LITTELFUSE INC /DE Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Highlights: Third quarter performance ahead of expectations, with sales at the high-end of guidance and earnings exceeding guidance. Diversified businesses showed resiliency, strong free cash flow, and a well-positioned balance sheet. Secured new business wins and benefited from robust design activity.
• Market and Inventory Trends: Channel partner inventories mostly healthy, but cautious customer ordering patterns and challenging end-market conditions persisted. Passive electronics and protection semiconductors had cautious orders.
• End Markets and Design Wins:
  • Electronics: Consumer products subdued, medical sales solid, AI/data center robust. Secured fuse, gaming, medical, and telecom wins.
  • Transportation: Secured meaningful new business across passenger and commercial vehicles, including current sensor, low voltage fuse, onboard charging, and solar sensor wins.
  • Industrial: Soft demand trends, but strong industrial safety growth. Secured renewable solar, motor drive, HVAC, EV bus charging, and mining wins.

Segment Performance

• Electronics Product Segment: Reported and organic sales down 12% vs last year. Passive products were approximately flat, while semiconductor products declined 21%. Operating margins were 16.1%, and EBITDA margins finished at 22.6%.
• Transportation Products Segment: Reported and organic sales down 3%. Impacted by pruning actions, with passenger vehicle sales down 7% organically and commercial vehicles flat. Operating margins were 13.7%, and EBITDA margins finished at 19%.
• Industrial Products Segment: Sales increased 7% reported inorganically. Operating margins finished at 19.3%, and EBITDA margins were 23.8%.

Guidance

• Fourth quarter sales expected $510M-$540M, sequentially lower than Q3. EPS $1.90-$2.10. Full year product line pruning to reduce sales ~2%, transportation sales growth ~5% lower. Operating margin outlook ~13%. Target 100% free cash flow conversion for the year. Strong balance sheet with $630M cash on hand, prioritizing acquisitions and returning capital to shareholders.

Risks

• Cautious customer ordering patterns and challenging end-market conditions. Weakness in Europe, China, and certain industrial end markets. Impact of geopolitical dynamics on Power Semiconductor business.

Question and Answer

• Q: Parse 4Q guidance in Electronics, specifically Power Semi orders and early 2025 clues A: Channel inventories healthy, but Power Semiconductor facing slowing industrial demand, especially in Europe. Normal seasonality in passives, but Power Semi hit by end-market softness.
• Q: Square Transportation and Industrial margin upside with 4Q guidance A: Q3 margins benefited from foreign exchange tailwind and mix. Q4 expected to continue margin progress with actions like footprint, cost reduction, volume growth.
• Q: Semiconductor inventory, pricing environment A: Power Semiconductor has less distribution exposure, end customer inventories may be overhang. Pricing resilient, with Transportation taking active pricing actions.
• Q: Design wins and growth offsetting older platform wins A: Design activity robust, but conversion to production slower due to cautiousness. Long-term growth expected from automotive and commercial vehicle markets.
• Q: Capital allocation and pipeline A: Robust M&A funnel, looking for diversification into healthy growth spaces. No immediate announcements, but active in 2025.
• Q: Electronics margin sequential improvement, Industrial growth drivers A: Electronics focusing on cost reduction. Industrial growth from data center, industrial safety, HVAC.
• Q: Design win dollar value, Industrial market recovery A: Design wins consistent in size, elongated cycle due to environment. Industrial slowdown in Europe, China; North America stable.