Vishay Intertechnology, Inc. — Q2 2015 Form 10-Q
Reporting period: Fiscal quarter and six fiscal months ended July 4, 2015; comparable periods ended June 28, 2014. Unless noted, dollar amounts below are U.S. dollars.
Business context
Vishay manufactures discrete semiconductors and passive electronic components across five segments: MOSFETs, Diodes, Optoelectronic Components, Resistors & Inductors, and Capacitors. Management cited weaker-than-expected demand in several end markets and unfavorable currency translation, particularly the euro. The company said the currency effect on revenue was substantially offset by lower expenses in corresponding currencies.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $590.5 million | $641.9 million | $1,183.9 million | $1,244.3 million |
| Gross profit / margin | $141.5 million / 24.0% | $164.1 million / 25.6% | $286.5 million / 24.2% | $309.4 million / 24.9% |
| Operating income / margin | $44.2 million / 7.5% | $57.9 million / 9.0% | $91.7 million / 7.7% | $100.5 million / 8.1% |
| Net earnings attributable to Vishay stockholders | $26.3 million | $35.6 million | $57.0 million | $61.5 million |
| Diluted EPS | $0.17 | $0.23 | $0.37 | $0.40 |
| Operating cash flow | Not stated for quarter | $92.4 million | $99.1 million |
Q2 revenue declined 8.0% year over year and six-month revenue declined 4.9%. Management attributed Q2’s revenue decline primarily to foreign currency effects (6.5 percentage points) and lower average selling prices (3.0 points), partly offset by acquisitions. Lower volume was the main stated reason gross margin fell. Average selling prices declined 1.3% from the prior quarter.
Segment trends were mixed: Q2 Optoelectronic Components revenue rose 15.4% year over year, largely reflecting the Capella acquisition and growth in Asia; MOSFETs fell 14.3%, Diodes 7.3%, Resistors & Inductors 7.1%, and Capacitors 16.9%. Capacitors also recorded the weakest Q2 segment gross margin, 18.8%.
Liquidity, debt, and capital allocation
- At July 4, 2015, cash and cash equivalents were $483.0 million and short-term investments were $579.0 million. Combined, these were $1,062.0 million.
- Total debt was $427.3 million, down from $454.9 million at December 31, 2014; the credit-facility balance was $170.0 million. Management reported net cash and short-term investments of $634.7 million, versus $652.0 million at year-end.
- Current assets were $1,915.0 million and current liabilities $448.3 million; the reported current ratio was 4.3:1. The company was in compliance with its credit-facility covenants, with leverage and interest-coverage ratios of 1.89:1 and 12.30:1.
- Six-month capital expenditures were $49.6 million. Management expected approximately $150 million of 2015 capital spending. Dividends paid were $0.06 per share each quarter; management expected 2015 dividends to total approximately $35.4 million, subject to Board approval.
- Operating cash flow less capital expenditures was approximately $42.8 million for the six months, before asset-sale proceeds. Management said cash generation began slowly but still expected 2015 cash generation in line with its historical experience.
Material changes, outlook, and risks
- Near-term outlook: For Q3 2015, Vishay expected revenue of $560 million to $600 million, assuming a $1.10 U.S.-dollar/euro exchange rate, and gross margin of 22% to 24%.
- Cost reduction: Programs begun in 2013 were expected to be fully implemented before the end of Q1 2016. Additional programs announced in 2015 were expected to generate about $35 million in annual savings at current volumes, with about $30 million in cash costs, and implementation targeted by the end of 2017. On August 3, after quarter-end, Vishay announced additional global programs including a previously announced Netherlands facility closure.
- Pension: The company began terminating its U.S. qualified pension plan. Required additional funding was not yet known and was estimated at zero to $35 million; completion depended on IRS and PBGC requirements and was expected to take at least a year.
- Demand and pricing: Q2 book-to-bill was 0.99, down from 1.05 in Q1 2015. Management warned that backlog may be cancelled or rescheduled and is not necessarily predictive of future revenue. Ongoing risks include weak global demand, established-product price erosion, currency movements, and the execution of cost programs.
- Legal matter: Vishay and subsidiary VPC had been named in U.S. and Canadian capacitor antitrust class actions. In May 2015 the U.S. court dismissed Vishay and certain other defendants without prejudice; plaintiffs’ June amended direct-purchaser complaint did not name Vishay. Holy Stone agreed to indemnify Vishay and VPC for specified pre-acquisition losses.
Most important facts for investors to verify
- Whether demand, orders, and book-to-bill recover, and whether Q3 revenue and gross-margin guidance is achieved.
- How much of reported revenue and earnings trends reflects currency, pricing, volumes, and acquired businesses.
- Progress, cash costs, and realized savings from restructuring programs, including the Netherlands closure.
- The eventual funding requirement and settlement costs for the U.S. pension-plan termination.
- Cash accessibility: substantially all cash and short-term investments were held by non-U.S. subsidiaries, and repatriation can trigger taxes.
- Debt, covenant headroom, dividend approvals, and any future conversion or refinancing needs for long-term debentures.