Littelfuse, Inc. Q1 2010 Earnings Call Transcript - TheStreet

Littelfuse, Inc. Q1 2010 Earnings Call Transcript

Littelfuse, Inc. Q1 2010 Earnings Call Transcript
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Littelfuse, Inc. (LFUS)

Q1 2010 Earnings Call

May 6, 2010 11:00 a.m. ET

Executives

Gordon Hunter - Chairman, President & CEO

Philip Franklin - Vice President, Operations Support, CEO & Treasurer

Analysts

Reik Read - Robert W. Baird & Co

John Franzreb - Sidoti & Co

Shawn Harrison - Longbow Research

Matthew Sheerin - Thomas Weisel

Presentation

Operator

Good day, everyone, and welcome to the Littelfuse Incorporated First Quarter 2010 Conference Call. Today's call is being recorded.

At this time, I'd like to turn the conference over to Chairman, President and Chief Executive Officer, Mr. Gordon Hunter. Please go ahead, sir.

Gordon Hunter

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Previous Statements by LFUS
» Littelfuse Q1 2009 Earnings Call Transcript
» Littelfuse, Inc. Q4 2008 Earnings Call Transcript
» Littelfuse, Inc. Q3 2008 Earnings Call Transcript

Thank you. Good morning and welcome to the Littelfuse first quarter 2010 conference call. Joining me today is Phil Franklin, our Vice President of Operation Support and Chief Financial Officer.

The momentum from the fourth quarter of last year continued into the first quarter of 2010 with our results coming in as we indicated in our revised guidance on April 9th. Our sales and earnings grew at double digit rates, both sequentially and year-over-year where the improvement was especially significant. And market demand, particularly in electronics and automotive, exceeded our forecasts in all regions and our Startco business continued to perform at the high end of our expectations.

Geographically, our strongest growth continued to be in Asia, where sales more than doubled from the first quarter of 2009. This was due to the more robust economic recovery in the region and the increasing consumer demand for automobiles and consumer electronic products, such as flat screen TVs and the latest Smart devices.

Both gross margin and operating margin continued to improve. We achieved our target operating margin of 15% in the first quarter, demonstrating the leverage we are getting from our improved cost structure as sales continue to increase.

As you know, we've made significant investments in simplifying our manufacturing footprint and reducing our breakeven point over the past few years. The strategy was to position Littelfuse to resume our growth when the economy picked up and while we aren't quite back to the levels of sales we had before the downturn, making very good progress.

I'll now turn the call over to Phil Franklin who will give the Safe Harbor statement and a brief summary of the news release.

Phil Franklin

Thanks, Gordon. Before we proceed, let me remind everyone that comments made during this call include forward-looking comments based on the environment as we currently see it and as such, do include various risks and uncertainties. Please refer to our press release and SEC filings for more information on the specific risk factors that may cause actual results to differ materially from those expressed in forward-looking statements.

Sales for the first quarter were $144.4 million, which was up 13% sequentially and 71% year-over-year. This strong performance was driven primarily by higher electronics and automotive sales in all geographies and continued strong growth at Startco. Earnings for the first quarter were $0.69 per share as we continued to benefit from our lower breakeven point and increased operating leverage as sales begin to approach pre-downturn levels.

Gross margin for the quarter improved to 36.9%, compared to roughly 32% prior to the downturn, and operating margin reached 15% for the first time since we set this as a target several years ago. Cash provided by operating activities was $6.9 million for the first quarter, even after funding of $6 million pension contribution and increased working capital to support the ramp-up in sales.

Even though working capital increased, working capital performance improved compared to the fourth quarter with accounts receivable [PSO] declining from 61 to 59 and inventory turns improving 6.3 to 6.4. Capital expenditures were $2.3 million for the first quarter of 2010, which was more than offset by proceeds from asset sales of $4.5 million. Free cash flow was $9.1 million for the quarter.

The book-to-bill ratio for electronics for the first quarter was 1.3. We believe that this unusually strong book-to-bill was in part caused by distributors placing orders further into the future than normal to ensure product availability in the current high demand environment.

Capacity utilization in our factories is averaging approximately 85%, although a few lines are currently capacity constrained. We are in the process of adding incremental work cells to those lines that are tight on capacity. We believe that with modest spending for additional work cells and other minor capacity additions, we can support quarterly sales of approximately $180 million.

Now, I'll turn it back to Gordon for some color on market trends and business performance.

Gordon Hunter

Thanks, Phil. I'll begin with a report on our three businesses and then provide an update on several other key areas of interest. Electronic sales were $88.7 million, a 73% increase over the first quarter of 2009 and a 12% sequential increase from the fourth quarter. The strength was across the board in all product lines and all geographies.

As we experienced in the fourth quarter, the strongest area was the end market demand for consumer electronic products, such as LCD TVs, computers, and other digital consumer goods which also drove the increase in Asia sales. As we indicated in the news release, we believe we have bounced back faster than many of our competitors due to a number of factors, including the significant design wins we've talked about in the last few quarters, our ability to quickly ramp-up production in response to the sharp turnaround in some of our end markets, and inventory replenishment in the distribution channel.

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