Business Context and Reporting Period
Vishay Precision Group, Inc. designs and manufactures precision sensors, sensor-based measurement systems, specialty resistors, and strain gages. Its three reporting segments are Foil Technology Products, Force Sensors, and Weighing and Control Systems. This unaudited Form 10-Q covers the fiscal quarter and six fiscal months ended June 29, 2019, compared with June 30, 2018.
Financial Results and Key Metrics
| Metric | Q2 2019 | Q2 2018 | Six Months 2019 | Six Months 2018 |
|---|---|---|---|---|
| Net revenues | $70.9 million | $74.2 million | $147.4 million | $147.3 million |
| Gross profit | $28.6 million | $31.4 million | $61.7 million | $59.9 million |
| Gross margin | 40.4% | 42.3% | 41.8% | 40.6% |
| Operating income | $8.1 million | $11.3 million | $20.7 million | $19.5 million |
| Operating margin | 11.4% | 15.2% | 14.0% | 13.2% |
| Net earnings attributable to VPG | $5.6 million | $7.7 million | $13.8 million | $12.7 million |
| Diluted EPS | $0.41 | $0.57 | $1.02 | $0.94 |
Six-month cash provided by operating activities was $17.0 million, compared with $7.4 million in the prior-year period. Capital expenditures were $5.8 million, producing management-defined free cash of $11.4 million. Cash and cash equivalents totaled $98.7 million at June 29, 2019, up from $90.2 million at December 31, 2018.
Total debt was $24.8 million, down from $27.1 million at year-end 2018. Management-defined net cash was $73.9 million, compared with $63.1 million at December 31, 2018. The current ratio was 4.4 to 1.0, compared with 3.9 to 1.0 at year-end. Approximately 95% of cash was held by non-U.S. subsidiaries.
Material Changes Versus Prior Comparable Period
- Second-quarter revenue declined 4.5%, primarily from lower volume in Foil Technology Products and Force Sensors. Six-month revenue was essentially flat.
- Q2 gross margin declined 190 basis points because of lower volume, unfavorable foreign exchange, higher wages and manufacturing costs, a one-time Force Sensors charge, and unfavorable product mix. Six-month gross margin improved 120 basis points.
- Force Sensors revenue declined 15.5% in Q2 and 14.3% year to date, mainly from lower force-measurement OEM demand in the Americas.
- Foil Technology Products revenue declined 3.5% in Q2 but increased 2.5% year to date.
- Weighing and Control Systems revenue increased 4.1% in Q2 and 9.6% year to date, led by steel and on-board weighing products.
- Q2 operating income declined due to lower gross profit and $0.6 million of executive severance expense related to an executive resignation. Six-month operating income increased 6.2% despite the severance charge.
- Backlog declined to $83.4 million from $101.0 million in Q2 2018 and $87.1 million in Q1 2019. The company’s Q2 book-to-bill ratio was 0.94.
Guidance, Outlook, Commentary, Risks, and Unusual Items
The filing does not provide quantitative full-year revenue or earnings guidance. Management expects current cash, credit facilities, and projected operating cash flow to satisfy liquidity needs for at least the next 12 months. The secured credit agreement terminates December 30, 2020; the company was in compliance with its financial covenants at June 29, 2019.
- Management continues to pursue automation, manufacturing transfers, facility consolidation, product development, and strategic acquisitions. Additional cost-reduction actions could result in future restructuring and severance costs.
- A new lease for an approximately 121,400-square-foot facility in Israel is expected to begin occupancy in April 2020. Operating lease right-of-use assets were $8.7 million, with present-value lease liabilities of $8.9 million.
- Foreign exchange reduced Q2 revenue by approximately $1.8 million and reduced costs by approximately $1.9 million versus the prior year. For the six-month period, foreign exchange reduced revenue by $4.3 million and costs by $5.0 million.
- The effective tax rate was 26.4% in Q2 and 26.9% year to date, below the respective prior-year rates of 27.3% and 28.4%, primarily because of changes in the mix of worldwide income.
- Key risks include economic and industrial demand conditions, foreign currency volatility, tariffs and trade regulation, political and economic instability, acquisition execution, new product development, competition, technology changes, and the execution of manufacturing transfers and cost reductions.
- The company had no material legal proceedings, no off-balance-sheet arrangements, and no material changes to previously reported risk factors.
Most Important Facts to Verify
- Whether the declining backlog and sub-one book-to-bill ratio signal continued revenue pressure, particularly in Force Sensors and Foil Technology Products.
- Whether Weighing and Control Systems growth can offset weakness in Force Sensors.
- The sustainability of improved six-month cash generation and debt reduction, given foreign cash concentration and planned cash distributions.
- The magnitude and timing of any future restructuring, severance, facility, or manufacturing-transfer costs.
- Compliance with credit agreement covenants and the December 2020 facility maturity.
- Potential effects of foreign exchange, tariffs, tax audits, and uncertain tax positions on future earnings and cash flows.