Littelfuse, Inc. — Q3 2019 Form 10-Q
Business context and period. Littelfuse manufactures circuit protection, power control and sensing products, reported in Electronics, Automotive and Industrial segments. This unaudited quarterly filing covers the three and nine months ended September 28, 2019; comparisons are with the periods ended September 29, 2018. Amounts below are U.S. dollars.
Financial performance
| Metric | Q3 2019 | Q3 2018 | First nine months 2019 | First nine months 2018 |
|---|---|---|---|---|
| Net sales | $362.0 million | $439.2 million | $1,165.4 million | $1,316.2 million |
| Gross profit / margin | $130.9 million / 36.2% | $179.6 million / 40.9% | $428.0 million / 36.7% | $498.2 million / 37.9% |
| Operating income / margin | $47.2 million / 13.0% | $76.2 million / 17.4% | $160.5 million / 13.8% | $173.4 million / 13.2% |
| Net income | $35.6 million | $53.5 million | $116.4 million | $131.9 million |
| Diluted EPS | $1.44 | $2.10 | $4.68 | $5.23 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $160.9 million | $252.1 million |
- Q3 sales fell 17.6%; nine-month sales fell 11.5%. Management attributed the declines mainly to lower Electronics and Automotive volumes, electronics distributors reducing excess channel inventory, lower global auto production and unfavorable foreign exchange.
- Q3 segment sales were Electronics $227.3 million (down 23.3%), Automotive $104.7 million (down 8.5%) and Industrial $30.0 million (up 6.1%). Segment operating income was $34.6 million, $11.4 million and $6.8 million, respectively.
- Q3 operating income fell 38.1%, as weaker gross profit in Electronics and Automotive outweighed lower operating expenses. Nine-month operating margin increased to 13.8% from 13.2%, helped by lower expenses and the absence of the prior-year IXYS inventory step-up charge.
- Effective tax rates were 13.9% in Q3 and 17.7% year to date, versus 21.5% and 20.1% in 2018. The lower 2019 rates primarily reflected lower taxes in certain non-U.S. jurisdictions, including a China tax holiday.
Cash, debt and liquidity
- Cash and cash equivalents were $476.1 million at September 28, 2019, versus $489.7 million at December 29, 2018. Current assets were $1,007.6 million and current liabilities $248.7 million.
- Total debt was $678.2 million, including $10.0 million current and $668.2 million long-term, down from $694.7 million at year-end. Cash less reported debt implies net cash of approximately $202.1 million; this is a simple calculation from the reported balances.
- The company reported $416.5 million of available revolving-credit borrowing capacity and compliance with credit agreement and senior-note covenants. It had no material off-balance-sheet arrangements.
- Nine-month investing cash outflow was $33.0 million, including $38.4 million of capital expenditures; financing cash outflow was $135.5 million. Cash declined $13.7 million over the period. Operating cash flow was down $91.3 million year over year, which management attributed to lower earnings and higher working capital, particularly supplier-payment timing.
- The company repurchased 579,916 shares for $95.0 million during the first nine months and paid $33.0 million in dividends. The board declared a further $0.48-per-share dividend payable December 5, 2019.
Changes, outlook and notable items
- Management said it is pursuing cost improvements and IXYS integration synergies, including reorganizing manufacturing and selling and administrative functions and closing a European automotive-sensor manufacturing facility. It expects savings from 2019 restructuring actions; the filing provides no quantified earnings or revenue guidance.
- 2019 nine-month restructuring charges were $10.6 million; total restructuring, impairment and other charges were $11.0 million. Remaining termination payments were expected primarily to be completed by December 2019.
- Other notable items included $2.8 million of impairment charges on certain investments and a $2.6 million loss on disposal of Microwave Technology, Inc. The MWT sale closed April 26, 2019; a company director was connected to the buyer.
- Foreign-exchange results shifted materially: Q3 included a $5.0 million loss versus a $1.0 million loss in 2018; nine months included a $5.6 million loss versus a $6.4 million gain in 2018. Q3 also included investment gains, while year-to-date other expense included investment impairments and the MWT disposal loss.
- Management expects available cash, operating cash flow, credit availability and capital-market access to be sufficient for operations, investment and debt obligations. Key disclosed risks include demand and economic conditions, competitive pricing, supply or capacity constraints, currency and commodity movements, and successful realization of IXYS integration benefits.
Most important facts for investors to verify
- Whether distributor inventory correction and weaker auto production persist, and how segment sales and margins respond.
- Whether restructuring and IXYS integration deliver the expected savings, and the timing and remaining costs of those actions.
- Whether operating cash flow recovers as supplier-payment timing and working-capital levels normalize.
- The durability of the lower tax rate, including the effect of the China tax holiday, and the impact of foreign-exchange movements.
- Debt maturities, covenant headroom and capital allocation priorities, including continued buybacks and dividends.