Littelfuse, Inc. — FY2019 Form 10-K
Business context and reporting period. Littelfuse manufactures circuit protection, power control and sensing products for electronics, automotive and industrial markets. This annual report covers the fiscal year ended December 28, 2019 (52-week fiscal year); quarterly figures below refer to Q4 2019.
Financial results and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Net sales | $1,503.9 million | $1,718.5 million |
| Gross profit / margin | $541.4 million / 36.0% | $652.5 million / 38.0% |
| Operating income / margin | $192.8 million / 12.8% | $225.0 million / 13.1% |
| Net income | $139.1 million | $164.6 million |
| Diluted EPS | $5.60 | $6.52 |
| Operating cash flow | $245.3 million | $331.8 million |
| Capital expenditures | $61.9 million | $74.8 million |
- Q4 2019: Sales were $338.5 million, gross profit $113.5 million, operating income $32.3 million and net income $22.7 million; diluted EPS was $0.92. Q4 2018 sales were $402.3 million and diluted EPS was $1.29.
- Segments: Electronics sales fell 14.5% to $961.1 million; Automotive fell 10.7% to $428.5 million; Industrial was nearly flat at $114.3 million. Segment operating income was $145.6 million, $46.7 million and $22.4 million, respectively.
- Cash and debt: Cash and equivalents were $531.1 million, versus $489.7 million. Total debt was $679.2 million, including $10.0 million current maturities; net debt was approximately $148.0 million. The company had $353.4 million of available revolving-credit capacity and reported covenant compliance.
- Liquidity and capital returns: Current assets were $1,004.4 million and current liabilities $225.6 million. Dividends paid totaled $44.7 million; share repurchases totaled $95.0 million. The company reported no off-balance-sheet arrangements.
Material changes versus the prior comparable period
- Annual sales declined 12.5%, reflecting reduced volume in Electronics and Automotive, distributor and customer inventory reductions, lower global auto production and weaker end-market demand. Unfavorable foreign exchange reduced sales by $25.0 million.
- Gross margin fell 2.0 percentage points to 36.0%, with lower volume, unfavorable price and product mix, and 2019 restructuring costs contributing. FY2018 gross margin included a $36.9 million IXYS inventory step-up charge.
- Operating income decreased 14.3% and net income decreased 15.5%. Lower operating expenses, including reduced acquisition-related costs and incentive compensation, partly offset weaker gross profit.
- Operating cash flow fell $86.5 million, primarily from lower earnings and higher working-capital needs, including payment timing and incentive compensation. FY2018 investing cash outflow included IXYS and Monolith acquisition payments; FY2019 investing outflow was $56.5 million.
Outlook, commentary, risks and unusual items
- Management’s longer-term strategic targets include 5–7% average annual organic growth, 5–7% average annual growth from strategic acquisitions, 17–19% operating margins and double-digit EPS growth. These are targets, not specific FY2020 guidance; the filing provides no clear numerical FY2020 earnings or sales forecast.
- Management cited ongoing cost actions and IXYS integration, including restructuring across functions and the closure of a European automotive-sensor facility, to improve costs and capture synergies.
- FY2019 included $13.0 million of restructuring charges and $8.9 million of acquisition-related and integration charges. Other notable items included $7.3 million of investment impairment charges, a $2.6 million loss on disposal of a business, and $5.2 million of foreign-exchange losses. No goodwill impairment was recorded; goodwill was $820.6 million.
- The filing identified the early-2020 coronavirus outbreak and related China shutdowns and supply-chain disruptions as risks, with the impact not yet fully ascertainable. Other material exposures include trade tariffs, international operations and currency movements, customer and distributor demand, supply and manufacturing interruptions, commodity prices, taxes, environmental obligations and acquisition integration.
- Approximately 71% of FY2019 sales were outside the U.S., including about 28% to China; Arrow Electronics represented 10.7% of sales. The company accrued $0.7 million for legacy German coal-mine remediation. The auditor issued unqualified opinions on the financial statements and internal controls; goodwill impairment was identified as a critical audit matter.
Most important facts for investors to verify
- Whether Electronics and Automotive demand, distributor inventory levels and global vehicle production recover, and how Q4’s weaker results carry into 2020.
- Whether restructuring and IXYS integration produce savings sufficient to restore margins toward management’s 17–19% long-term target.
- The effects of coronavirus-related disruptions, tariffs and currency changes on sales, production, costs and cash flow, particularly given the company’s China exposure.
- Debt repayment, interest-rate sensitivity and the availability of foreign-held cash; confirm that cash generation supports dividends, acquisitions and repurchases.
- Tax-holiday extensions in China, remaining Tax Act toll-charge obligations, and the assumptions supporting goodwill valuations and investment carrying values.