Vishay Intertechnology, Inc. — Q1 2015 Form 10-Q
Business and period: Vishay manufactures discrete semiconductors and passive electronic components across five segments: MOSFETs, Diodes, Optoelectronic Components, Resistors & Inductors, and Capacitors. The filing covers the fiscal quarter ended April 4, 2015; comparisons are with the quarter ended March 29, 2014 unless otherwise stated. Dollar amounts below are in millions except per-share data.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $593.4 | $602.4 |
| Gross profit / margin | $145.0 / 24.4% | $145.3 / 24.1% |
| Operating income / margin | $47.6 / 8.0% | $42.6 / 7.1% |
| Net earnings attributable to Vishay stockholders | $30.7 | $25.8 |
| Diluted EPS | $0.20 | $0.17 |
| Operating cash flow | $13.5 | $30.0 |
| Capital expenditures | $19.8 | $19.3 |
- Revenue declined 1.5% year over year. Management attributed the change to volume growth of 5.6%, offset by lower average selling prices (2.1%), foreign currency effects (6.2%), acquisitions (1.9%), and other factors (0.7%). The stronger U.S. dollar, particularly against the euro, reduced reported revenue; management said the related expense benefit substantially offset the currency impact on profitability.
- GAAP earnings improved despite slightly lower revenue. Restructuring and severance costs fell to $1.4 million from $6.4 million. Adjusted net earnings, a company-defined non-GAAP measure, were $31.6 million versus $30.1 million; adjusted diluted EPS was $0.21 versus $0.20.
- Cash and cash equivalents were $517.0 million and short-term investments were $539.0 million at April 4, 2015. Total debt was $470.9 million, including $215.0 million drawn on the revolving facility. Management’s non-GAAP measure of net cash and short-term investments was $585.1 million, down from $652.0 million at year-end 2014.
- Current assets were $1,895.0 million and current liabilities were $441.2 million; the current ratio was 4.3:1. Total debt to Vishay stockholders’ equity was 0.27:1.
- Operating cash flow fell year over year, primarily because of a larger increase in working capital. Cash declined $75.2 million during the quarter; investing activities used $78.7 million, including net purchases of short-term investments, and exchange-rate movements reduced cash by $16.2 million.
- The company paid $0.06 per share in dividends. It reported $190.0 million of permitted capacity for dividends and repurchases under its credit facility, subject to the agreement and board authorization.
Material changes and segment trends
- Gross margin rose 0.3 percentage points and operating margin rose 0.9 points year over year. Management cited higher volume and cost savings; additional depreciation tied to restructuring programs continued to weigh on gross margin.
- Optoelectronic Components revenue increased 19.4% to $68.6 million, benefiting from volume growth and acquisitions, including Capella; segment gross margin declined to 32.3% from 36.9%, partly because Capella had lower margins.
- Capacitors revenue fell 10.9% to $94.0 million, with currency effects and lower volume contributing; gross margin improved to 21.6% from 20.4%.
- MOSFETs revenue declined 5.6% to $106.8 million, mainly reflecting price and currency effects; gross margin improved to 12.9% from 11.2%. Diodes revenue was nearly flat at $136.5 million. Resistors & Inductors revenue declined 1.0% to $187.5 million, primarily due to currency effects.
- Order indicators strengthened: consolidated book-to-bill was 1.05, up from 0.95 in Q4 2014; backlog rose to $559.6 million from $554.7 million. Average selling prices declined 0.9% versus the prior quarter.
Outlook, risks, and notable items
- Q2 2015 outlook: Revenue of $600 million to $640 million and gross margin of 24% to 26%, assuming a U.S. dollar/euro exchange rate of 1.10. Management said Q1 results met expectations at the prevailing revenue level and described broad improvement in order activity. No full-year revenue or earnings guidance is provided in the supplied filing text.
- The company expects approximately $160 million of 2015 capital spending and approximately $35.4 million in 2015 dividend payments, subject to board approval. Management expected 2015 cash generation to be in line with its history, while cautioning that weaker economic conditions could reduce cash generation.
- Cost-reduction programs begun in 2013 were expected to be fully implemented before the end of Q1 2016. They carry estimated cash costs of about $32 million and expected annual savings of about $36 million when fully implemented. The company recorded $25.1 million of program expenses through Q1 2015.
- Credit-facility covenants were met at quarter-end: interest coverage was 13.28:1 against a 2.00:1 minimum, and leverage was 1.92:1 against a 3.25:1 maximum. The facility matures in August 2018; covenant breach could permit acceleration, with cross-default implications for other debt.
- Most cash and short-term investments were held by non-U.S. subsidiaries. Repatriation can create U.S., state, foreign, and withholding taxes. The company anticipated a Q2 2015 repatriation to help repay revolving-credit borrowings, subject to completion of statutory audits.
- Foreign currency translation produced a $76.3 million quarterly loss in other comprehensive income; total other comprehensive loss was $74.4 million. This reduced equity but did not represent an operating loss in the income statement.
- Key risks include global economic and end-market demand, currency movements, pricing pressure, acquisition execution and integration, new-product development, and implementation of cost programs. Class B holders had approximately 47.3% of voting power and effective voting control. Previously disclosed legal proceedings had no material developments; management reported effective disclosure controls and no material change in internal control.
Important facts for investors to verify
- Whether Q2 revenue and gross-margin guidance was achieved, and the exchange-rate assumptions underlying reported results.
- Whether order growth and book-to-bill above 1.0 translate into sustained revenue and backlog growth, particularly in weaker segments.
- Working-capital movements, operating cash flow, capital spending, and the pace of rebuilding cash and net cash.
- Progress, remaining costs, and realized savings from restructuring; margin trends in Optoelectronic Components and MOSFETs.
- Completion and tax cost of the anticipated cash repatriation, revolving-facility repayment, and continued covenant headroom.
- Board decisions on dividends or repurchases and the implications of concentrated Class B voting control.