Littelfuse, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended July 1, 2023; filing dated August 2, 2023. Littelfuse is a diversified industrial technology manufacturer reporting in Electronics, Transportation, and Industrial segments. Financial statements are unaudited.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $612.0 million | $618.4 million | $1,221.8 million | $1,241.8 million |
| Gross profit / margin | $234.8 million / 38.4% | $263.0 million / 42.5% | $479.8 million / 39.3% | $521.6 million / 42.0% |
| Operating income / margin | $92.1 million / 15.0% | $134.2 million / 21.7% | $202.7 million / 16.6% | $284.8 million / 22.9% |
| Net income | $70.1 million | $87.0 million | $158.8 million | $204.5 million |
| Diluted EPS | $2.79 | $3.48 | $6.33 | $8.19 |
| Operating cash flow | Not separately presented | Not separately presented | $151.6 million | $165.3 million |
| Cash and cash equivalents at period end | $480.7 million | Down from $562.6 million at December 31, 2022 | ||
| Total debt at period end | $1,001.7 million | Current portion $137.4 million; long-term portion $864.2 million |
For the six months, investing cash outflow was $199.0 million, including $158.3 million net cash paid for acquisitions and $41.5 million of capital expenditures. Financing cash outflow was $32.7 million, including $29.8 million of dividends. Cash, cash equivalents, and restricted cash declined $81.8 million to $483.1 million. The company reported $599.8 million of available revolving-credit borrowing capacity and compliance with debt covenants. Approximate net debt, calculated as total debt less cash and cash equivalents, was $520.9 million.
Material changes versus comparable periods
- Q2 sales declined 1.0%; first-half sales declined 1.6%. Lower volume in Electronics and Transportation outweighed acquisition contributions and Industrial growth.
- Q2 operating income fell 31.4% and diluted EPS fell from $3.48 to $2.79. First-half operating income fell 28.8% and diluted EPS fell from $8.19 to $6.33.
- Electronics sales declined 2.2% in Q2; Transportation sales declined 5.5%; Industrial sales increased 14.8%. First-half changes were down 2.1%, down 7.6%, and up 15.3%, respectively.
- Industrial growth reflected strength in construction/MRO, renewables, and industrial safety, plus Western Automation. Electronics softness reflected distributor inventory rebalancing and weaker consumer-facing, personal electronics, and telecom demand. Transportation weakness was concentrated in commercial vehicles; passenger-car products benefited from vehicle build growth and electrification trends.
- Gross margin contracted 4.1 percentage points in Q2. Management attributed the pressure principally to lower volume in Electronics and commercial vehicles. Operating expenses rose, including higher amortization and acquisition-related costs, restructuring, and a property impairment.
- Interest expense rose to $10.1 million in Q2 from $4.4 million, and to $19.7 million for the half from $8.7 million, reflecting higher financing costs. Favorable foreign-exchange results and lower investment losses partly offset operating-income declines.
Outlook, management commentary, and risks
- The filing provides no specific quantitative revenue or earnings guidance. Management said available cash, projected operating cash flows, credit availability, and capital-market access are expected to support operations, capital spending, investments, and debt obligations.
- Management described a challenging macro environment, including supply-chain disruptions, regional variation, and pockets of end-market softness. Distributor and customer inventory rebalancing and reduced demand in some markets remain relevant factors.
- The company acquired Western Automation for approximately $162 million in cash in February 2023. Its preliminary purchase-price allocation includes $94.8 million of goodwill and $68.0 million of acquired intangible assets; valuation work, particularly on certain tax balances, was not finalized. Management did not expect a material effect on 2023 results.
- In June 2023, Littelfuse agreed to acquire a 200mm wafer fab in Dortmund, Germany, for approximately €93 million, with closing expected in early fiscal 2025 subject to regulatory approvals. Management did not expect a material impact on 2023 or 2024 results.
- Q2 charges included $2.9 million of restructuring costs and a $3.9 million impairment on land and a building in the commercial-vehicle business that the company decided to donate. First-half restructuring, impairment, and other charges totaled $8.7 million.
- The company said the war in Ukraine had a modest impact; it suspended sales into and purchases from Russia and has no direct operations in Russia or Ukraine. Other disclosed risks include economic conditions, demand, competition and pricing, supply and capacity constraints, foreign exchange and commodity movements, cybersecurity, labor issues, and acquisition integration.
- A $127.2 million Euro senior note series was due in December 2023. The company reported covenant compliance. It also declared a $0.65-per-share quarterly dividend after quarter-end, payable September 7, 2023.
Important facts for investors to verify
- Whether distributor inventory normalization and weaker demand in Electronics and commercial vehicles persist, and how they affect volume and margins.
- Whether Industrial growth continues and how much is attributable to underlying demand versus acquisitions.
- Final Western Automation purchase accounting, integration costs, and realized contribution to earnings and cash flow.
- Funding and regulatory progress for the Dortmund fab purchase, including the timing and terms of the staged €93 million payment.
- Debt refinancing or repayment plans for the December 2023 Euro notes, interest costs, and ongoing covenant headroom.
- Working-capital and cash-flow trends, given lower first-half operating cash flow and the cash spent on acquisitions and dividends.
The company reported no material changes to its previously disclosed risk factors, no legal proceedings, and no off-balance-sheet arrangements. Management concluded disclosure controls were effective as of quarter-end.