Littelfuse, Inc. — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended July 2, 2011; compared with periods ended July 3, 2010. Unaudited. Littelfuse designs, manufactures, and sells circuit-protection products for electronics, automotive, and electrical markets.
Financial performance
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Net sales | $176.6 million | $157.5 million | $343.8 million | $301.9 million |
| Gross profit / margin | $70.0 million / 39.6% | $59.4 million / 37.7% | $134.7 million / 39.2% | $112.7 million / 37.3% |
| Operating income / margin | $35.3 million / 20.0% | $27.5 million / 17.5% | $66.2 million / 19.3% | $49.2 million / 16.3% |
| Net income | $25.3 million | $20.3 million | $46.8 million | $35.7 million |
| Diluted earnings per share | $1.11 | $0.90 | $2.08 | $1.59 |
| Operating cash flow | — | $46.1 million | $26.1 million |
For Q2, sales increased 12% and net income increased 25%; for the first six months, sales rose 14% and net income rose 31%. The filing attributes improved margins principally to higher production volumes, operating leverage, and manufacturing cost reductions. Six-month results included a $3.7 million noncash cost-of-sales charge for acquired Cole Hersee inventory stepped up to fair value; excluding it, management reported a 40% six-month gross margin.
Business and material changes
- Q2 segment sales: Electronics $98.4 million, down 1%; Automotive $50.4 million, up 46%; Electrical $27.8 million, up 16%. Automotive growth included $11.2 million of Cole Hersee sales. Excluding Cole Hersee, total Q2 sales increased 5% year over year.
- Six-month sales growth was strongest in Automotive, up 46%, including $24.2 million from Cole Hersee; Electronics rose 1% and Electrical rose 15%. Favorable currency effects contributed $5.3 million to Q2 sales and $6.2 million to six-month sales.
- Cash and equivalents were $163.9 million at July 2, versus $109.7 million at year-end. Current assets were $393.7 million and current liabilities $148.6 million; the current ratio was 2.6, down from 2.9 at year-end.
- Capital expenditures were $10.6 million for the first six months. Investing cash outflow was $10.3 million. Financing cash inflow was $13.0 million, including debt activity, option exercises, dividends, and issuance costs.
- Debt was $70.0 million, all classified as current and drawn under revolving facilities; cash exceeded reported debt by $93.9 million. The new unsecured revolver, entered into June 13, provides $150 million of capacity, potentially expandable to $225 million, and matures in 2016. $79.4 million was available under it at quarter-end; the company reported compliance with covenants.
Outlook, risks, and unusual items
- Management said sales and order momentum had slowed and electronics distributors had become more cautious, while end demand remained solid across most markets. The company did not provide specific revenue or earnings guidance.
- Management expected 2011 capital spending of approximately $25–$28 million. It anticipated continued automotive contributions from new products, growth in protection relays and mining-related custom products, and improvement in industrial fuses; solar demand had paused, with a recovery expected in the near future.
- The Japan disaster reduced sales to Japanese customers by an estimated $3 million in the first half; management expected a similar second-half effect. Potential supply-chain impacts were being assessed, with no known material impact at the filing date.
- Commodity and transportation costs were rising. The filing estimates that a 10% price movement would affect pretax profit by approximately $2.2 million for copper, $0.8 million for zinc, $0.7 million for gold, and $0.3 million for silver. Higher raw-silicon costs were also expected, partly offset by manufacturing savings.
- Other risks include foreign-exchange exposure, product demand and pricing, supply or capacity constraints, acquisition integration, and restructuring execution. No outstanding derivative instruments were held at quarter-end.
- After quarter-end, Littelfuse invested $3.0 million in preferred stock of Shocking Technologies on July 8 and acquired Selco A/S on August 3 for approximately $11.1 million; Selco’s annual revenue was approximately $9.0 million.
Key facts for investors to verify
- Whether distributor caution and softer electronics order rates persist, and whether reported growth remains after acquisition and currency effects.
- Progress against the $25–$28 million capital-spending outlook and the expected offset of commodity, transportation, and silicon costs through efficiency savings.
- Cash conversion and working-capital trends, particularly receivables, which reduced operating cash flow, and the current ratio decline.
- Availability, pricing, and covenant headroom under the new revolver, including the status of facilities that expired or were refinanced after quarter-end.
- Integration and performance of Cole Hersee and Selco, and any material supply-chain consequences from the Japan disaster.