Vishay Intertechnology, Inc. — Q2 2017 Form 10-Q
Reporting period: Fiscal quarter and six fiscal months ended July 1, 2017. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless stated otherwise.
Business context and results
Vishay manufactures discrete semiconductors and passive electronic components across five segments: MOSFETs, Diodes, Optoelectronic Components, Resistors & Inductors, and Capacitors. Management reported that strong demand and order activity continued from Q1, with volume growth, cost reductions, and manufacturing efficiencies supporting results despite ongoing selling-price declines.
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $644.9m | $590.1m | $1,251.2m | $1,160.7m |
| Gross profit | $173.0m | $146.1m | $333.8m | $283.4m |
| Gross margin | 26.8% | 24.8% | 26.7% | 24.4% |
| Operating income | $82.0m | $49.4m | $146.7m | $90.0m |
| Operating margin | 12.7% | 8.4% | 11.7% | 7.8% |
| Net earnings attributable to Vishay stockholders | $56.2m | $33.1m | $92.9m | $61.1m |
| Diluted EPS | $0.36 | $0.22 | $0.60 | $0.41 |
Cash flow, liquidity, and debt
- Six-month operating cash flow was $128.3m, versus $95.4m a year earlier. Capital expenditures were $49.1m, versus $51.1m; company-defined free cash was $80.5m, versus $44.5m.
- At July 1, cash and cash equivalents were $561.0m and short-term investments were $626.2m. Management’s non-GAAP net cash and short-term investments measure was $836.9m, up from $741.4m at year-end 2016.
- Long-term debt carrying value was $350.3m, including $133.0m drawn on the revolving credit facility. The convertible debentures have $575m aggregate principal amount; their carrying values reflect unamortized discounts and embedded derivatives.
- The current ratio was 4.3:1. Credit-facility leverage and interest-coverage ratios were 1.75:1 and 13.95:1, respectively; the company reported compliance with covenants.
- The $640m revolving facility matures in December 2020. Substantially all cash and short-term investments were held outside the United States, while the parent has U.S. cash needs. The company cited its credit facility and planned repatriations as sources of domestic liquidity.
Material changes and segment trends
- Q2 revenue rose 9.3% year over year; six-month revenue rose 7.8%. Management attributed growth primarily to higher volume, partly offset by lower average selling prices. Q2 volume increased 14.0% year over year while average selling prices declined 2.8%.
- All five segments reported higher Q2 revenue year over year. MOSFETs had the largest margin improvement: gross margin was 22.2%, versus 11.6% a year earlier, reflecting higher volume and cost-reduction actions. Optoelectronic Components gross margin rose to 34.5% from 31.8%.
- Resistors & Inductors and Capacitors gross margins were 29.7% and 20.6%, respectively; Capacitors faced metal-cost pressure and lower selling prices. Selling, general, and administrative expense declined to $90.4m from $92.3m, and fell to 14.0% of revenue from 15.6%.
- Backlog increased to $1.034bn from $836.5m in Q1. Q2 book-to-bill was 1.27, following 1.29 in Q1. Management said many product lines were at or near capacity and lead times had increased.
Outlook, commentary, and notable items
- For Q3 2017, management expected revenue of $630m–$670m and gross margin of 26%–28%. It expected 2017 capital spending of approximately $165m and dividends of approximately $36.5m; future dividends remain subject to board approval.
- Management expected positive free cash in 2017 in line with its history, while cautioning that a worsening economic environment could reduce cash generation. Backlog may be canceled or rescheduled, often without penalty, and is not necessarily indicative of future revenue.
- The extended MOSFETs program includes transferring remaining Santa Clara manufacturing by year-end 2017. Management estimated $4m–$8m of additional cash charges and $8m–$9m of annualized savings. Global cost-reduction programs were expected to produce approximately $35m of annual savings at current volumes, with approximately $30m in total cash costs.
- The company recorded a $7.1m loss on the March 2017 sale of its 50% equity-method investment. Related contingencies could require an adjustment, though management did not expect a material effect.
- Q2 other comprehensive income included a $53.5m foreign-currency translation gain. The company repatriated $38m under its previously announced cash-repatriation program and recorded related tax expense; further repatriations and foreign earnings may involve tax and regulatory constraints.
- The 2042 convertible debentures remained convertible through September 30, 2017, pending reevaluation. Management intended to pay principal in cash and any excess conversion amount in shares; it expected to use the credit facility to fund principal repayment if conversion occurred. No conversions had occurred.
- After quarter-end, on August 2, the board authorized a new share-repurchase plan of up to $150m through June 1, 2018. The filing stated no shares had yet been repurchased under that plan.
- Key risks include changes in global economic and end-market demand, price erosion, capacity constraints, currency movements, execution of cost-reduction plans, acquisitions and integration, and the ability to meet debt covenants. The filing reported no material changes to previously disclosed risk factors, legal proceedings, or market risks.
Most important facts for investors to verify
- Whether elevated bookings and backlog convert to shipments and revenue, given capacity constraints and customers’ ability to reschedule or cancel orders.
- Whether volume growth and cost savings can continue to offset selling-price declines, inflation, and product mix effects.
- Whether Q3 revenue and margin guidance, 2017 capital spending, and free-cash expectations are achieved.
- Potential liquidity and dilution implications of convertible-debenture conversion, credit-facility borrowing, and the new repurchase authorization.
- Timing, remaining charges, and realized savings from the MOSFETs and global restructuring programs, alongside foreign-cash repatriation and related tax costs.