Littelfuse Reports Third Quarter Results

October 31, 2018 at 6:00 AM EDT

Company delivers 8% organic revenue growth and adjusted earnings per share above high end of guidance

CHICAGO--(BUSINESS WIRE)--Oct. 31, 2018-- Littelfuse, Inc. (NASDAQ: LFUS), a global manufacturer of leading technologies in circuit protection, power control and sensing, today reported financial results for the third quarter ended September 29, 2018:

  • Net sales were $439.2 million, up 38% versus the prior year. Organic revenue growth was 8%.
  • Revenue by segment versus the prior year period:
    • Electronics sales increased 69% (up 12% organically)
    • Automotive sales increased 1% on flat global auto build (up 1% organically)
    • Industrial sales were flat due to the exit of the Custom business this year (up 10% organically)
  • GAAP diluted EPS was $2.10, up 12% versus the prior year
  • Adjusted diluted EPS of $2.49 increased 17% over last year
  • GAAP effective tax rate was 21.5% and the adjusted effective tax rate was 21.0%
  • Cash flow from operations was $111.2 million and free cash flow was $95.6 million
  • The electronics segment book-to-bill ratio exiting the third quarter was 0.91 (excluding the IXYS business)
  • During October, the company completed its acquisition of Monolith Semiconductor and now owns 100% of the company
  • During October, the company purchased approximately 200,000 shares of common stock under its share repurchase program

"Sustained momentum in our Electronics and Industrial segments drove solid third quarter results,” said Dave Heinzmann, Littelfuse Chief Executive Officer. “We delivered a 20% adjusted operating margin and 17% adjusted earnings growth. During the quarter, we continued to capture design wins across a broad range of transportation, telecom and industrial electronics end markets, and we remain on track with the integration of the IXYS business. While we expect seasonally softer sales in our fourth quarter, our end markets continue to show long-term growth and content opportunities. We remain well positioned to deliver on our five-year double-digit sales and earnings growth strategy.”

For the fourth quarter of 2018*:

  • Net sales are expected to be in the range of $408 to $420 million, up 36% on a reported basis and up 6% organically, at the midpoint versus the prior year quarter
  • Adjusted diluted earnings per share are expected to be in the range of $1.92 to $2.06, representing 10% growth over the prior year quarter at the midpoint
  • Adjusted effective tax rate is expected to be in the range of 20% – 21%

For the 2018 full year, the company expects an adjusted effective tax rate of approximately 20%.

*All comparisons are to the prior year period unless otherwise noted. Littelfuse provides guidance on a non-GAAP (adjusted) basis. GAAP items excluded from guidance may include the after-tax impact of items including acquisition and integration costs, impairment and severance charges, certain purchase accounting adjustments, foreign exchange adjustments and significant and unusual items. These items are uncertain, depend on various factors, and could be material to results computed in accordance with GAAP. Littelfuse is not able to forecast the excluded items in order to provide the most directly comparable GAAP financial measure without unreasonable efforts.

Conference Call and Webcast Information

Littelfuse will host a conference call today, Wednesday, October 31, 2018, at 9:00 a.m. Central Time to discuss the results. The call will be broadcast live and available for replay at Littelfuse.com.

About Littelfuse

Littelfuse (NASDAQ: LFUS) is a global manufacturer of leading technologies in circuit protection, power control and sensing. Sold in over 150 countries, our products are found in automotive and commercial vehicles, industrial applications, data and telecommunications, medical devices, consumer electronics and appliances. Our 12,000 worldwide associates partner with customers to design, manufacture and deliver innovative, high-quality solutions, for a safer, greener and increasingly connected world – everywhere, every day. Learn more at Littelfuse.com.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

The statements in this press release that are not historical facts are intended to constitute "forward-looking statements" entitled to the safe-harbor provisions of the PSLRA. These statements may involve risks and uncertainties, including, but not limited to, risks relating to product demand and market acceptance; economic conditions; the impact of competitive products and pricing; product quality problems or product recalls; capacity and supply difficulties or constraints; coal mining exposures reserves; failure of an indemnification for environmental liability; exchange rate fluctuations; commodity price fluctuations; the effect of Littelfuse, Inc.'s ("Littelfuse" or the "Company") accounting policies; labor disputes; restructuring costs in excess of expectations; pension plan asset returns less than assumed; uncertainties related to political or regulatory changes; the integration of the recently acquired business of IXYS Corporation ("IXYS") and the risk that expected benefits, synergies and growth prospects of the acquisition of IXYS may not be achieved in a timely manner, or at all; and other risks which may be detailed in the company's Securities and Exchange Commission filings. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual results and outcomes may differ materially from those indicated or implied in the forward-looking statements. This release should be read in conjunction with information provided in the financial statements appearing in the company's Annual Report on Form 10-K for the year ended December 30, 2017. For a further discussion of the risk factors of the company, please see Item 1A. "Risk Factors" to the company's Annual Report on Form 10-K for the year ended December 30, 2017.

Non-GAAP Financial Measures

The information included in this press release includes the non-GAAP financial measures of organic revenue growth, adjusted operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, adjusted diluted earnings per share, adjusted effective tax rate and free cash flow. Many of these non-GAAP financial measures exclude the effect of certain expenses and income not related directly to the underlying performance of our fundamental business operations. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is set forth in the attached schedules.

The company believes that organic revenue growth, adjusted operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, adjusted diluted earnings per share, and adjusted effective tax rate provide useful information to investors regarding its operational performance because they enhance an investor’s overall understanding of our core financial performance and facilitate comparisons to historical results of operations, by excluding items that are not related directly to the underlying performance of our fundamental business operations or were not part of our business operations during a comparable period. The company believes free cash flow is a useful measure of its ability to generate cash. The company believes that all of these non-GAAP financial measures are commonly used by financial analysts and others in the industries in which we operate, and thus further provide useful information to investors. Management additionally uses these measures when assessing the performance of the business and for business planning purposes. Note that our definitions of these non-GAAP financial measures may differ from those terms as defined or used by other companies.

LFUS-F

         
LITTELFUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
         
    (Unaudited)    
    September 29,   December 30,
(in thousands)   2018   2017
ASSETS        
Current assets:        
Cash and cash equivalents   $ 498,215     $ 429,676  
Short-term investments   35     35  
Trade receivables, less allowances (September 29, 2018 - $36,392; December 30, 2017 - $27,516)   251,644     182,699  
Inventories   247,255     140,789  
Prepaid income taxes and income taxes receivable   6,802     1,689  
Prepaid expenses and other current assets   48,683     37,452  
Total current assets   1,052,634     792,340  
Property, plant, and equipment:        
Land   29,528     9,547  
Buildings   119,380     86,599  
Equipment   569,550     505,838  
Accumulated depreciation and amortization   (374,575 )   (351,407 )
Net property, plant, and equipment   343,883     250,577  
Intangible assets, net of amortization   377,151     203,850  
Goodwill   830,354     453,414  
Investments   29,084     10,993  
Deferred income taxes   8,979     11,858  
Other assets   21,401     17,070  
Total assets   $ 2,663,486     $ 1,740,102  
LIABILITIES AND EQUITY        
Current liabilities:        
Accounts payable   $ 129,871     $ 101,844  
Accrued payroll   52,208     49,962  
Accrued expenses   74,084     48,994  
Accrued severance   901     1,459  
Accrued income taxes   36,746     16,285  
Current portion of long-term debt   10,076     6,250  
Total current liabilities   303,886     224,794  
Long-term debt, less current portion   690,637     489,361  
Deferred income taxes   49,262     17,069  
Accrued post-retirement benefits   32,901     18,742  
Other long-term liabilities   67,404     62,580  
Total equity   1,519,396     927,556  
Total liabilities and equity   $ 2,663,486     $ 1,740,102  
         
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
         
   

Three Months Ended

  Nine Months Ended
    September 29,   September 30,   September 29,   September 30,
(in thousands, except per share data)   2018   2017   2018   2017
Net sales   $ 439,191     $ 317,889     $ 1,316,187     $ 916,685  
Cost of sales   259,597     184,238     817,983     536,776  
Gross profit   179,594     133,651     498,204     379,909  
                 
Selling, general, and administrative expenses   69,782     56,759     220,540     156,899  
Research and development expenses   20,454     11,991     65,742     36,872  
Amortization of intangibles   13,130     6,292     38,501     18,407  
Total operating expenses   103,366     75,042     324,783     212,178  
Operating income   76,228     58,609     173,421     167,731  
                 
Interest expense   5,775     3,467     16,980     9,868  
Foreign exchange loss (gain)   982     632     (6,372 )   (1,483 )
Other expense (income), net   1,259     (1,013 )   (2,362 )   (962 )
Income before income taxes   68,212     55,523     165,175     160,308  
Income taxes   14,666     12,715     33,275     29,970  
Net income   $ 53,546     $ 42,808     $ 131,900     $ 130,338  
                 
Income per share:                
Basic   $ 2.13     $ 1.88     $ 5.31     $ 5.75  
Diluted   $ 2.10     $ 1.87     $ 5.23     $ 5.69  
                 
Weighted-average shares and equivalent shares outstanding:                
Basic   25,109     22,713     24,817     22,678  
Diluted   25,471     22,953     25,212     22,906  
Comprehensive income   $ 45,599     $ 42,569     $ 107,732     $ 131,574  
 
LITTELFUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
     
    Nine Months Ended
(in thousands)   September 29, 2018   September 30, 2017
Operating activities        
Net income   $ 131,900     $ 130,338  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation   37,559     28,228  
Amortization of intangibles   38,501     18,407  
Provision for bad debts   83     1,586  
Deferred revenue   3,965      
Non-cash inventory charges   36,927     1,607  
Impairment charges   1,125      
Loss on sale of property, plant, and equipment   511     584  
Stock-based compensation   23,153     12,437  
Unrealized gain on investments   (350 )    
Deferred income taxes   (10,979 )   1,863  
Changes in operating assets and liabilities:        
Accounts receivables   (20,588 )   (26,792 )
Inventories   (17,624 )   (17,159 )
Accounts payable   17,033     9,448  
Accrued expenses (including post-retirement)   11,523     1,757  
Accrued payroll and severance   (5,330 )   (3,788 )
Accrued taxes   14,543     7,267  
Prepaid expenses and other   (9,836 )   15,537  
Net cash provided by operating activities   252,116     181,320  
         
Investing activities        
Acquisitions of businesses, net of cash acquired   (313,475 )   (38,610 )
Proceeds from maturities of short-term investments       3,739  
Decrease in entrusted loan       3,599  
Purchases of property, plant, and equipment   (55,946 )   (48,470 )
Proceeds from sale of property, plant, and equipment   858     541  
Net cash used in investing activities   (368,563 )   (79,201 )
         
Financing activities        
Proceeds of revolving credit facility   60,000     15,000  
Proceeds of term loan   75,000      
Net proceeds from senior notes payable   175,000     125,000  
Payments of term loan   (42,525 )   (4,687 )
Payments of revolving credit facility   (60,000 )   (112,500 )
Net proceeds (payments) related to stock-based award activities   17,920     (2,336 )
Payments of entrusted loan       (3,599 )
Debt issuance costs   (878 )   (2 )
Cash dividends paid   (29,258 )   (23,367 )
Net cash provided by (used in) financing activities   195,259     (6,491 )
Effect of exchange rate changes on cash and cash equivalents   (10,273 )   2,076  
Increase (decrease) in cash and cash equivalents   68,539     97,704  
Cash and cash equivalents at beginning of period   429,676     275,124  
Cash and cash equivalents at end of period   $ 498,215     $ 372,828  
         
LITTELFUSE, INC.

NET SALES AND OPERATING INCOME BY SEGMENT

(Unaudited)
         
    Third Quarter   Year-to-Date
            %           %
            Growth           Growth
(in thousands)   2018   2017   /(Decline)   2018   2017   /(Decline)
Net sales                        
Electronics   $ 296,472     $ 175,899     68.5 %   $ 860,240     $ 499,052     72.4 %
Automotive   114,416     113,797     0.5 %   367,718     338,094     8.8 %
Industrial   28,303     28,193     0.4 %   88,229     79,539     10.9 %
Total net sales   $ 439,191     $ 317,889     38.2 %   $ 1,316,187     $ 916,685     43.6 %
                         
Operating income (loss)                        
Electronics   $ 72,464     $ 44,345     63.4 %   $ 193,739     $ 122,518     58.1 %
Automotive   10,863     16,821     (35.4 )%   44,965     47,599     (5.5 )%
Industrial   4,134     3,757     10.0 %   14,123     5,769     144.8 %
Other(a)   (11,233 )   (6,314 )   N.M.   (79,406 )   (8,155 )   N.M.
Total operating income   $ 76,228     $ 58,609     30.1 %   $ 173,421     $ 167,731     3.4 %
Operating Margin   17.4 %   18.4 %       13.2 %   18.3 %    
                         
Interest expense   5,775     3,467         16,980     9,868      
Foreign exchange loss (gain)   982     632         (6,372 )   (1,483 )    
Other expense (income), net   1,259     (1,013 )       (2,362 )   (962 )    
Income before income taxes   $ 68,212     $ 55,523     22.9 %   $ 165,175     $ 160,308     3.0 %

(a) "other" typically includes non-GAAP adjustments such as acquisition-related and integration costs, purchase accounting inventory adjustments and other charges, restructuring costs, asset impairments, and gain and losses on asset sales.(See Supplemental Financial Information for details.)

N.M. - Not meaningful

         
    Third Quarter   Year-to-Date
            %           %
            Growth           Growth
(in thousands)   2018   2017   /(Decline)   2018   2017   /(Decline)
Operating Margin                        
Electronics   24.4 %   25.2 %   (0.8 )%   22.5 %   24.6 %   (2.0 )%
Automotive   9.5 %   14.8 %   (5.3 )%   12.2 %   14.1 %   (1.9 )%
Industrial   14.6 %   13.3 %   1.3 %   16.0 %   7.3 %   8.8 %
                       
LITTELFUSE, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(In millions of USD except per share amounts unaudited)
                       
Non-GAAP EPS reconciliation                      
    Q3-18     Q3-17     YTD-18   YTD-17  
GAAP diluted EPS   $ 2.10     $ 1.87     $ 5.23     $ 5.69  
EPS impact of Non-GAAP adjustments (below)   0.39     0.25     2.34     0.24  
Adjusted diluted EPS   $ 2.49     $ 2.12     $ 7.57     $ 5.93  
Non-GAAP adjustments - (income)/expense                    
    Q3-18     Q3-17     YTD-18 YTD-17  
Acquisition related and integration costs (a)   $ 2.9     $ 4.8     $ 17.0   $ 6.6  
Restructuring, impairment and other charges (b)   5.2     1.5     10.2   1.5  
Amortization backlog - IXYS (c)   3.1         8.7    
Change in control - IXYS (d)           2.1    
Acquisition related stock-based compensation charge (e)           4.5    
Purchase accounting inventory adjustments (f)           36.9    
Non-GAAP adjustments to operating income   11.2     6.3     79.4   8.1  
Non-operating foreign exchange loss (gain)   1.0     0.6     (6.4 ) (1.5 )
Non-GAAP adjustments to income before income taxes   12.2     6.9     73.0   6.6  
Income taxes   2.2     1.2     14.1   1.2  
Non-GAAP adjustments to net income   $ 10.0     $ 5.7     $ 58.9   $ 5.4  
                     
Total EPS impact   $ 0.39     $ 0.25     $ 2.34   $ 0.24  
Adjusted operating margin /Adjusted EBITDA reconciliation                      
    Q3-18     Q3-17     YTD-18   YTD-17  
Net sales   $ 439.2     $ 317.9     $ 1,316.2     $ 916.7    
                       
GAAP operating income   $ 76.2     $ 58.6     $ 173.4     $ 167.7    
Add back non-GAAP adjustments   11.2     6.3     79.4     8.1    
Adjusted operating income   $ 87.4     $ 64.9     $ 252.8     $ 175.8    
Adjusted operating margin   19.9 %  

20.4

%

 

19.2

%

  19.2 %  
                       
Add back amortization   10.0     6.3     29.8     18.4    
Add back depreciation   13.1     9.7     37.6     28.2    
Adjusted EBITDA   $ 110.5     $ 80.9     $ 320.2     $ 222.4    
Adjusted EBITDA margin   25.2

%

 

25.4

%

 

24.3

%

  24.3 %  
Net sales reconciliation   Q3-18 vs. Q3-17   YTD-18 vs. YTD-17
    Electronics   Automotive  

Industrial

 

Total

  Total
Net sales growth  

69

%

 

1

%    

%

 

 

 

 

38

%

   

44

%

 
Less:                                    
Acquisitions   57 %              

 

 

31

%

   

32

%  
Divestitures             (9

)%

 

 

 

 

(1

)%

       
FX impact             (1

)%

 

 

 

 

%

   

2

%  
Organic net sales growth   12 %   1 %    

10

%

 

 

 

 

8

%

   

10

%  
Income tax reconciliation                    
    Q3-18   Q3-17     YTD-18   YTD-17  
Income taxes   $ 14.7     $ 12.7       $ 33.3     $ 30.0    
Effective rate   21.5 %   22.9 %     20.1 %   18.7 %  
                     
Non-GAAP adjustments - income taxes   2.2     1.3       14.1     1.2    
                     
Adjusted income taxes   $ 16.9     $ 14.0       $ 47.4     $ 31.2    
Adjusted effective rate   21.0 %   22.4 %     19.9 %   18.7 %  
                     
Free cash flow reconciliation                    
    Q3-18   Q3-17     YTD-18   YTD-17  
Net cash provided by operating activities   $ 111.2     $ 87.7       $ 252.1     $ 181.3    
Less: Purchases of property, plant and equipment   (15.6 )   (20.2 )    

(55.9

)

  (48.5 )  
Free cash flow   $ 95.6     $ 67.5       $ 196.2     $ 132.8    
Note: Total will not always foot due to rounding.
(a) reflected in selling, general and administrative expenses ("SG&A").
(b) $5.1 million and $0.1 million reflected in SG&A and cost of sales, respectively for the three months ended September 29, 2018 and $9.2 million and $1.0 million reflected in SG&A and cost of sales, respectively for the nine months ended September 29, 2018.
(c) reflected in amortization of intangibles.
(d) reflected in SG&A.
(e) $2.4 million, $1.6 million and $0.5 million reflected in SG&A, research and development expenses and cost of sales, respectively.
(f) reflected in cost of sales.

 

Source: Littelfuse, Inc.

Littelfuse, Inc.
Trisha Tuntland
Head of Investor Relations
(773) 628-2163

 

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