Littelfuse Reports Second Quarter Results

CHICAGO--(BUSINESS WIRE)--

Littelfuse, Inc. LFUS today reported sales and earnings for the second quarter of 2014 and announced a 14% increase in the quarterly cash dividend.

Second Quarter Highlights

• Sales for the second quarter of 2014 were $220.9 million, an 18% increase compared to the prior-year quarter. This strong sales performance was due to double-digit organic growth for both automotive and electronics as well as the Hamlin and SymCom acquisitions, partially offset by continued weakness in the electrical business. Excluding acquisitions, sales increased 7% compared to the prior year.
• On a GAAP basis, second quarter 2014 earnings were $1.08 per diluted share. This included $3.6 million of special operating items including severance charges resulting from restructuring at the Hamlin-Mexico plant and purchase accounting charges related to the SymCom acquisition. In addition, there was a non-operating foreign exchange loss of $2.4 million due primarily to balance sheet revaluation in the Philippines. Excluding these special items, earnings for the second quarter of 2014 were $1.26 per diluted share.
• Earnings for the second quarter of 2014 were negatively impacted by higher scrap and obsolete inventory charges of approximately $1.9 million and a $2.3 million increase in stock compensation expense compared to the first quarter of 2014. The additional scrap and obsolete inventory charges were primarily the result of quality and performance issues at one of our North American plants as well as the downturn in the company's mining business. The increase in stock compensation expense in the second quarter relates to technical accounting issues and will return to more normal levels in the third quarter.
• Sales trends by business unit were as follows:
  • Electronics sales increased 20% year over year due to strong growth across all product lines and the addition of the Hamlin electronic sensor business. Excluding acquisitions, electronics sales increased 13% compared to the prior year.
  • Automotive sales increased 27% year over year reflecting continued strong growth for passenger car fuses and Accel sensors, solid performance for commercial vehicle products and the acquisition of Hamlin. Excluding acquisitions, automotive sales increased 15% compared to the prior year.
  • Electrical sales declined 9% year over year due to the sharp decline in the mining market and a weak quarter for electrical fuses, partially offset by the acquisition of SymCom. Excluding acquisitions, electrical sales declined 26% compared to the prior year.

• The electronics book-to-bill ratio for the second quarter of 2014 was 1.08.
• Cash provided by operating activities was $31.0 million for the second quarter of 2014 compared to $23.0 million for the second quarter of 2013. Capital expenditures for the second quarter of 2014 were $6.7 million compared to $9.0 million for the second quarter of 2013.
• The company repurchased 161,751 shares of its common stock in the second quarter of 2014 at an average price of $88.30. The company has 838,249 shares left on its current share repurchase authorization which is effective through April 30, 2015.
• In the second quarter, the company restructured its labor contracts at the Hamlin-Mexico plant. This resulted in a one-time charge of $2.0 million for severance, as employees had to be terminated and re-hired under a new contract. This is expected to result in savings of approximately $1.5 million annually beginning in the third quarter.

“The positive top-line trends in our automotive and electronics businesses continued through the second quarter,” said Gordon Hunter, Chief Executive Officer. “On the other hand, the electrical segment had its challenges as weakness in the mining sector continues, and electrical fuse sales declined in the second quarter after six consecutive quarters of growth.”

“Despite achieving our sales forecast for the second quarter, we did not see the expected margin improvement,” said Phil Franklin, Chief Financial Officer. “Improved electronics margins were offset by margin declines in automotive and electrical. However, several of the factors that depressed margins in the second quarter have either been corrected or are believed to be non-recurring, and therefore margins are expected to improve significantly in the third quarter.”

Outlook

• Sales for the third quarter of 2014 are expected to be in the range of $215 to $225 million which represents 9% year-over-year growth at the midpoint.
• Operating margin for the third quarter (excluding special items) is expected to improve by 150 to 200 basis points compared to the second quarter of 2014 due primarily to lower stock compensation expense and reduced scrap and obsolete inventory charges.
• Earnings for the third quarter of 2014 are expected to be in the range of $1.29 to $1.43 per diluted share.
• Capital expenditures are expected to be approximately $35 million for the year.

Dividend

The Board has approved a 14% increase in the quarterly cash dividend from $0.22 to $0.25. This dividend is payable on September 4, 2014 to shareholders of record at the close of business on August 21, 2014.

“Since the dividend was initiated in 2010, we have increased it at a compound annual growth rate of 14%,” said Franklin.

Conference Call and Webcast Information

Littelfuse will host a conference call today, Wednesday, July 30, 2014, at 10:00 a.m. Central / 11:00 a.m. Eastern time to discuss the second quarter results. The call will be broadcast live over the Internet and can be accessed through the company's website: www.littelfuse.com. Listeners should go to the website at least 15 minutes prior to the call to download and install any necessary audio software. The call will be available for replay through September 30, 2014 on the company's website.

About Littelfuse

Founded in 1927, Littelfuse is the world leader in circuit protection with growing global platforms in powercontrol and sensing. The company serves customers in the electronics, automotive and industrial markets with technologies including fuses, semiconductors, polymers, ceramics, relays and sensors. Littelfuse has over 7,500 employees in more than 35 locations throughout the Americas, Europe and Asia. For more information, please visit the Littelfuse website: 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 the company's accounting policies, labor disputes, restructuring costs in excess of expectations, pension plan asset returns less than assumed, integration of acquisitions and other risks which may be detailed in the company's other 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 report 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 28, 2013. 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 28, 2013.

LFUS-F

LITTELFUSE, INC.
Net Sales and Operating Income by Business Unit
(In thousands of USD, unaudited)
		Second Quarter											Year-to-Date
		2014				2013				% Change			2014				2013				% Change
Net Sales
Electronics (2)		$	109,947			$	91,450			20	%		$	205,972			$	170,865			21	%
Automotive (3)			82,042				64,548			27	%			164,444				123,933			33	%
Electrical (4)			28,919				31,768			(9	%)			57,351				63,886			(10	%)
Total net sales (1)		$	220,908			$	187,766			18	%		$	427,767			$	358,684			19	%
(1) Total net sales for 2014 include $19.9M for the quarter and $46.3M year-to-date from business acquisitions.
(2) Total Electronics net sales for 2014 include $6.9M for the quarter and $16.3M year-to-date from the Hamlin acquisition.
(3) Total Automotive net sales for 2014 include $7.7M for the quarter and $20.2M year-to-date from the Hamlin acquisition.
(4) Total Electrical net sales for 2014 include $5.3M for the quarter and $9.8M year-to-date from the SymCom acquisition.
		Second Quarter											Year-to-Date
		2014				2013				% Change			2014				2013				% Change
Operating Income
Electronics		$	25,634			$	19,779			30	%		$	45,005			$	31,922			41	%
Automotive			11,049				8,913			24	%			22,931				18,396			25	%
Electrical			571				5,623			(90	%)			4,317				12,114			(64	%)
Other (5)			(3,535	)			(2,933	)		21	%			(4,944	)			(2,933	)		69	%
Total operating income		$	33,719			$	31,382			7	%		$	67,309			$	59,499			13	%
Interest expense			1,228				644							2,444				1,020
Investment impairment (6)			-				-							-				10,678
Foreign exchange (gain) loss			2,375				(3,724	)						2,123				(3,405	)
Other (income) expense, net			(1,446	)			(935	)						(2,632	)			(2,163	)
Income before taxes		$	31,562			$	35,397			(11	%)		$	65,374			$	53,369			22	%
(5) "Other" typically includes special items such as acquisition-related costs, restructuring costs, asset impairments, and gains and losses on asset sales. For the second quarter of 2014, Other included a purchase accounting charge (ASC 805) related to the SymCom acquisition ($1.4M) and severance charges related to restructuring at the Hamlin - Mexico plant ($2.0M) all in Cost of sales and other acquisition costs ($0.2M) all in Selling, general and administrative.
(6) Impairment and loan losses from investment in Shocking Technologies.

LITTELFUSE, INC.
Supplemental Financial Information
(in millions of USD except share amounts)
GAAP EPS Reconciliation
			Q1-14					Q2-14					YTD-14					Q1-13				Q2-13					YTD-13
GAAP diluted EPS			$	1.12				$	1.08				$	2.20				$	0.51			$	1.18				$	1.70
EPS impact of special items (below)				0.04					0.18					0.22					0.44				(0.03	)				0.41
Adjusted diluted EPS			$	1.16				$	1.26				$	2.42				$	0.95			$	1.15				$	2.11
Year-over-year adjusted EPS growth				1	%				10	%				15	%
Special Items (income)/expense
Purchase accounting adjustment			$	1.4				$	1.4				$	2.8				$	-			$	1.7				$	1.7
Restructuring				-					2.0					2.0					-				-					-
Acquisition expenses				-					0.2					0.2					-				1.2					1.2
Adjustment to Operating income				1.4					3.6					5.0					-				2.9					2.9
Impairment charges				-					-					-					10.7				-					10.7
Foreign exchange (gain)/loss				(0.2	)				2.4					2.2					-				(3.7	)				(3.7	)
Adjustment to pre-tax income			$	1.2				$	6.0				$	7.2				$	10.7			$	(0.8	)			$	9.9
EPS impact of above special items			$	0.04				$	0.18				$	0.22				$	0.29			$	(0.03	)			$	0.26
EPS impact of Shocking tax adjustment				-					-					-					0.15				-					0.15
Total EPS impact			$	0.04				$	0.18				$	0.22				$	0.44			$	(0.03	)			$	0.41
(1) Reflects $3.3 million of the Shocking tax adjustment recorded in Q1-13.
Operating margin reconciliation								Q2-14					YTD-14									Q2-13					YTD-13
Net sales								$	220.9				$	427.8								$	187.8				$	358.7
GAAP Operating income								$	33.7				$	67.3								$	31.3				$	59.5
Add back amortization									3.1					6.3									1.9					3.5
Add back special items									3.6					5.0									2.9					2.9
Operating income before amortization and special items								$	40.4				$	78.6								$	36.1				$	65.9
Operating margin before amortization and special items									18.3	%				18.4	%								19.2	%				18.4	%

LITTELFUSE, INC.
Condensed Consolidated Balance Sheets
(In thousands of USD, except share amounts)
			June 28, 2014					December 28, 2013
			(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents			$	346,406				$	305,192
Short-term investments				6,849					6,886
Accounts receivable, less allowances				144,869					127,887
Inventories				96,674					92,591
Deferred income taxes				10,610					10,463
Prepaid expenses and other current assets				18,492					17,080
Assets held for sale				5,500					5,500
Total current assets				629,400					565,599
Property, plant and equipment:
Land				6,044					4,382
Buildings				71,154					59,699
Equipment				359,252					354,475
				436,450					418,556
Accumulated depreciation				(277,791	)				(268,383	)
Net property, plant and equipment				158,659					150,173
Intangible assets, net of amortization:
Patents, licenses and software				25,638					25,166
Distribution network				40,992					42,685
Customer lists, trademarks and tradenames				44,750					30,506
Goodwill				201,769					186,464
				313,149					284,821
Investments				15,787					12,286
Deferred income taxes				4,839					5,092
Other assets				7,065					6,402
Total assets			$	1,128,899				$	1,024,373
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable			$	36,793				$	33,872
Accrued payroll				22,149					29,437
Accrued expenses				13,972					13,087
Accrued severance				327					182
Accrued income taxes				6,422					5,931
Deferred income taxes				7					229
Current portion of long-term debt				204,000					126,000
Total current liabilities				283,670					208,738
Long-term debt, less current portion				91,250					93,750
Deferred income taxes				11,382					11,585
Accrued post-retirement benefits				182					8,528
Other long-term liabilities				14,922					14,856
Total equity				727,493					686,916
Total liabilities and equity			$	1,128,899				$	1,024,373
Common shares issued and outstanding of
22,524,723 and 22,467,491 at June 28, 2014 and
December 28, 2013, respectively.

LITTELFUSE, INC.
Consolidated Statements of Comprehensive Income
(In thousands of USD, except per share data, unaudited)
			For the Three Months Ended									For the Six Months Ended
			June 28, 2014				June 29, 2013					June 28, 2014				June 29, 2013
Net sales			$	220,908			$	187,766				$	427,767			$	358,684
Cost of sales				137,913				114,209					266,278				220,521
Gross profit				82,995				73,557					161,489				138,163
Selling, general and administrative				38,328				34,452					72,499				63,654
Research and development expenses				7,810				5,793					15,384				11,508
Amortization of intangibles				3,138				1,930					6,297				3,502
				49,276				42,175					94,180				78,664
Operating income				33,719				31,382					67,309				59,499
Interest expense				1,228				644					2,444				1,020
Impairment and loan loss in
unconsolidated affiliate				-				-					-				10,678
Foreign exchange loss (gain)				2,375				(3,724	)				2,123				(3,405	)
Other (income) expense, net				(1,446	)			(935	)				(2,632	)			(2,163	)
Income before income taxes				31,562				35,397					65,374				53,369
Income taxes				6,984				8,749					15,407				15,233
Net income			$	24,578			$	26,648				$	49,967			$	38,136
Net income per share:
Basic			$	1.09			$	1.19				$	2.22			$	1.72
Diluted			$	1.08			$	1.18				$	2.20			$	1.70
Weighted average shares and
equivalent shares outstanding:
Basic				22,579				22,296					22,536				22,197
Diluted				22,750				22,499					22,738				22,431
Diluted Net Income Per Share
Net income as reported			$	24,578			$	26,648				$	49,967			$	38,136
Less: income allocated to participating
securities				-				(10	)				-				(32	)
Net income available to common
shareholders			$	24,578			$	26,638				$	49,967			$	38,104
Weighted average shares adjusted for
securities				22,750				22,499					22,738				22,431
Diluted net income per share			$	1.08			$	1.18				$	2.20			$	1.70
Comprehensive income			$	33,743			$	17,956				$	52,235			$	28,924

LITTELFUSE, INC.
Consolidated Statements of Cash Flows
(In thousands of USD, unaudited)
	For the Six Months Ended
	June 28, 2014					June 29, 2013
OPERATING ACTIVITIES:
Net income	$	49,967				$	38,136
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation		14,459					12,748
Amortization of intangibles		6,297					3,502
Impairment and loan loss in unconsolidated affiliate		-					10,678
Non-cash inventory charge (1)		2,769					1,725
Stock-based compensation		5,229					4,562
Excess tax benefit on stock-based compensation		(2,230	)				(3,494	)
Loss on sale of assets		141					120
Changes in operating assets and liabilities:
Accounts receivable		(17,871	)				(20,246	)
Inventories		410					3,354
Accounts payable		2,533					4,655
Accrued expenses (including post retirement)		(7,578	)				(11,477	)
Accrued payroll and severance		(7,323	)				(1,725	)
Accrued taxes		(2,101	)				(4,257	)
Prepaid expenses and other		(2,189	)				724
Net cash provided by operating activities		42,513					39,005
INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(13,132	)				(14,445	)
Acquisition of businesses, net of cash acquired		(52,768	)				(145,000	)
Purchase of short-term investments		-					(8,478	)
Proceeds from sale of assets		37					56
Net cash used in investing activities		(65,863	)				(167,867	)
FINANCING ACTIVITIES:
Proceeds from term loan		-					100,000
Proceeds of revolving credit facility		97,500					152,000
Payments of term loan		(2,500	)				-
Payments of revolving credit facility		(19,500	)				(103,000	)
Debt issuance costs paid		(108	)				(808	)
Cash dividends paid		(9,921	)				(8,865	)
Purchase of common stock		(14,283	)				-
Proceeds from exercise of stock options		11,101					15,401
Excess tax benefit on stock-based compensation		2,230					3,494
Net cash provided by financing activities		64,519					158,222
Effect of exchange rate changes on cash and cash
equivalents		45					(7,092	)
Increase in cash and cash equivalents		41,214					22,268
Cash and cash equivalents at beginning of period		305,192					235,404
Cash and cash equivalents at end of period	$	346,406				$	257,672
(1) Purchase accounting adjustment related to acquisitions.