Littelfuse, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 26, 2021. Unaudited results are compared with the periods ended June 27, 2020. Littelfuse designs and manufactures electronic, automotive, and industrial components and modules.
Financial performance
- Q2 revenue: $523.5 million, up 70.3% year over year; first-half revenue was $987.3 million, up 51.1%. Growth reflected higher volumes across segments, favorable foreign exchange, and Hartland Controls, acquired January 28, 2021. Comparisons also benefited from COVID-related shutdowns and disruptions in 2020.
- Q2 profitability: Gross profit was $197.4 million, with a 37.7% gross margin versus 32.5%. Operating income was $96.3 million (18.4% margin), versus an operating loss of $12.0 million. Net income was $82.1 million, or $3.30 diluted EPS, versus a net loss of $9.0 million, or $0.37 per diluted share.
- First-half profitability: Gross profit was $357.9 million (36.2% margin); operating income was $172.7 million (17.5% margin); net income was $139.8 million, or $5.62 diluted EPS. The comparable 2020 figures were $224.3 million, 34.3%, $32.8 million, 5.0%, and $15.7 million, or $0.64 diluted EPS, respectively.
- Segment revenue, Q2: Electronics $325.3 million (+45.7%); Automotive $133.3 million (+115.0%); Industrial $64.8 million (+193.8%). Industrial’s increase included $26.4 million from Hartland.
- Cash flow: First-half operating cash flow was $126.3 million, up from $101.3 million. Capital expenditures were $32.7 million; operating cash flow less capital expenditures was approximately $93.7 million. Investing used $139.9 million, including $109.9 million net cash for Hartland. Financing used $49.2 million. Cash, cash equivalents, and restricted cash ended at $621.9 million.
- Liquidity and debt: Cash and cash equivalents were $616.3 million. Total debt was $651.9 million, including $25.0 million current maturities; the revolving facility balance was $100.0 million, with $600.0 million of borrowing capacity available. The company reported covenant compliance. Total equity was $1.742 billion.
- Other financial items: The effective tax rate was 13.8% for Q2 and 16.7% for the first half. The Board approved a 10% quarterly dividend increase, from $0.48 to $0.53 per share, after quarter-end.
Material changes and unusual items
- Year-over-year earnings comparisons were significantly affected by 2020’s $33.8 million non-cash goodwill impairment in Automotive and other impairment and restructuring charges. First-half 2020 restructuring, impairment, and other charges totaled $39.6 million, versus $1.2 million in first-half 2021.
- 2021 results included Hartland inventory fair-value step-up charges of $3.3 million in Q2 and $6.8 million year to date, plus acquisition-related and integration expenses. Hartland contributed $43.1 million of first-half sales and a $2.5 million pretax loss since acquisition.
- Higher freight costs, commodity costs, and COVID-related costs continued to pressure results; management also cited supply-chain transportation constraints. Volume leverage lifted margins, partly offset by these costs.
- First-half working capital absorbed cash as receivables and inventory increased with sales growth. The company made $30.0 million of revolving-credit repayments and paid $23.6 million of dividends; it did not repurchase shares during the first half.
Outlook, risks, and contingencies
- The filing provides no specific revenue or earnings guidance. Management expects cash, operating cash flows, available credit, and capital-market access to support operations, investment, capital expenditures, and debt obligations.
- Management said COVID-19 could continue to affect operations, with the scale and duration uncertain. Ongoing impacts included protective equipment, staffing and transportation costs, manufacturing inefficiencies, freight expense, and raw-material pressure.
- Management estimated a one-time, non-cash pension settlement charge of $18 million to $22 million in Q4 2021 related to a U.K. group annuity transaction; the amount and timing could change. The transaction is expected to reduce pension obligations by approximately $55 million.
- Forward-looking risks include demand and economic conditions, competition and pricing, supply or capacity constraints, foreign exchange and commodity movements, acquisition integration, labor matters, pension returns, and regulatory or political changes. The company reported no material changes to the risk factors in its 2020 Form 10-K, no legal proceedings, and no off-balance-sheet arrangements.
Important facts for investors to verify
- How much of the exceptional growth and margin improvement reflects sustained demand versus recovery from 2020 shutdowns and temporary volume leverage.
- Whether freight, commodity, raw-material, and other COVID-related cost pressures ease or continue to offset margin gains.
- Hartland’s integration, profitability, final purchase-price allocation, and contribution after inventory step-up charges.
- Working-capital trends, cash conversion, and the company’s planned use of its cash, credit capacity, and $300 million share-repurchase authorization.
- The final timing and amount of the U.K. pension settlement charge and progress on reducing pension obligations.
- The composition and sustainability of first-half other income, including unrealized investment gains, and the company’s debt repayment and maturity schedule.