littelfuse management discusses q1 2013 results - earnings call transcript

by:SEEKING     2020-06-07
Littelfuse (NASDAQ:LFUS)
At 11: 00 a. m. on April 30, 2013, etexecuesgordon B. Q1 2013 Earnings CallHunter -
Chairman, Chief Executive Officer, president and chairman of the Technical CommitteeFranklin -
Matthew Sherin, vice president and chief financial officer, operations support and financial analysis-
Steven Nicholas & Co. , Inc.
Peter lisnick Research DivisionRobert W. Baird & Co.
Research Department shawn M. Harrison -
Longbo research
Hello everyone, welcome to Littelfuse Inc . .
2013 conference call in the first quarter.
Today\'s call is being recorded.
At this time, I would like to forward this call to the chairman, the president and the chief executive officer. Gordon Hunter.
Sir, please proceed. Gordon B.
Good morning, welcome to the Littelfuse 2013 conference call for the first quarter.
Today with me is Phil Franklin, vice president and chief financial officer of our operations support.
As you can see in the press release, we have had a very good start this year with solid performance across all businesses and across all regions.
Sales and revenue are aligned with the latest guidance that we provided on April 10.
I will discuss our performance in the first quarter and provide more details in a matter of minutes about the agreement we recently announced to acquire Hamlin.
But first, I will transfer the call to Phil, who will give a brief summary of the Safe Harbor Statement as well as the press release. Philip G.
Good morning, Gordon. Good morning.
Before we proceed, let me remind you that the comments made on this call include forwarding
As we currently see, the environment-based lookup statement.
Therefore, risks and uncertainties are indeed included.
Please refer to our press release and SEC documents for more information on specific risk factors that may lead to significant differences between actual results and forward results
Look at the report.
Sales for the first quarter of 2013 were $170.
9 million, up 6% year on yearover-
Consistent with our recent guidance.
GAAP revenue for the first quarter of 2013 was $0.
$66 per share after dilution, which includes $0.
Fees related to writing
Our remaining investment in shocking technology.
Excluding this fee, the income is $0.
$95 per share, which is the high end of our recent guidance, well above $0.
We made a profit in the last quarter, mainly reflecting an increase in sales in all businesses.
In the cash flow quarter, which is usually our weakest, cash performance is very strong.
Cash for operating activities is $16.
Compared to $7, the quarter was $0.
The first quarter of last year was 9 million, mainly reflecting the outstanding performance of working capital.
The accounts receivable DSO was reduced from 61 days in the previous year to 57 days and the inventory turnaround time was increased to 6 days.
0, contrast 5.
1 in the previous year.
Capital expenditure increased to $5.
The first quarter of 2013 was $5 million.
As a result of spending on several capacity, the first quarter of last year increased by 2 million
Related projects.
Now I\'m going to turn it back to Gordon for some color on business performance and market trends. Gordon B.
Thanks, Phil.
I will start by reviewing the three business units, starting with electrical.
Electrical sales accounted for 19% of our total sales, with sales of $32.
Compared with 2012, 1 million growth in the first quarter was 4% per cent.
Sales of electrical fuse products increased by 11% year on year.
Due to the general slowdown in the global mining market, sales of customized products and protective relays have declined slightly.
The growth of the electrical fuse business is driven by the continued advantages of the OEM field and the incremental sales of the conversion of multiple dealers we discussed on previous calls.
Many of these conversions are driven by the added value of our protective relay products, a competitive advantage that sets us apart.
The main advantages of the solar and HVAC market continue to drive the development of the OEM field.
This is a record quarter for our solar business and a sixth consecutive quarter of strong performance. over-quarter growth.
This improvement is largely due to the success of our new product designed specifically for solar applications.
In order to maintain the momentum, we are already working on the next step --
This will further strengthen our leadership in the solar market.
The solar business continues to shift from traditional European markets to emerging markets such as North America and India and China.
With our global sales team and global product certification, we are able to successfully bring this business to emerging markets.
This new business makes up for any reduction in the traditional market.
In the first quarter, we won a new business with a large white appliance manufacturer that expanded our circuit protection products to other platforms.
We expect this win this year to bring in more than $300,000 in additional revenue.
Increasing penetration of distribution channels is critical to the successful growth of the fuse business.
We continue to convert major power distributors to Littelfuse and expect these conversions to contribute more than $500,000 in annualized revenue in 2013.
We are more optimistic about America. S.
The industrial and construction market segments have been better than we have been for a while.
The industrial sector seems to have performed very well and we continue to have good opportunities in the solar and HVAC markets.
In addition, the building Bill index recently showed a significant rise, a leading indicator of the increase in commercial building activities.
In addition to positive market trends, we implemented price increases in 2012, which will help to close the line and offset some of the profit pressures we are experiencing.
In conclusion, our electrical fuses business performed very well and we continue to be driven mainly by the industrial sector as the solar, HVAC and lighting markets grow further.
From the point of view of our relay protection business, although the market is weaker than a year ago, we believe that the basic long-term
The long-term drivers are still positive.
Our first-quarter relay sales were affected by a slowdown in the global mining market. U. S.
Coal demand is also falling, and we continue to see a temporary slowdown in the potash business we talked about last quarter.
In such an environment, we continue to win new business and execute our growth strategy.
These strategies include geographic expansion, developing new products, diversifying beyond potash mining, and focusing on large OEMs.
Last quarter, we talked about adding new distribution channels outside North America and expanding our relay sales to South and Central America, Europe and Asia through some new customers and projects
Last year, our new projects with OEMs in the oil, gas and power generation markets also achieved good success.
New products related to our geographic expansion are an area recently developed --
Fault relay specially designed for Australian mining market.
This is the only product that meets Australia\'s new mining standards and we expect this relay to generate new revenue of over $250,000 this year.
Another new product is our industrial impact.
Block officially launched in the first quarter. The new Shock-
Block to prevent dangerous electric shock.
To give just a few examples, it will help us move beyond heavy industry into markets such as pulp and paper, oil and gas, water treatment facilities and amusement parks.
We see early signs of success, and we expect to bring a lot of orders in the coming quarters.
New Arc-
The flash relay we launched last year continues to gain traction in the market.
We have sold multiple units to customers who want to taste the product and we have received several orders.
Another focus area is the European manufacturer of switch equipment, we are actively taking advantage of our advantages
Set up sales team in the area.
We already have a few orders and are expected to receive considerable incremental revenue from this area in the coming year.
Continue our custom product business.
After the incredible momentum of the past few years, sales fell 2% in the first quarter.
As we discussed, one of our potash customers will complete the next phase of capacity expansion project this year.
Although more expansion is planned, we expect that the ordering model may slow down temporarily until more capabilities are developed.
Still, we have several projects that could be shipped in the next quarter and we are actively looking for new opportunities for potash mining and other types of mining.
One of the projects is the BHP Johnson potash project in SA province.
BHP Billiton has been actively developing the project for many years and has recently started awarding contracts to several suppliers in the first phase of the project.
We believe we have a great opportunity to get involved and we hope to have some positive news to report in the coming quarters.
We are also trying to spread our custom product business to other markets and locations.
We continue to focus on several major opportunities in Canada\'s oil sands market.
This is a market that requires long-term investment.
Complex planning and engineering work, so decision-making-
The production process is quite long.
We are also looking for new mining opportunities in Canada and Central and South America.
An important project currently under way involves multiple
Million dollar opportunity to produce portable dehydrated substations for Canadian mines.
Engineers at the mine have been using Startco products for years and our team has been working with them to help them meet new equipment requirements.
If we succeed, we expect this project to be delivered in the third quarter.
The uranium market in Canada has the potential to offer new opportunities for our protective relays and custom electrical products.
A recent deal negotiated between Canada and China will allow Canadian companies to increase uranium exports to China as part of a broader joint trade plan.
The agreement is expected to be finalized in the coming months.
Our main uranium production base is located in the province of SA where we produce our custom products.
We have been working with engineers at the company to help assess their upcoming equipment requirements.
One factor in our favor throughout the mining industry is our focus on the safety and reliability of electrical systems.
In our segment, mining and industrial companies must continue to invest in equipment that meets the government\'s electrical standards to ensure the safety of employees and equipment.
As our results in the first quarter show, we obviously will not experience the growth rate of last year\'s custom products.
We expect a slight decline in the second quarter compared to the first quarter, followed by a sharp decline in the third quarter, which is about $2 million to $3 million.
As you can hear, there are a lot of positive activities
Offers millions of dollars for our protective relays and custom electrical products.
While these opportunities have not yet been translated into new businesses, we are confident that we have the ability to win some of these important contracts by the end of the year.
Therefore, we are more and more confident in our beliefs, and the weaknesses of our potash business are only temporary.
This makes our car business 35% of total sales.
Car sales were $59 in the first quarter.
4 million growth in 13%over-year.
As mentioned in the press release, the increase includes the acquisition of ACCEL and Terra Power from last year.
Excluding the two acquisitions, car sales fell by 1% as the euro weakened and commercial vehicle product sales continued to weaken.
Passenger car sales have increased in all regions except Europe, and these factors have been offset.
The European slowdown continues throughout the region.
European car production bottomed out in the first quarter, according to LMC.
They expect the remaining quarter to be similar to last year, with a slight increase expected in the fourth quarter.
Due to the economic situation in Europe, we see more alliances, like the phones of Nissan and General Motors that we mentioned on the previous phone call, and the announcement that Nissan and Renault will share the platform.
For us, the shared platform achieved higher sales in a design win.
Several positive contributors to first-quarter sales helped offset the impact of low European production.
Due to the increase in the new BMW and Jaguar platforms, we have seen an increase in sales, on which we have high content and for the Chrysler platform our new ZKS demand is highcurrent fuse.
Asian car production hit a new record in the first quarter, a bright spot in the quarter.
China\'s auto demand is growing by nearly 14% a year. over-
Much higher than the 10% growth rate expected for the full year of 2013.
This is also a record quarter of Littelfuse\'s sales in Asia, and our sales in the third quarter of last year exceeded nearly 5%. The long-
China\'s long-term prospects are still very optimistic.
With our strong position in China\'s localized Western OEMs and Tier 1 suppliers, we are on track to hit a new sales record of $22 million in 2013.
This will increase by more than 15% compared to 2012.
In India, car production has fallen sharply due to high interest rates and high fuel prices.
Production in the first quarter fell 17% from last year, with a forecast that 2013 would be flat with 2012.
As a result, Western OEMs, looking for a clearer direction for the Indian economy, have reservations about adding more capacity. Long-
However, the outlook is still optimistic in the long run, with auto production expected to double to 9 million units by 2020.
Fortunately, the American marketS.
More solid.
In addition to the positive market conditions, some of our high-current fuses for Chrysler and GM are expected to help grow overall sales in the USS. in 2013.
The latest developments in hybrid electric vehicles are one of our major Tier 1 customers in the USS.
We are working closely with this customer to develop fuses for a high-end enterprise
Voltage application in plugin hybrid cars.
The test results are very positive and we expect to launch this new product on several OEM platforms in 2014.
In Europe we have won additional business for another Volkswagen platform-the small car Apollo platform-where we are able to design on MQB MasterFuse.
This production is expected to start with one car in 2014 and reach a peak of 600,000 vehicles per year in 2016.
Looking ahead, we expect global passenger car production to grow by about 2% in 2013, and Europe is expected to decline by about 5%.
We expect that due to the growing demand for our new products over the past few years and a significant victory for the new business, our automotive business will continue to outperform the market.
Let\'s continue to discuss commercial vehicle products.
CVP sales fell 10% year-on-year in the first quarterover-
With most of the North American distribution channels falling.
However, our CVP sales in the first quarter increased by 33% in 2012, a welcome sign of improvement.
Sales in all three of our major markets have increased.
Construction equipment, heavy trucks and agricultural equipment.
The growth was mainly due to sales growth in the North American after-sales market and Australia, which typically performed strongly in the first half of this year.
In the first quarter, we achieved several major victories in our commercial vehicle business.
One is heavy.
Working relays from truck manufacturers in North America, the sealing quality on our products helps to solve the moisture problem.
Another win is our flexible electronics module, which will be installed on up to 1,000 trucks from major fleet customers in North America to correct potential battery exhaustion issues.
Our ability to start shipping quickly is a strong advantage for us to win this business.
As part of our first win with a large Korean construction equipment company, we will start shipping power relay modules in the second half of the year.
The number of this project will eventually reach 30,000 to 50,000 units per year, and we plan to translate this new relationship into other opportunities.
Our CVP business growth strategy focuses on the areas of power distribution modules, high current solenoid relays, and electronic modules.
The trend in the Switch Market is electronic control, turning the switch on and off as needed, rather than requiring the operator to activate the switch.
An example of this is installed in 1,000-
Truck fleet, the fleet I just mentioned.
In this application, our module will automatically turn on or off the battery voltage according to the preset parameters, helping to reduce the drainage that causes the battery to run out of power.
We are also working to extend our CVP business beyond our strong North American base.
On the basis of China\'s previous victory, the victory of Korean construction OEM is helping us to build a solid foundation in Asia.
We have been selling products in Asia for many years.
But as Asia becomes more and more a design center, we have the opportunity to win new designs in business and work more closely with our customers.
As part of our focus on Asia, we are holding a series of technical seminars in China or possibly, which will provide us with excellent opportunities to showcase our products and capabilities to the very large and diverse CVP market in the region.
With the improvement of the market, the emergence of our new products and new customers, we hope to continue to develop our CVP business throughout the year.
Turning to the automotive sensor business, although overall sales in Europe remained weak, accel performed better than planned in the first quarter.
The main driver is the increase in sales of solar sensors by Chrysler and Daimler.
This is also a good quarter for ACCEL to win in the new business area.
ACCEL\'s solar sensor was selected for the next few projects
GM launched a new generation of platforms in 2016.
Autoliv has also chosen ACCEL to provide seat buckle sensors for projects where the end customers are Ford and BMW.
So, in general, our car business continues to be challenged by a slowdown in Europe.
The acquisition of ACCEL and Terra Power has contributed positively to our overall performance.
We continue to launch new products and win new projects in our core automotive business and target growth areas for commercial vehicle products and sensors.
We believe that these competitive advantages will enable us to continue to perform well in the market.
As a result, this presents an opportunity for our electronics business, which accounts for about 46% of Littelfuse\'s total sales.
Electronics sales in the first quarter were $79.
4 million rose 3% from the first quarter of last year, a continuous increase of 6% from the fourth quarter.
This increase is due to the fact that we usually have seasonal pick-up after weak shipments in December.
We saw it too.
In North America, Europe and China, many vertical markets and customers have improved.
This improvement, coupled with some good design wins, resulted in a backlog of books at the beginning of the second quarterto-About 1 bill. 1.
According to the expected market demand in the next two quarters, the channel inventory level has increased slightly.
We believe our channel inventory is at an appropriate level under current business conditions.
Personal computer sales continued to decline in key electronics segments.
According to IDC\'s latest data, PC shipments fell 14% in the first quarter of this year compared with a year ago.
Clearly, the cannibalizing of the tablet market is a key driver behind this.
So far, the launch of Windows 8 has not increased the demand for personal computers.
The PC market continues to grow at the expense of traditional laptops, but it is not enough to make up for the overall decline.
However, the market for tablets, e-readers and smartphones will continue to grow and we are very focused on targeting these segments with new products.
According to the latest report from display search, tablet sales will reach 0. 24 billion units in 2013, surpassing laptops, and laptop sales are estimated to be less than 0. 2 billion units.
Some companies have launched smaller 7-inch-
Type your tablet using Android and Windows 8 platforms.
I \'d like to stress that we\'re in these fast-
A growing product category.
As I mentioned on the previous phone call, our excesses
Current and ESD products are used in a variety of tablet applications to protect Chargers, battery packs, inverter circuits, and data lines.
Last year, our revenue in this area was approximately $6 million, and our growth is expected to exceed 15% in 2013.
Last quarter, we mentioned more of us.
Layered rheostat with the new Windows 8 tablet manufacturer.
Revenue for the win is expected to reach $300,000 by 2013.
We have now expanded our position with fuses and TV diodes for the new 7-
Inch tablets from the same company will generate another $200,000 in revenue this year.
There is a bigger trend in the market.
Smartphone size
Many of you may already be using these phones.
Compared with traditional smartphones, these smartphones have a larger battery pack and look more like tablets.
The charger is 10 to 12 watts with more heat dissipation than 5 watts
Watt charger used on small phones.
This, in turn, requires more precise protection, creating a great opportunity for Littelfuse.
The continued growth of tablets and smartphones has driven demand for faster broadband transmission.
This in turn requires more infrastructure products such as data centers and data switches, Ethernet connections, and femto and pico cells.
Many people in the industry call this whole space cloud computing and broadband access.
All the infrastructure products I mentioned require ESD and later Protection
Electricity surged to extend their service life.
We have the ability to provide it with an enhanced version of our high version
Amps dc fuses, diode arrays and SIDACtor products.
We estimate revenue from the broadband infrastructure sector in 2013 to approximately $3 million to $4 million.
Last quarter, we discussed the technical cooperation between Littelfuse and Huawei, the leading telecom equipment manufacturer in China, and launched the new 6 in their surge protection system.
This fuse meets high surge requirements in a smaller form factor.
Our product sales were $200,000 in the first quarter, and we expect total sales for the full year to be around $1 million.
We also work with a leading European telecom company that uses TMOV equipment.
Sales are expected to be around $700,000 in 2013, up 50% from last year.
Our superior design team and strong global technical support have affected the growth of this market share.
Through the new design advantages, our revenue in the LED lighting market continues to grow.
A recent report from DisplaySearch shows that the opportunities for the LED lighting market will double between 2013 and 2012.
We benefit from the growth in this area, as well as new designs for sockets for LED bulbs and outdoor fixtures.
Our recent design win is 60-
Watt brand LED bulbs launched in the first quarter.
Each bulb includes a Nano fuse and a metal oxide rheostat, which is expected to increase revenue to $700,000 per year.
The company is actively marketing 60-
Attractive light bulb for $10.
This is lower than other competitors of LED bulbs, helping to close the gap between LED bulbs and traditional incandescent lamps.
As part of our continued expansion into the LED space, we recently launched an LED surge production module to protect outdoor street lights from high
Lightning surge.
This integrated module combines our industry
With our proprietary hot disconnect feature, the leading technical team offers a high level of protection and features that are easy to assemble and maintain, attracting customers.
Our module is the United States. S.
Certification, which will help customers adopt.
In 2012, our sales in the LED lighting market were about $7 million, up from $4 million in 2011, and we expect to maintain strong growth again this year.
Another area of growth is the multimedia segment.
We recently designed the SG series gas discharge tube into a
Set top boxes manufactured by leading Korean OEM.
Our SG series offers combined technology of surge protection and low capacitance in small surface mounting sizes.
We saw the same success in North America.
Top box makers whose revenues are likely to grow by 20% this year.
The annual GDP of the SG series is expected to reach $800,000 in 2013.
So, as you can see, we won a lot of new business in the first quarter, and more business is brewing.
We have also recently launched 3 new products that are very unique.
First, the new low-voltage, high-
Surge metal oxide rheostat.
This patented formula has increased our product\'s ability to surge four times over our competitors.
The market opportunity is about $18 million.
Our sales in this area are currently only around $1 million and we expect a huge share of this new product.
The second unique new product is a pico fuse that is UL 913 certified for hazardous environments.
Our fuse is the first fuse in the market to meet this specification in a very small form factor.
The market opportunity for this new product is about $3.
5 million kilometers in North America.
We also took the lead in introducing a diode array to protect the latest generation of high levels
High speed USB ports for computing devices and consoles.
Its unique feature is that it can protect all 6 USB lines with one device.
The new innovation is expected to generate more than $1 in revenue.
Income for 2013 was 5 million per cent.
So to sum up, the electronic inventory is stable.
We are winning new business and launching new and innovative products.
We are encouraged by the recent growth in electronic sales.
If this positive trend continues, we should see an improvement in performance in the second quarter and the rest of the year.
This completes my review of 3 business units.
Next, I would like to give you more details about the proposed acquisition of Hamlin and why we think this will be a great addition to our new sensor platform.
As you know, we set up this platform after the acquisition of ACCEL in last June.
Two weeks ago, we announced our agreement to buy Hamlin from key security systems for $0. 145 billion, a big step forward in building the platform.
Hamlin is a leader in sensor technology, offering products to the automotive, electronics and industrial markets.
Sales in 2012 were $76 million.
Now, plan to divide the Hamlin product line between our automotive and electronics businesses-
Business unit based on terminal market application.
Hamlin is perfect for ACCEL in terms of cars.
Both ACCEL and Hamlin are involved in the security market.
In addition, Hamlin also provides us with a market for speed, location and direction sensing.
Both Hamlin and ACCEL provide seat belt sensors to detect whether a driver or passenger is fastened to the seat belt.
Full service ACCEL
Effect techonolgy and Hamlin bring two other technologies to the portfolio, reed and mechanical conversion.
All of these technologies provide information for the proper deployment of airbags when needed.
The sensor will trigger a beep reminder when the seat belt is not buckled.
The same information is used by the airbag controller.
If your car has an indicator that shows whether the rear seat belt passenger is buckled, this indicator comes from the rear seat belt buckle sensor.
Seat belt sensors are also used in the back seat inflatable seat belt that Ford produced two years ago.
Hamlin will expand our portfolio with a seat belt tension sensor.
These devices passengers are held to let the airbag controller know if there is anyone in the passenger\'s seat or if there is a child\'s seat held.
This information determines whether the airbag will unfold and to what extent it will unfold.
Hamlin also provides fluid
The level sensor, not only tells us how much fuel is available, but also tells us the water level of the window washer and the level of the brake and coolant.
On trucks, they can feel the level of the diesel exhaust fluid AdBlue, a diesel exhaust fluid sprayed into the exhaust to reduce nitrogen oxide pollution.
Hamlin will also extend our portfolio to speed and direction --Sensing segment.
These sensors enable the lever to talk to the electronic control unit in the gearbox, allowing you to park, drive, reverse or neutral the car.
These sensors are also used in vehicles with start/stop systems to reduce gas consumption.
In addition to these two examples, these sensors have many other applications in the vehicle.
In electronics, Hamlin and Littelfuse products have multiple review markets in the fields of home appliances, white appliances, industrial products and smart metering.
We have a good chance here.
Sell the products of the two companies to our huge customer base.
We can also leverage our leading position in circuit protection to sell Hamlin products to our extensive network of global distribution partners.
As an example of synergies, Hamlin reed switches are used for millions of units
Used to detect whether the water level and copy the part duplicator in the unit.
On these machines, Littelfuse triax and TVS diodes are used for switching and surge protection.
Another example is smart meters.
Littelfuse supplies over-charged fuses
Current protection and rheostat and TVS diodes for suppressing surge, while Hamlin reed switches are used as counters and tamper switches in these meters.
The two companies also have a strong position in the securities sector, which uses a large number of Hamlin reed switches and relays, as well as Littelfuse fuses and rheostat.
So I hope you can understand why we are so excited about the fit between the two companies and the opportunity that we have to take advantage of each company\'s established market position to bring additional growth to Littelfuse.
The acquisition is expected to be completed by the end of May.
The transition team is in place and we look forward to implementing our growth strategy for this business.
So on the positive side, I\'m going to transfer the call to Phil, Phil will provide the outlook for the second quarter, and then we\'re going to start asking questions. Philip G.
Thank you, Gordon.
Our guidance for 2013 is as follows.
Sales are expected to be between $0. 177 billion and $0. 187 billion.
In the middle of the range, this represents 3.
Growth of 5%, more than 2012.
Revenue for the second quarter is expected to be within $1. 03 to $1.
18 per share after dilution.
This means operating profit margins within 18% and a tax rate of about 26%.
The above guidance does not include Hamlin.
If Hamlin closes as scheduled at the end of May, sales are expected to increase by about $7 million with a slight increase in revenue excluding acquisitionsrelated costs.
This concludes our prepared remarks.
Now, we want to ask questions. Question-and-
Operation instructions]
Our first question came from Nicholas, from Yaguang Sheerin stephil.
Matthew Sherene.
Steven Nicholas & Co. , Inc.
First of all, according to your guidance, your point of view is 1% to 6% in turn.
When we see each of the 3 core sections, are you? . . Philip G.
Frankfurt, wait, Matt, I\'m sorry. That\'s 1% to 6% years-over-year.
Matthew Sherene.
Steven Nicholas & Co. , Inc.
I\'m sorry, Research Department. That\'s right.
So, it\'s a higher number.
Yes, that\'s right.
So do you expect the e-business to grow stronger on a continuous basis than other businesses?
Or do you want to see growth in all these areas? Philip G.
E-commerce will be the main driver of continuous growth. The --
Typically, the car business was quite strong in the first quarter.
Usually Q1 is similar to Q2.
The electrical business is usually a little more positive, at least the fuse business is more positive in the second quarter, usually showing some continuous growth,--
As we mentioned, the custom product business is beginning to show a continuous decline, which will be an offset.
So the main driver of growth from the first quarter to the second quarter will be electronics.
Matthew Sherene.
Steven Nicholas & Co. , Inc.
Okay, research, so--
Looks like--
Take a look at the seasonality of the past few quarters or the past few years and you may be at a high level --
Double to low.
Number, is it fair? Philip G.
It\'s fair, Frankie.
Matthew Sherene.
Steven Nicholas & Co. , Inc.
Okay, research.
Then there is another question, just a comment on the electrical business and some of the mining business in the third quarter.
I have also noticed that your operating margin in that business has declined in turn.
In terms of operating profit margins for the electrical business, will this mix be bad for you?
Or what else can you do to offset this?
Well, I mean, other things are equal and it will. .
We will lose some leverage because we will still invest in the sales of the business. -
Because we have-
I mean, we think we have a lot
There are semester opportunities.
So in the custom business, you will have A non-very flat SG & A.
However, we also talked about some of the things that we are doing to increase profit margins in some other areas.
I think we talked about the price increase in the electrical fuse business.
This will help increase the profit margin there.
Relay business, we want to see some continuous growth in the next few quarters, which should generate some operational leverage that will help margin.
So overall, I think we should be able to offset most of the negative impact of the custom business on the profit line.
Your next question is from Peter lisnick of Robert W. Baird. Peter Lisnic -Robert W. Baird & Co.
If you can, the research department will be the first question about Hamlin. The --
On the car.
Can you tell us what it does to the content? per-
Vehicle, if you can identify any kind of metric for us? Gordon B. HunterYes.
I will not say what rules of thumb are there. It\'s --
Based on the ACCEL experience I talked about last quarter, where we started to see that we would talk about the average of $3 to $4 content from circuit protection, and we tried to get high-
Current circuit protection.
We brought at least as many things from ACCEL.
We\'re on the same platform.
So we\'re starting to go from $3 to $5 into the range of $10 to $15.
Hamlin will help us in this direction and we see that we will provide some specific platforms
High current fuse
Current fuses, solar sensors, and seat buckle sensors.
In some projects, we will have more than $20 per car.
So that\'s one direction we\'re going to reach, and it\'s going to really depend on the platform --by-platform. Peter Lisnic -Robert W. Baird & Co.
The research department was established.
Well, it\'s perfect in this regard.
Then, as we look to the future, the balance sheet still looks--
I mean, obviously it\'s still in a very good state even with the acquisition.
Can you give us a sense of capital allocation from two different angles, one is interest in post-incremental transactions
Hamlin, but, second, where would you probably go if there was a deal going on? Is it --
Are we more focused on sensor paths?
Or do some other companies have other opportunities to expand in these enterprises on a large scale? Philip G.
It\'s definitely Franklin. I mean, we\'re --
On the balance sheet, even if Hamlin spent $0. 145 billion, it still looks very strong and very clean.
Therefore, we have enough appetite and ability to do more transactions, and we intend to do so completely.
So, we\'re looking for areas where they really haven\'t changed.
We will look in the sensor area.
We like to build on the very good platform we have now.
We feel good about the organic growth there.
Of course, we also hope to add more sensor companies in this area.
We are preparing some now.
Commercial vehicles are another area we have discussed.
In this field, there are only a large number of relatively small companies, many of which are private companies, and their products are very complementary to our products, we--
There are quite a few in our funnel.
And then the other areas are--
Based on the acquisition of Startco, our field of protection relays, custom products.
We followed up with Selco a few years ago and we wanted to do other acquisitions in this area as well.
We see this as a very attractive space and space that we want to develop through acquisitions and organic means.
So there are three main areas of focus.
As we are talking about, we are always interested and open to any integrated games that may arise in circuit protection.
Normally this will be a bigger deal as we are not really interested in integrating $10 million, $20 million-, $30 million-companies.
Our main competitors there will be more, and we will be very interested in that unless they show up.
So hopefully we don\'t slow down on acquisitions. Post-
Hamlin, we are still working on this. Peter Lisnic -Robert W. Baird & Co.
The research department was established.
The color is perfect there.
Then, the last question, Gordon, if you can, is on the LED business, and you can give us a feeling of what kind of stress you might be under, can you compare with calling chip makers in areas where prices have fallen sharply?
Do you have the same price pressure on some of your LED products?
Or, just considering the niche components you actually make, are you a little more insulated? Gordon B.
Yes, I think--
Well, I think we\'re always protected more, more like a niche.
I certainly think it will work with a very exciting $10 bulb.
I expect everything to be--
Entering the residential area, in order to reduce the price of the bulb, the price pressure will inevitably compete fiercely in this part, but when we start to see the conversion to the LED bulb, its volume is very large.
LED street light, the price pressure is much less, we have several products and build in our module.
These are more powerful modules that require work maintenance-
Free for years.
Commercial Lighting, much less pressure. So it\'s across-the-board.
What I want to say is that the more industry and business, the less pressure on prices.
Of course, we always want to see more price pressure in the consumer electronics sector, but the sales volume will be higher.
The next question comes from Sean Harrison of lomber research. Shawn M. Harrison -
If I miss it, Longbow studies LLCA\'s clarification of Hamlin.
Now what is the difference between cars and electronics in their business? Philip G.
We have not yet given a precise division.
As we get closer and reach an agreement, we will.
But we\'re talking about more than half of the car business. And then --
But it does have a meaningful component that is an electronic and industrial application. But --
So that\'s more than half the figure, and I think the growth potential of the automotive industry is huge.
Electronics, maybe a little less, but it\'s still--
It will be a meaningful business, very collaborative with some of our distribution channels and the entire e-business. Shawn M. Harrison -
Dragon Bow research
Then on the commercial vehicle product, I think there will be some different comments on the expectations of the market, which I think will last until the second half of the year.
What do you expect from the business when it starts to rebound within a year? over-year basis? Philip G.
Franklinville, as Gordon mentioned, we are clearly starting to see some good, continuous rebound, starting with a very, very weak fourth quarter.
I mean, really. -
For us, in the second half of last year, things really fell in a very important way.
So we still-
We did quite well in the first half of 2012, and we were very weak in the backcourt. So we\'ll --
Even if things are constantly improving, we will-
We will be in negative growth.
Of course, in the second quarter, we may start to become positive and expect to become positive at some point in the second half of the Year --over-year basis. Shawn M. Harrison -
Dragon Bow research
Then there are two more questions.
Just, I guess, in the e-guide, I think, if there is, how much do you expect from the distribution channels for the second quarter? And then just --
I believe there are some $1 million in other revenue in this quarter.
Will this continue until June? Gordon B.
I think it is very clear to us that we are following the inventory very carefully.
This is a challenge for this business when we have stock corrections and sudden drops.
So we\'re much more diligent in tracking this.
We think the inventory level is at the right level.
We have seen some gains in the first quarter, but we expect it to support the terminal market growth in which we get information from our distributors.
As one of the early problems, electronics will achieve strong growth in the second quarter
Digital growth, of course.
I think the increase in inventory is appropriate for the growth of the final market we see and is double
We expect digit growth in the second quarter.
Normally, our third quarter is up from the second.
Therefore, we believe that our situation is very good in terms of the growth forecast and channel inventory of electronic products. Philip G.
Another revenue review, yes, we did--
We do have $900,000 in other income.
One of the biggest is the translation of the foreign exchange balance sheet.
It\'s hard to say if this will continue. I would expect.
In general, we expect this
The operation part of our P & L is equivalent--
Net worth this year is quite close to 0.
So we have some interest payments.
We usually have some. -
Some other miscellaneous P & L then we have a balance sheet translation.
So it really depends on foreign exchange, but I don\'t want the foreign exchange income to remain at $900,000.
I think so--
In the next few quarters, this may start to get closer to something more neutral.
The next question is John Franzreb from Sidoti & Company. John Franzreb -
Sidoti & Company, llc can you remind me of the hybrid switch from computer to tablet and handheld?
What impact does this have on the profit of electronic products? Gordon B.
Hunter believes profit margins have not changed much.
I mean, this is a very-
Like a previous question about the field of competition, consumer electronics.
They are all designed in Taiwan, made in Taiwan, or made in China.
This is a very expensive price. competitive.
This is probably the most competitive part of our business.
Frankly, I don\'t think there is any real difference in price pressure if it goes into PC, ultrabook, tablet, smartphone.
Sometimes, if we can be the first person to launch a new product, and the shape of this product is often smaller, especially in the new charger, sometimes more power is needed, but smaller products, sometimes we can get a price premium for a period of time.
So a growing market is good for us, but in the end, it is a market segment that will always be price --competitive. John Franzreb -
The Sidoti & Company at LLCOkay is fantastic.
Gordon, am I right to hear you say that you would expect a normal seasonal E-order trend, suggesting that September will be stronger than June? Gordon B.
That\'s what Hunter thought.
I think we are forming a more normal year of electronics. Solid book-to-
Billing for the first quarter, growth steadily throughout the quarter, good sales for the first quarter, predictable and healthy for the second quarter.
The information in the terminal market is very diverse.
I mean, we picked some products like tablets and smartphones, but keep in mind that our products are entering multiple vertical areas of the end market.
The location seems to be doing quite well around the world.
So I think it\'s expected to be a normal year this year and we\'ll see that in the third quarter.
Then, the decline in the fourth quarter is also normal for us. Philip G. FranklinYes.
So, until then, the continuous growth of electronics will help us offset any decline we end up seeing in the electrical industry.
So normally, from the second quarter to the third quarter, we expect a small rise, and I think we can still see a small rise this year,, due to the decline in electrical sales in the third quarter, this trend will weaken. John Franzreb -
Sidoti & Company of LLCOkay.
In the automotive sector, can you tell us about sales by region, by major region?
You are obviously frustrated in Europe, but yes. Philip G.
Yes, I mean, I don\'t have the results calculated in front of me, but the rough order of magnitude, could be--
At some point, to some extent-
Europe accounted for 45% of our car business before the downturn.
It may drop to 40%, or it may now be below 40%.
Asia is about 25%, which will make the U. S.
About 30%, 35%. John Franzreb -
Sidoti & Company of LLCOkay.
In the profit structure of the automotive industry, is ACCEL a profit benefit?
Is that what you said?
Can you talk about the hybrid advantage of the sensor business? Philip G.
Yes, not--
I will not say at this point that this is not really good. I mean, we\'re --
We have a growing business position.
Basically, we won. -
We are working there and winning a new platform.
So we are growing spending for the future of SG & A. We also --so we\'re --
At present, the company\'s operating profit margin will be lower than the average of Littelfuse.
In the end, we think these profits should be high. teens.
As you can gather from some of the information we provide about Hamlin, this is where Hamlin business usually runs in the medium termto high-
Operating margin in his teens.
So this is a good place--
I think the sensor industry is a comfortable place.
ACCEL hasn\'t arrived yet. John Franzreb -
Sidoti & Company got it.
Last question.
Did you mention your price increase in the electrical industry? Philip G. FranklinNo. It varied. But it was --and it wasn\'t --
Not across the street-the-
We have to talk about all our business.
Like, it doesn\'t go through solar and some of our OEM businesses.
This is our distribution business. But it --
We can\'t really tell you because we don\'t know how much it will stick to, but it could be a few percent of what we do in half of our business, something like this. Operator[
Operation instructions]
Our next question is from Gerry Heffernan of Lord, Abett & Co.
There are a few things here in Gerry heverne.
As the sensor business grows, do you expect this to be its own reporting department? Philip G.
Frank Linney believes that we will not imagine this in the near future.
But, of course, we \'ve talked about the goal of taking it 15% or more of our total business.
With Hamlin, we are not far from there now.
So it\'s conceivable, but we can imagine being part of it.
However, I do not expect this to happen in the next few years.
Gerry heffernanok, fair enough. And with Mr.
What you said just now is the edge profile of the sensor. Longer-
Terms, from this--
As you said, this is a platform or part of your business, do you think people in their teens are longer?
Arena for operating profit margins? Philip G.
According to what we see, we can do it for the ACCEL business project, and what we see in the Hamlin business, what we think now ---
I mean, Hamlin\'s business is already running on such a scale.
It also depends on how successful we are in growth.
We talked about Hamlin. Our goal is
This is a digital growth in our view of the future of the business.
Therefore, if we succeed in this area, we can double the business in 5 or 6 years, and of course, there is a chance to see an increase in profit margins, operating margins.
I mean, if you look at companies like Sensata, their operating margins have risen to their 20 s.
So it\'s not impossible for us to get there.
Gerry heverniis
This is probably a very--
The sensor business can be a very profitable business.
What is the impact of yen appreciation on you?
Should we expect a change in the yen exchange rate over the next few reporting periods? Philip G. FranklinYes.
Of course, the network-
The yen is a moderate negative impact for us. Net-
Net annual currency-over-
In addition to the little bit of balance sheet revaluation that we talked about in other income, the year has little impact on profit and loss.
But I think it\'s true. -
I mean, the yen, the yen\'s strength or the yen\'s weakness are negative, but not--
We have no big exposure there.
Of course, the biggest risk is the currency, and the biggest risk is the euro.
A stronger euro is a good thing.
So the euro has been hovering there. That\'s good.
It will help us if it becomes stronger.
If it becomes weak, it will be a drag on profits.
Other currencies of concern are some emerging market currencies where we have our manufacturing base, Mexico, China and the Philippines.
We want these currencies to be as weak as possible,--
So far, they have been relatively neutral about gains and losses in the past few quarters.
Gerry HeffernanOkay.
Okay, great.
Last question, if you can.
Repurchase authorization is--has been re-upped.
Can you please review your plan to execute this plan and give us a review of the original plan if you don\'t mind-
What was the previous plan?
How much was executed on that, and so on? Philip G.
Of course. The --so the --on the --
Let me start with the previous plan.
We have a 1 million share authorization. -
In the past year, we have not purchased any authorization for 12 months since April.
Last year, I think we used most of the million-share authorization.
We\'re like one--
In the time frame of the first quarter, the stock was at a low of $30 and $40.
I think this is typical of what you see from us.
You may see that we don\'t buy back for a year or more, then you may see that we are becoming very aggressive.
If the share price goes down, we think--
Then we think it is a value, so we will look at it from the perspective of opportunity.
If we have one, we will also study it and exchange cash for other things like M & A. -
We think we already have some very important M & A and then it will affect our decision as well.
But the main factor that affects our decision is that we tend not to buy back as a regular course.
We tend to buy stocks when we think they are abnormal --
Low value, low value, I think, where it\'s a very good purchase and close--it\'s 52-
We will be buyers in this case, but may not in many other cases.
The next question comes from the vertical of John Lopez operatotour.
There are only two rapid analysts for unknown analysts.
I may be covering up the facts that you have covered up, so I apologize if I am.
But on the electronics side, have you quantified the increase in dealer inventory?
Or can you talk to him? Gordon B.
HunterWe did the quantification.
We said we would follow it very carefully.
Compared with our expectation of an increase in POS data for our distribution channel terminal market and strong books, there is a moderate increase --to-
We have entered the second quarter.
So we made it clear that we think this is at the appropriate level.
The unknown analysis is very good.
Just seasonal, yes--
If you look back, say, over the last 2 or 3 years, are you usually seeing growth that is commensurate with what you saw during the first quarter calendar? Gordon B. HunterYes.
I think it\'s fair to say that on average every year, a good year, sometimes the last few years are a bit unusual.
But I would say that in an average, predictable good year, we expect strong growth in the first quarter, and finally a strong book --to-
Bill achieved good continuous growth in the second quarter, and distribution stocks rebounded slightly to prepare for this.
Unknown analyst. And then --
Sorry, it\'s on there. Can you just --
I know you did some of that, so I\'m sorry, but do you think the main driver of the second quarter activity is the terminal market, can you repeat these quickly? What is the main driving force of terminal market consumption? Gordon B.
I gave some examples.
I think it\'s fair to say that the advantage of our electronic business is that there are so many end markets, multiple end markets, small things like testing and measurement, industrial control, process control, etc. Equipment, all of this--
They\'re not that fancy, but the LED lighting we\'re talking about is very important to us, and we think it\'s an early stage of long-term growth, whether it\'s street lights, commercial lighting, or residential lighting now.
Obviously, the movement of tablets and smartphones, all battery protection, Chargers, moving towards micromation in this area is an important part for us. Set-
The most important thing we say is
Cloud computing and broadband infrastructure are growing across these areas.
So no segment really dominates our business.
We just try to pick some and see where it\'s possible to fit our trends and develop new products like the later
Batteries with higher energy density
Power-hungry wall chargers that require better circuit protection in smaller packages, we have been able to win some unique designs.
Unknown analyst.
Sorry, just the last one of the electronics.
Have you quantified it? -
What is the total exposure of your PC market to this segment? Philip G.
I think consumer electronics account for only about 40% of the electronics market.
There may be no more than 20% PCs, 25% of them.
So it\'s about 10% or less. Gordon B. HunterYes, 10%.
Unknown analytes of total or 10%. . . Philip G.
Franklin10 % of electronic products.
Especially the computers of unknown analysts? Philip G.
This is 5% of our total business.
Unknown analystOkay, great.
Sorry, last one. On a year-on-
Basically, the operating margin has dropped a bit, is it possible that the mixed shift with the electrical part may not perform a little better?
Or is there something else pushing? Philip G.
Are you talking about 13 to 12?
Or 12 to 11?
Or just Quarterly. over-over?
Sorry, unknown analyst.
I\'m looking at Q2 \'13 and your guidance means a 18% operating margin.
If I look at the second quarter, it\'s close to 18. 3%.
Between these two periods, total sales increased significantly by about 4%. Philip G.
No, Frank Linney. -
I think we are considering operating margins that are very similar to last year\'s operating margins.
I think my comment on 18% is 18%, given or accepted.
But if there is no rounding error, I think it will be very close to the operating profit margin of last year.
Unknown analyst
So I\'m sorry, I think the main point of my question is that sales are going up year by yearon-
This year, what has prevented more leverage in the business? Philip G.
Yes, franklinwell.
But the main reason is-
The main reason they\'re higher is because we have a full quarter. -
Part of the reason is that the acquisition of the whole quarter brought SG & A and other costs.
This is one of the reasons.
I think the operating lever is correct.
You\'re talking about a point.
So it\'s hard to determine that one too precisely.
But I think the way we look at it is very similar to last year, even with amendments to our operating levers and acquisitions.
We have a question from Sean Harrison of lomber research. Shawn M. Harrison -
Longbow Research Co. , Ltd. is briefly introduced as followsup.
Informal talks in the third quarter, revenue may be stable, and electronics offset the decline in customized products.
Does this also mean that you think you can keep both gross and EBIT stable and both offset each other? Philip G.
Frankfurt in the second quarter? Shawn M. Harrison -
Yes, Lambert research. Philip G.
What I want is-
Actually, I expect Q3 to look a lot like Q2.
I think the profit will be--the sales --
You said, we mean-
We think that sales may be slightly better than the second quarter, but sales may not increase significantly due to the offset factor, such as the profit margin in the third quarter is usually a little better, but this is usually due to operational leverage.
So what I want to say is that the profit may be a little bit better as well.
But we don\'t think it will look very different from Q2.
OperatorI will now hand over the phone to Gordon Hunter.
Please continue. Gordon B.
HunterWell, thank you for calling with us today.
Therefore, with the improvement of our financial performance and the conclusion of Hamlin\'s acquisition agreement, 2013 will have a very good start.
So we look forward to updating our progress again next quarter.
Have a good day. Thank you.
Thank you, ladies and gentlemen.
This concludes today\'s meeting.
Thank you for your participation.
You can disconnect now.
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