Littelfuse, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 27, 2021; compared with the three months ended March 28, 2020. Littelfuse manufactures circuit-protection, power-control, and sensing products across its Electronics, Automotive, and Industrial segments.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $463.8 million | $346.1 million | +34.0% |
| Gross profit / margin | $160.5 million / 34.6% | $124.4 million / 35.9% | Margin down 1.3 percentage points |
| Operating income / margin | $76.5 million / 16.5% | $44.8 million / 12.9% | +70.9% |
| Net income | $57.7 million | $24.6 million | +134.2% |
| Diluted EPS | $2.32 | $1.00 | +$1.32 |
| Operating cash flow | $50.2 million | $45.3 million | +$4.9 million |
Revenue growth reflected higher volumes across Electronics and Automotive, favorable foreign exchange of $12.4 million, and $16.7 million of sales from Hartland Controls. By segment, sales rose 33.8% in Electronics to $286.5 million, 22.7% in Automotive to $128.5 million, and 79.6% in Industrial to $48.7 million. Industrial’s increase included Hartland and a product-line transfer.
Gross margin declined as a share of sales primarily due to higher freight costs ($7.3 million), Hartland inventory step-up charges ($3.5 million), higher commodity costs, and unfavorable pricing and foreign exchange, partly offset by volume and cost reductions. Operating income benefited from higher segment gross profit and lower restructuring charges versus the prior year. The effective tax rate was 20.6%, compared with 30.6%, mainly reflecting a higher forecast share of income in lower-tax jurisdictions. Results also included $9.7 million of increased unrealized gains on equity investments, partly offset by $4.3 million of higher foreign-exchange losses.
Cash, debt, and liquidity
- Cash and cash equivalents were $572.8 million at March 27, 2021, down $114.8 million from December 26, 2020. Cash, cash equivalents, and restricted cash totaled $577.3 million.
- Total debt was $648.9 million, including $100.0 million drawn on the revolving facility; cash less total debt was approximately $76.1 million. The $25.0 million U.S. note due 2022 was classified as current.
- Available borrowing capacity under the revolving facility was $571.3 million. The company reported compliance with its credit agreement and senior-note covenants.
- Operating cash flow was $50.2 million. Investing used $122.0 million, including $109.9 million net cash for Hartland; capital expenditures were $14.7 million. Financing used $34.3 million, including $30.0 million of revolving-credit repayments and $11.8 million of dividends.
- Current assets were $1.19 billion and current liabilities $326.5 million. Management stated existing cash, operating cash flows, financing availability, and capital-market access were expected to support short- and long-term needs.
Material changes, outlook, and risks
- On January 28, 2021, Littelfuse acquired Hartland Controls for approximately $112.3 million; the net cash outlay was $109.9 million. Hartland contributed $16.7 million in reported-quarter sales and a $2.2 million pretax loss after acquisition. Purchase accounting remains preliminary, including certain tax valuations.
- Reported Q1 items included $3.5 million of inventory step-up amortization, approximately $0.8 million of Hartland and other acquisition-related costs, $0.4 million of restructuring charges, and a $1.9 million gain on sale of an Electronics building. Prior-year items included $4.0 million of restructuring and impairment charges and $1.2 million of acquisition integration charges.
- Management said COVID-19 continued to cause costs—including protective equipment, staffing and transportation, manufacturing inefficiencies, and elevated freight—and could affect operations for the foreseeable future. The company said the magnitude and duration remained difficult to estimate.
- The filing provides no specific forward revenue or earnings guidance. Management expected to remain in covenant compliance based on its 2021 estimates.
- A U.K. pension annuity transaction is expected to reduce pension obligations by approximately $55 million; a one-time, non-cash settlement charge of $18–$22 million was estimated for Q4 2021, with actual amount and timing subject to change.
- Management reported no material changes to risk factors or market-risk exposure, no off-balance-sheet arrangements, and no legal proceedings. Disclosure controls were deemed effective.
Important facts for investors to verify
- Whether strong volume trends and demand across Electronics and Automotive persist, and how much reported growth reflects the prior-year COVID disruption, foreign exchange, and acquisition contribution.
- Whether freight, commodity, pricing, and foreign-exchange pressures continue to weigh on gross margin, and whether Hartland integration and expected synergies progress as planned.
- Final Hartland purchase-price allocation, including acquired tax assets and liabilities, and the remaining inventory step-up expense.
- The ultimate timing and amount of the U.K. pension settlement charge and related cash funding.
- Cash generation, working-capital needs, debt repayment, and covenant headroom as the company executes its acquisition and capital-return plans.