Declined $5.4 million |
SG&A was $18.7 million, essentially flat in dollars but increased to 33.1% of revenue from 30.6%. The effective tax rate decreased to 17.3% from 21.9%. Other expense included a $1.0 million foreign-exchange loss, compared with a $0.5 million loss in the prior-year quarter.
At March 28, 2015, cash and cash equivalents were $70.2 million, total debt was $21.6 million, and management-defined net cash was $48.7 million. The current ratio was 4.1 to 1.0. Capital expenditures were $1.8 million. The company had no revolving credit borrowings and stated that cash, credit facilities, and expected operating cash flow should meet liquidity needs for at least the next 12 months.
Material Changes Versus the Prior Comparable Period
- Revenue declined $4.4 million, with approximately 7.3 percentage points of the decline attributed to foreign-currency effects; volume and pricing were broadly unchanged overall.
- Foil Technology Products revenue decreased 3.6%, while its gross margin improved to 40.6% from 37.9% due to labor efficiencies, lower variable costs, and improved manufacturing yields.
- Force Sensors revenue decreased 7.3%, primarily because of currency effects and lower volume in the European precision-weighing market. Gross margin improved to 21.9% from 21.3%.
- Weighing and Control Systems revenue decreased 12.3%; gross margin fell to 44.6% from 46.7% because of currency effects and unfavorable product mix.
- Operating income fell despite the improved consolidated gross margin, reflecting lower revenue, higher SG&A as a percentage of revenue, and a $0.4 million increase in foreign-exchange losses.
- Operating cash flow shifted from $2.0 million provided to $3.4 million used, primarily because of tax payments and increases in inventories and other working-capital accounts.
- Cash decreased $9.4 million during the quarter, including $2.5 million used in financing activities, $1.8 million used for capital expenditures, and $1.7 million of unfavorable exchange-rate effects.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expected to generate positive “free cash” by the end of 2015, although no formal revenue or earnings guidance was provided.
- Steel-industry excess capacity, particularly in China, continued to pressure demand. The company also cited weakness in oil and gas, agriculture, European precision weighing, and other end markets.
- Backlog was $59.2 million and the company-wide book-to-bill ratio was 1.05. Management cautioned that backlog can be canceled or rescheduled and is not necessarily predictive of future revenue.
- The company recorded $0.1 million of restructuring costs related to employee termination costs at a U.K. subsidiary. Additional manufacturing-consolidation activities are expected to result in future restructuring and severance costs.
- Approximately 78% of cash was held by non-U.S. subsidiaries, and repatriation could create additional taxes.
- The company was in compliance with its credit agreement covenants at quarter-end. The agreement restricts cash dividends and requires compliance with financial ratios.
- A material weakness in internal control over financial reporting remained outstanding, relating to review controls over the calculation of the 2014 fourth-quarter goodwill impairment charge. Remediation was incomplete at March 28, 2015, with completion expected during 2015.
- Foreign-currency volatility, acquisition integration, new-product development, ERP implementation, manufacturing transfers, cost-reduction execution, competition, and macroeconomic conditions were identified as significant risks.
- The company repurchased 80,429 shares for $1.2 million during the quarter and repurchased an additional 74,148 shares between March 29 and May 6, 2015.
Most Important Facts for Investors to Verify
- Whether revenue and backlog stabilize after the currency-driven decline and weakness in steel-related and European markets.
- Whether improved Foil Technology Products and Force Sensors margins can offset lower volumes and weaker Weighing and Control Systems performance.
- Whether operating cash flow returns to positive levels and the company generates the projected free cash during 2015.
- The status and effectiveness of remediation for the material weakness in internal controls.
- The magnitude and timing of additional restructuring costs associated with manufacturing consolidation.
- The effect of continued foreign-exchange losses and the tax cost of repatriating foreign-held cash.
- The remaining authorization and ongoing impact of the company’s share-repurchase program on liquidity and share count.