LFUS - Earnings call transcript Q3 2019

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Littelfuse Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

to Tuntland, conference Head like speaker to now Trisha today, of would hand over the your I Investor Relations. ma'am. ahead, go Please

Trisha Tuntland

Good morning, today the Conference to Sethna, Executive and morning of Quarter and will Meenal results and Earnings CFO. President XXXX This CEO; section of available Littelfuse and in is Call. reported Dave are Third be our me Vice Heinzmann, for we President of With website. our earnings our our website. third call quarter, and release today's A on available webcast Investor also a welcome Relations conference copy the

for Our significant detail that risks cause include risks update forward-looking press assume about will actual discussion Please could differ this materially to obligation results uncertainties. We These any XX-Q review information. expectations. today's today of Forms forward-looking from forward-looking more involve and no our our release important statements may and to statements. and XX-K

reconciliation financial available in Also our measure release in earnings remarks Relations A comparable our most to is today non-GAAP non-GAAP provided GAAP the refer measures. measures the financial of of website. our section to Investor these

I mention participating the Chicago be events. and to we will in hope in and would on you Morningstar proceeding, conferences X. X these at like Baird November We that see Before to

now turn will I the call Dave. over to

David Heinzmann

us today. Good joining Trisha. for you, thanks Thank and morning,

our global environment. we was quarter macro this as consistent with execution our teams performance by reflects to Our the and work expectations continue challenging through successful

We end guidance. EPS $X.XX, million, We of an navigating EBITDA the adjusted recorded while soft of and XX%. achieved $XXX high adjusted of third the sales demand, margin above our of quarter delivered

cash to excess operations on track flow net for strong and cash income from deliver We year. also the in generated of remain free

markets continue see impacting expected. weaker were trade than to end serve. the global electronics, we Across sales tensions We

in market weaker Asia, saw demand across While and America end Europe. stabilization was we some North

in inventory continue our partners. to the demand, distribution in see response further reductions this we weaker channel to In by

levels we of decrease see though in elevated. remain began channel, the to weeks Importantly, a inventory in

to and X.XX. We a the inventory we book quarter in quarter, electronics in was and bill third expect next Our into exiting channel of year. anticipate weeks softness fourth the continued seasonal between reduction X.X

saw sales quarter, our is car well America. continued North normally as well production saw quarter. automotive products the holidays the and in levels during in global segment Europe Europe decline markets. We as weakest due as reflect during improvement quarter softer from to to softness, build car commercial more lower which the ongoing third the third year in Sales as summer vehicle

However, this was more China. by high the decline single-digit in low than America and decline in offset single-digit North

China content growth dampened planned by the drive in our business term, Near with of sensor to to local and regional OEMs transmission profitability. OEM our improved reduction be our continues mix

car quarter stoppage GM quarter had fourth be quarter to impact on work low reflected limited fourth Further, the production automotive expect single strike guidance. third segment We results, down digits. product our global while in is the our

currently we flat down. Looking assuming ahead to global production to XXXX, be are car modestly to

and couple of challenges we good spot strategic our company near-term bright strong seeing, taken the end and Industrial of positive providing actions over third are fundamentals past opportunities, operating are average. with XX%, growth a strong. markets business quarter, delivered growth driving Despite organic of are the the years be to the and momentum. above continues are of the in segment margins products well performance industrial Our the X%

balance we We long-term continue investments. and cash on costs to generation driving as growth, are long-term profitability with strategic focused

connectivity themes pipeline We electronics fit aligned of growth through have our and the in and we acquisitions end our markets drive to long-term we industrial that of which key content drivers remains transportation, to serve. Growth objectives. and M&A increases of efficiency across the active will the part of continue confident secular a our remain strategy, strength safety, an resource opportunities

our wins reinforced funnel Our high-growth ongoing new of business of by and confidence a business healthy applications. is wide opportunities range across

turn additional call introduction, color over Meenal the financial I'll to results. our provide to on With now that

Meenal Sethna

good morning, everyone. the and of This within million slightly versus sales headwind organically down XX% quarter, $XXX and than down Dave, electronics. exchange. last Sales Thanks, In were third weaker year. a X% included XX% expected foreign were from

backdrop. earlier, noted challenging to macroeconomic sales Dave As the continue reflect our

of liabilities IXYS $X.XX our mark-to-market gain and U.S. diluted guidance, in adjustment margins was Third to year, a estimated exchange resulting GAAP last $X.XX. benefit XX%, were while savings original Adjusted were while from finished about tax a quarter of sites. $X.XX diluted operating EPS benefit The on non-operating GAAP EPS foreign EPS was benefits reductions tax tax $X.XX. main company's and an the unfavorable certain included margins federal a synergy for not significant adjusted reduced XXXX. XX.X%. operating at versus at Cost investment

was largest dollars the of decline income the in margins. electronics operating both Volumes and and in driver related leverage

on impacts return to The As operating we to adjusted range. start XX% including cost by operating business to year-to-date, a was conditions, reduction target EBITDA strategic combination return quarter margin a Volume we expect offset cost partially adjusted XX% target strategic for operating reduction a range. our held company well were variable within at leverage the our expenses. growth, reductions. margins of to in margins and cost as With as structure both compensation our see reduction efforts we've structural aligning incentive focused to

in flow. an of $XX in shares capital free In million, net cash management. conversion quarter bought XXX% nearly back generated free be million flow $XX this company flow quarter excellent in cash. we've generated to onto quarter, $XXX generator Moving the from of we $XX continues We Year-to-date, and million cash this cash million $XX income. The year-to-date. million operating and

on is believe We've we value. our price shares stock buybacks, share repurchasing opportunistically intrinsic disciplined maintained view our our below when

last we the quarter exited from the X.Xx we debt-to-EBITDA gross basis. quarter. at X.Xx as with on the from Our a net quarter remains million XXX, exited balance cash, in under sheet ended $XXX exited million strong we net the with debt We and as $XXX leverage with well as essentially unchanged in ratio quarter quarter

segment Moving onto actions. impact Volume These reduction XX.X%. erosion largest Electronics product leverage and from price segment to were benefits XX% the other ranges, sales adding factors finished our We've continues declined organically. seen historical margins, XX% pressure at partially margins. return segment. to on which by IXYS synergies and have offset on cost year-over-year product

sales We decline, we in expected especially moves OEMs continue aligned. organically completed make second car in the good first of primarily segment move due are on X% and regional manufacturing build half to our where to X% IXYS-related the products ongoing with XXXX. declined to Automotive be the progress

also segment. With margins. headwind seen by the our the Profitability hurt levels of point year exchange, to be last some car was pricing continues builds, steep in margin versus decline for across vehicle which a basis we products pressure passenger foreign have XXX trimming higher

Despite these year. operating headwinds, XXX basis last XX.X%, improving margins points were versus

automotive During some margins mid-teens in the the These quarter, we improvement of many continued on the are closing our steps our profitability cost sensor segment. reduction operating target factory automotive also to efforts for Italy. our while path

last manufacturing well of year. while improved reductions years of segment long-term points across X%, as our over from end of sales segment Canadian Our late cost industrial led the closure more up Operating XX.X% products X%, plant past the over seeing by markets. benefits margins savings year. taken structure demand organic grew we've We're XXX solid sales than last as were the few basis

align flow drive X-year continuing we've year-to-date. macro horizon global environment, prudent while advancing cash enterprise to XX% achieved We our margin demand control. our XXX% environment with to to the and with with our progress demand on the spending, remain near-term adjusted laser-focused free Despite strategy. continues investments longer challenges, factors our EBITDA a While conversion present the weakness, structure near-term the remain teams that we cost

We end are profitable well to recover. for growth start positioned markets when

more to color I'll turn trends. end with on back And it market that, for Dave

David Heinzmann

Thanks, Meenal.

and on commentary The shift the end increases and within end markets we driving factors key of be resource demand Design new win driver safety, across electronics. on trends several automotive assist strong. continues passenger are growth next for and key to are vehicles systems provide towards hybrids which platforms will commercial automotive serve, increasing I over with EVs transportation. our the in transportation content activity beginning for The years. connectivity and cars platforms. electrification continues will to launch opportunities Now in generate efficiency markets Increased the

navigation America battery awarded Xs we for in quarter, the and our systems, range systems, with China In secured quarter, of We proprietary with unique India Germany and and and drivetrain protect in were in ignition seat lifts secured secured power motors. a Japan for America, design to business Europe, in North Also for management win against window wins. in for We Tier broad wins the EV a overheating. used North we communication during systems. Europe electronic components systems, technology significant

business, our and automotive next-generation seat for solar Within belt we sensors. sensor temperature Europe Asia new in secured sensors, sensors, business buckle and

all products our collaboration business. these secure to our key with customers of differentiated new and are For close wins, continue to drivers

vehicles. commercial to Turning

softness America sales geographies comes our third ahead supply North Due versus seeing off the our heavy-duty and lower we to chain, last quarter, it During revenue. of started markets saw the of as market most across decline we truck year. position end the peak in

macro slowed, trade commercial global other and have also Brexit Our sectors mainly uncertainty, to due vehicle concerns.

a business in growth in for win the Europe business and a key distribution for won Our We beyond commercial during module and remains electric quarter. focused captured buses. vehicle motors America new power North

responsiveness new We a a expertise promising custom our solution program America based utility customer business to technical truck upfitter. on and with for a leading North also won develop

pipeline growth and opportunities near-term applications additional the am drive increasing business complexity markets. healthy market will transportation of that Our of remains commercial opportunities long-term will I confident the vehicle beyond new end electrical content global drive softness. in

quality, reliability. customer We successful on expertise reputation brand and and new based strong our business will and for tactical relationships, safety win product be continue our to

Moving markets. onto the industrial end

power and Our an by increase mining was driven strong projects. third in solar, conversion quarter

mining are Nonresidential as HVAC and while markets flattening, oil U.S. such Near-term, and heavy and gas MRO stable. and construction remain industries

the new healthy. and power and power applications electrical energy storage global renewables most addition, protection used for power higher In generation Across conversion. these of are in is requirement

storage third we and to Australia Related engineering energy the and wins renewables, new projects in We service business During in Asia wind support. won we inverter Latin driven to Europe. America, mining several quarter, strong capabilities, applications. system energy see Canada for continue in our captured demand by for applications global technical and

North alternative energy our the elevators. well industrial drives we secured with we machine won to new with an sensors, power manufacturer win semiconductor electronic business key as industrial for Europe, a In and as business Also temperature tools in application. America protect motor of

see energy ongoing need the the technologies increasing product of focus range industrial expanded the full on With conservation, our global across markets. we for end

expand our share to opportunity market customers. As the business and existing funnel we to new and result, gain continue addressable invest new robust, a is to with

end activity across good continue we range see markets, Lastly, of electronics to applications. design across a

and applications we the new chargers for consumer home centers elevator power and business electronics. During panels systems quarter, in supply telecom and smoke detectors control management stations, for base building secured automation battery wins for and and data

and appliance continuing for wins sensor near-term We for connected macro across more products. our the despite also track that position smarter devices our driving is level electronic strategy multiple of the on activity demand us remains This by reinforces secular long-term themes and secured applications. and supported pressures,

Our partnerships by product quality, expertise business deep brand by superior led our fundamentals electronics channel our profitability. sustained and recognition, are global solid evidenced as technical

diverse relationships business will with broad strategic new win markets. opportunities our end leveraging We by into our to offering product far-reaching access continue and

that, the about over With Meenal to I'll talk guidance. to turn call

Meenal Sethna

Thanks, Dave.

the sales currency organic total of XX% sales versus of sales a expect $XXX fourth a million reflects to and quarter, last with X% midpoint estimated decline XX% million. $XXX year a we guidance to about be The in decline, onto Moving the headwind.

fourth to the quarter to adjusted be $X.XX expect EPS diluted range of in We $X.XX.

typical represents X% shutdowns. given decline, midpoint sales a customer and guidance sequential is which Our holidays

and forecast in automotive quarter Our fourth forecast inventory builds, in of low of ongoing also EPS our weeks is lost across assumes of we leverage last single-digit fourth distribution reduction at partner. production a reflects at main over driver and volumes an car Across year. Lower the electronics our decline electronics channel GM. month products, quarter our decline a assumed

also Foreign to exchange be based headwind estimated $X.XX an EPS on is current rates.

adjusted view than million operating $XX quarter. to reduction targeting million headwinds, $XXX largely about these our across versus a $XX for are we XXXX, the full about SG&A. amortization, be million excluding last This lower year, expenses, represents Offsetting

in when rate be tax Our year's quarter full projected of is to XX%. effective fourth a than XX% year adjusted rate to holiday. is the we year's retroactive last tax received higher XXXX fourth This foreign range quarter

back the to the for shares which shares diluted million bought date. fourth XX.X incorporates assumed We've quarter,

at Looking XXXX. full for been about the the EPS year, year, foreign a headwind throughout has $X.XX exchange impacting

million. of versus expense in are to Our the estimates interest and expense $XX $XX quarter, last amortization million with unchanged amortization million range and of our view interest $XX approximately

quarter, With the XXXX XX%. of the in a tax adjustments of approximately rate tax we're benefit the third expecting

now approximately challenges $XX growth, investment breadth capital in with near-term We and our teams initiatives. we cost-saving expenditures presented. risen long-term Despite the during seen we're come invest expect expansion we've spend million environmental down Though the our the to volume factors year. to geopolitical and reductions of our have needs capital the to this seeing, for macro have year, continue

range. enhanced remain the driving into over and over final free we adjusted XXXX expect We to both for comments. mind, within long in the performance turn target committed flow XX And view future. rate XXX%, Dave EBITDA percentage I'll X-year conversion that, range maintain the to Keeping low fully with in some to measures financial margin our a cash it

David Heinzmann

Thanks, Meenal.

the ongoing the challenging backdrop of this our remain of fundamentals With environment, strong. macro business

growth aligned long-term the secular themes closely Our connectivity. safety, efficiency are and to drivers resource of

to to call our demands for We return. continue remain environment, to confident I ongoing the will the while work value navigate We current will remaining operator we stakeholders. when the deliver now positioned superior Q&A. well stronger that turn back to hard

Operator

question Our Longbow Shawn with Research. first Instructions] comes [Operator Harrison from

Shawn Harrison

quarter, about any they what we hearing destocking are [indiscernible]? directionally kind would the be And cetera, halfway distributors, of be Are insight they as their through talk could Arrow, corrections? we, in they the where more are inventory you Future, exit Dave, from in helpful. than Maybe where your you're with et will fourth

David Heinzmann

were range average we've of is us the so of were weeks flat. down although the that. and Sure. of kind we quarters, been to normal because absolute Yes, operating for coming sell-through of inventory about weeks in past talked what previous higher XX talked we've fact dollars dropping, the the end the Shawn, see as inventory, kind on we've about XX at And in inventory that of of

the Now saw really days in third a quarter, news we and inventory. weeks that the is of good late in of actually we to see the kind reduction began

first bit down corner we've where inventory. So drive little turn started starting kind of for the of to a it's the weeks time, to

So progress first we made in probably quarter of third the next that year. through the quarter. We're fourth certainly the expecting in quarter and

Shawn Harrison

down said as year-over-year. then XX% follow-up, And Meenal, brief Okay. a you OpEx was

is a on XXXX? as how Some of that us way OpEx reductions permanent. the to there obviously year-over-year is update temporary be curtailments, much Is other will permanent into we move

Meenal Sethna

I made we've IXYS are Shawn, overall, takedowns they're as we've been cost year. that would I say other about sales variable Yes, XX% OpEx like looking and compensation to about our and variable structure more other linked still and that the XX-XX; items, XX% call what throughout cost at the reductions synergies being structural

Operator

with Our next Glynn Oppenheimer. comes question from Christopher

Christopher Glynn

kind maybe that if year, $XXX corrections strained million you'll around So just kind supply you $XXX broad gains terms end we share more. electronics wondering look of revenues the reversion little the could industry I'm stroke, at or, this had a just in chain maybe think of maybe of when million, be if much you down demand, channel you was might some and your versus that? how ascribe thoughts about against

David Heinzmann

when look X Yes, when years, is quarter that that's we kind robust began or build fourth say over end of earnest, X Chris. question, I is I to, demands and XXXX channel in although inventories. market say the complex at of last is back data, our we the in would a were would actually look certainly What the view think the

XXXX, was of there's the down. to back XXXX, clearly of late that through build an Clearly through been drive there so effort inventory. most course a and of XXXX in And

the in up XXXX is swing So the swing XXXX and challenge both of down the you comparative to the have of that. gap the in

markets it. meaningful been POS part I swing. on exact a portion but that have as $XXX significant it's it's Obviously, So don't the an of from we distributors a end million softer down. well that our number as of been that, have have know

swing think inventory So to chunk kind inventory exact building that. is we number. a But significant of have of I mix on the that to from yes, don't 'XX 'XX from reducing an

Christopher Glynn

just if restructuring acquisition stands And pipeline's amount that a Okay, And to looking? your deals you doing entertain sense. in curious internal on-boarding operational of makes have, you're while how bandwidth your fair how operations? about

David Heinzmann

Sure.

So has I think to our strategy M&A on It be enabling part not continues a key shifted. an platform. growth of

that of to the lot additional that of to do I acquisitions technologies really doing is balance or allow sheet applications to So driver. the have integration our getting acquisitions. we business, about to a our we've think look such continue on Clearly, grow it's us fundamentally or been on still bandwidth good. look IXYS heavy Clearly, faster. markets M&A, our as That's lifting business flexibility at the take the and we to however, into is

us news good business. for and us that are there to of the tuck-ins for opportunities bolt-ons our the enhance most So portfolio, do is parts

of activity. So that where stay the financial steps forward. strategic say M&A opportunities when those and we those fundamental right the course meet been requirements get the on returns, kind absolutely take we'll on would we've we And

Operator

Stifel. comes Sheerin Our from question with next Matt

Matt Sheerin

market in And see calls Dave, quarters? correction you issues? inventory next this vehicle called Just inventory just see truck weakness TE weakness. a to do worse? those Do area. as getting in How and the or also that out that Both question playing the that the you commercial over talking chain the talked transportation few think, incremental heavy see about end morning you you regarding well, addition supply out markets, on Sensata about their do

David Heinzmann

inventory bulk sell necessarily say wouldn't channel. specific. I the issues, inventory that through some are of We there Clearly, Yes. don't

it it direct. of is of Some but does, much

expected or in Tier being we're as been the kind its hit our kind in of already. which hitting that those challenges driver, seen now have drop We down to actually selling that driver business, peak forward. inventory of impacts world. on vehicles to Clearly, agriculture, not get supply expect worse And for bit of dramatically the the North with to, will general regions a truck, depending Xs already, the chain of is we continue. we in heavy produced. saw certainly America a challenged, Construction, certainly the OEMs meaningful that's is number So the whole but that move and that,

handling, which of into also business growth lot in with, material We a handling have a of particularly there business. sell Material is our part nice Europe.

general With European economies, economy, Asian that in the slowing the areas. and of those dampens growth

been to yes, So vehicle. doing seen well and of to more commercial We've continue challenge the negative bulk expect shift we've a us through in XXXX. that of to it

Matt Sheerin

cost And question of like are margins, double pretty looks Okay. EBIT have down what significantly, cutting. down broader it revenue operating your but do been, your regarding have then obviously just you sort a margins, which the declines

talked IXYS You integration. about

what there in of as Is So terms should other drivers back? expect volumes are of that margin contribution there? volumes just back? come we coming Or positive matter a

Meenal Sethna

commercial going destocking. I towards vehicles. POS on a on now, weakness of that's would of the market we gradual. talked seeing Matt, the say the operating Dave But definitely about back strategic we're our because the margins higher for not in side, it's vehicle going right would working in impact us are we're back The largest seeing the We're the I expect their distribution of growth electronics weakness, to way market be beyond will course, happen side. volumes passenger weakness seeing Yes, because overnight part mean coming target range.

the the destocking see start to in we've to improvement So getting the markets to back. us see come of margin through turnaround got some for end some and to start

David Heinzmann

the news the what's of the a business if we in through of quarters, and point look of our decline dollars to still decline. is through the sound. driving look of at if of emphasize think is that very the to portion the data, few operating bulk fundamentals portion look last The data you'll you driving at really see you electronics that look is margin I the kind good our steep But in be the business kind over

margin through inventory on certainly get get return our we an more of that and look levels of normalized kind we for. it when kind I burns, think to So outsized impact has ability stabilized, to

Operator

question Leiker comes next Our from with David Baird.

Erin Welcenbach

the on for at the Welcenbach could extrapolate provided bit especially Erin regional is uptick the mention my of quarter. electronics, an for given you you question color you a Dave, in first if the is end David. This just of little on

talking that are about, life weaker you either So or in Europe, whether you it's which seeing or out standpoint maybe least from North at Asia called really America piece a that you're if markets? demand of signs as stabilizing

David Heinzmann

week I We of saw an quarter. Yes. don't of saw that the our end distributors know the quarter. increase in we inventory the at kind really an at late uptick reductions in

seeing say if would while we it and it's its regions, I been kind has of the a challenging what kind seems across of what is look be Asia for pretty while, finding kind certainly there So footing stabilized. is major we're of to

growth So mode and It's kind necessarily we further first, in kind don't not now. it's to got there. seeing of that see we're stabilize of but It's yet, declines stable.

European in need I America cycle, POS. of is the addition continue last most bit the as in drive Europe, been and softening down has that's inventory happening does in stable to North quarters to the electronics the to few to well. burn But the think POS inventory. America, slow as which demand continues North general in that candidly a

sort of don't does it of things kind life find but like to thing, know those of I call we're sign starting their I footing. So a that of feel there's kind some a, certainly wouldn't of it see

Erin Welcenbach

environment competitive stabilizing just then you question, a And provide at if the is sensor helpful. could update all? and an if second in that's on business China there Okay, the

David Heinzmann

Yes.

a a us decision term. or worked it profitability years And that so, a with made in as yes, sensors X.X And region, much where seen, the profile ago the for we long the stronger to from last business few pressure over the that Chinese reminder, the in of the that's wasn't transmission that quarters specific in part have just local area we So competition. right. OEMs

back to began we So that. step from

happening once. Now that's process a so at not space, the it's in auto all

decline certainly some will and of seen have year over coming additional there that the we So be or of so. pullback, that

it's million that in It's in businesses not about. we're winning overall. but than It's new material talking to that we've China to talked range And participating less look continue good, that we're sensor in and So about. segment, $XX other we're business.

it's through. one isolated kind we're they'll of to through of that, really burn the continue that So area. to of kind And and part way

Operator

take next Ackerman We'll with Karl question from our comes Cowen.

Karl Ackerman

backlogs Dave, you looking talked this through about I this at a I quarter. in increased have times seeing certain how even across what improving follow-up. data you segments? at points your you of walk same guess lead are And days sales are lead stage various pricing the still normalize, Can inventory terms maybe as And into at potentially October? distributors. of time, But think and us I times

David Heinzmann

at Okay. this Yes, or our I improvements so distributors first upticks of all POS to don't stage. at be we're clear, at seeing believe

our in not left POS we that's accurate. electronics that segment. distributors continues impression, at be Clearly, if the So to challenged

What inventory dropping burn at same were absolute we inventory the did last the talk few their where in the dollars. POS dropping kind was of rate about they quarters, was

reached flat. that in on they've is inventory. down the So the kind products we've reflected they're more demand What their channel in of driving of is, and about talked our us, weeks stage inventory where aggressively it's were of lower

So to are down. the weeks of inventory starting move

before normal bottom POS. return can the you a linked to the get to news that, of is patterns demand phase get and good find So that to have or kind good you bad of through more the

lead a were a bit, of but periods perspective, times year, the strong during kind extended extended couple a really lead From years only time X ago by our X.X weeks.

normalized for and levels and kind quarters, in times no of lead several that. normal change have really there's been Our at

at tailwind situations of kind somewhere that or where favorable X% about more particularly where asked We've a year I You now typical in returned guess, We those that seen X% and to running of the, pricing the in kind what about from were us, for the the dynamics. previously a talked is price us us electronics. is ago, were past electronics, to for it's environment the half we've erosion. electronics about normal in of in a

seen us. happens a kind for to we've pricing of over kind most but So environments. That of bit normal pressure, back more

Meenal Sethna

in just to inventory want sitting Dave's do to add the the channel. on to just that other a I to And in comments weeks, be inventory. see decline the decline greater a able have especially to starting we in POS. one But with point We're inventory much

expect in the the fourth well. to quarter that We very likely and first in continue as quarter

So to trends. continue expect see of you those kinds can to

Karl Ackerman

said driven mix various XXXX that by attained, mid-XXXX? we also XX% it's question, or should I points the just And my kind think, are there inventory, is don't effects we looks Meenal. really of in since toward within back volume? today know, helpful, primarily that roughly gross would consider overhang in that I fast drive the we That's but not should if abate, that the maybe will margin dovetails But fourth company-specific segments be next building basis forward uplift distribution Or down, you X were which level you've future it your margins like margins quarter. when XXX in from months the when

Meenal Sethna

Yes.

yes, clarify couple things. So I'd a

So margin. be range, various our at you about target mentioned points That gross times we'll about the the when XX% that in talk our gross knowing we time, in XX% range, margins is driver us that. from volume at a below think we gross yes, volume largest and the to leverage specific operating margin, us, margin, for related or that, but for absolutely Having on the is strategic just up question not your said income.

the profile because size company overall. that margin, profile variable of margin incremental we're seeing, margin a the for that, the the electronics business, also to of And the impact on margin further now, big decremental us that but has and unfortunately,

on see to Thanks, level we growth improvements some we some in Karl. would to expect So we because yes, returning, start especially company we out start returning, electronics margin. when the growth the to destocking, see see of

Operator

next Cross with Steven Fox Our from comes Research. question

Steven Fox

want I'm just sure to the pricing I on off, clear First make commentary.

similar to. something said that returning pricing used to that So normal quarter, like last sounds is to pricing pressure you're more you equal, which is it

that about QX So you when of QX? pricing are around be called under relatively price in erosion add what color the similar out like think helpful. pressures? versus for does if remarks the could we electronics, And Or price was most that you still imply prepared of sort some some pressure, products seeing kinds you that the were would

Meenal Sethna

Steve. Yes,

the right, to quarters wanted in price very strong making electronics that that quarters seeing you past of last been erosion was the when reason our of level a basis, over a a So not are were The year-over-year the few to have to pricing X% more couple year the X%. year. We only comment pressure. is returning look about same we at clarify in historical it we on ranges you

So of trend. correct when the no you're are a on margins, margin there's that on that sequential basis. change basis, the is But a one a drivers looking basis of on at you to the year-over-year year-over-year impact

Steven Fox

vehicles be when pressures And passenger same would out in the on auto? called the for side you the pricing true thing

Meenal Sethna

doing where I we're seeing. year downturn this sustained China we in in Yes, go Because it example that if more now see about point. would say see more We to that much is areas time, to of some say okay an back yes. as builds I of to a now you transmission But year seeing referred starting because there. starting We're were auto broadly that still this car just certain like sensors were a recently. at we're pressures more would

Steven Fox

you, That's ask going this but and to then, is Dave, I'm it helpful. of And question I'm kind unfair, to for anyway. one admit going

on customers there's fairly you're like what the in the channel balance your of right terms now I that sort out inherent reductions your your on can talk seems things between inventory play down there's a And kind in looking own like and work end you goes how end on level markets back seems on to the at March? obviously of assumption of you, going just a but now. the an of typical aggressive mean of some at confidence sheets. and playbook it for side, inventory recovery, things on other atypical and If through some that there's

David Heinzmann

moving right Yes. arms in a our It's, bad might those to that's environments. know try trade days. we Yes, Fridays view tensions. what There's sorts don't now. lot of around around change challenging to on are a get

on never of You a know things. might those you change when position get

so would because inventories were So some going bit right, manufacturers through, long lead not a of is completely seen things Maybe before times it's in historically, say areas. cycle we're the that abnormal. of we've than contract kind this like that what inventory the ODMs and I higher and at

channels. distribution the So through bleeding we're bleeding our in of inventories kind that, through excess

get what's to right. our that we've where get to matching. now, can So they're right so is that and the got through got, phase, sell-in we POS mismatched, stage our Because

working that that find or quarter think we coming to still of point. the matching we're over clearly that, X, So get kind to

clearly We'll We that going hits when don't through is that Could. QX? when that So QX. Will in into know that'd see maybe be. exactly bleed that.

markets, what's Exactly will fundamentally right end going some little we reach have in stability a hard on of on it's Once now. us that call improvement. kind demands the to point, the

So view improvement that visibility be of I how time. potential yes, current think to that to and to some half be get will in the think would this But of robust kind to next hard pretty there'll at return some year. we modest in point be our is growth back

Steven Fox

I thoughts. unfair Like I appreciate the said, question, it but was an

David Heinzmann

Sure.

Meenal Sethna

Thanks, Steve.

Operator

from question with Kelley next comes David our Jefferies. And

David Kelley

QX, something automotive in to embedded UAW but on financial I get maybe your so you there. mentioned exposure segment, could guess you strike? embedded provide impact I some love the to the QX no impact color to the guidance, GM think on real

David Heinzmann

Yes.

So kind other But outsized an of position Xs, sell customer. of OEMs. timing into GM QX. things, impact sort great a we necessarily an a versus through Tier we end not our of Certainly, deal just as saw it's limited obviously in

So fourth revenue we our automotive on to to it's the X.X% probably drag the the It's on a if drag, if were range. you during fourth X% that quarter. segment in quarter, will, estimate on

David Kelley

headwinds despite well the as directions. And all held macro automotive maybe in follow-up, have up a margins

vehicle up in margin in do some to underlying I we or recent referenced builds? your ongoing us get closure, light these the ever see commercial some initiatives. think impact you Can lower through vehicle the initiatives? I offset growth, sensor potential, ability you And you flat say, stable step guess market to the to were vehicle given cost plant longer-term and of back walk if

Meenal Sethna

Yes.

really then questions, our the even work infrastructure acquisitions. a reducing improvement to volume of to over for volume XX questions been, margin fixed and years that we've across helps us. We've XX when of what's couple we've make company, been we about the lot. maintaining getting So a around cost absolutely past a drive And going for lot us done

earlier We of than the about margins see that So also drops, as a then commercial though, margin because outsized volumes across absolutely. the size, volume because well higher electronics some times that's an profile. the as for as average that will runs company, of overall. up the the we the when decrementals on bit but where company I of passenger to whether segment, back for business automotive some mentioned our incremental decremental therefore us, you part as help electronics pick well impact more of vehicles, business our into company and and And and during higher though, in reverts good think us step will have incremental, margins, the little see back start

David Heinzmann

in integration more some those digits, that improvements. mid-teens in the like obviously, down sensor said Yes. operating not the drive hitting David, for factory the the doing are we're With impacts the things that, Clearly, remarks, we right began to just believe of we're that And our activities, and vertical in We we more shut operating said, in is about some cases margin and going the talk that to business as range automotive did but we're P&L. in prepared double range. we're we and actions see mid-teens. there's

things as work over business stabilize that that up the, X, So margin and profile. next we mid-teens into back of sort absolutely over years, we X the believe

Operator

CLK. comes with question George from next Our Godfrey

George Godfrey

pricing a pressure and pricing threatening across segment in the your what I pressure the on automotive get sector? it specifically that you customers to in contracts? not pressure include and in just negotiated wins? what's your are competitors, magnitude And the the contractually wanted future drill trying is automotive just I'm pricing products all And bit, of design little on to in to is being go beyond applied to

David Heinzmann

No, George. it's a Yes. good question,

and it's that X.X headwinds a don't I if It's quite things changes. would I historically What getting for of cost says, that last back you different over devaluations so like depending, couple or across that Tier the OEMs you think is "Hey, that. dramatic. currency not commodity contracts not we or what would of and lot staggered years, from And changes we're Xs kind had we pressure And We're years, is we've find look renegotiate hit say walking." these targets environment. they're and and

Typically, going reflected what fundamental those costs to in the able those we negotiations. been is if do have are get up,

particularly me and they're bit little pricing, for when aggressive as that get we particular things. a are more what competition is OEMs to a overall offset our on strong us, they're from is we're so some not hungrier of this being of Tier What And gets aggressively. trying those gain And seeing share up demands some down, against finding help would say Xs I we're kind ramping of or driving that. to

to those And some a so pass-through is we're it's what impacts. little of challenging more finding cost

we So a X% X%. where space, X% or annual maybe see yes, pressures in order maybe it's typically kind of would of normal automotive is pricing magnitude, the

pressure but So yes, we've the it's seen past. recent not than it's in shift, some bit major a more

Operator

Research. We'll Longbow Shawn take our with Harrison comes from question next

Shawn Harrison

quarter. Just Is like XX% or X here the quarter, than XX% about that's further decremental pressuring for I follow-ups. Meenal, typical. margin gross on quarter the this gross greater Just December margin? guess brief for incremental a anything the there little it's looks decremental this

Meenal Sethna

electronics for really and really Dave are decrementals been all would quarter I the reasons say just decline the top talking about. in terms the of almost line this for Yes. has

So little of going gross impact see because that. to bit higher you're on a perspective a decremental margin

Shawn Harrison

lastly then the about and industrial this year were and going high on were or it, just And ago, to a even. maybe Four because just hit fantastic in wondering high the margins been this year break end we quarter. to what's X The note. when even years is really question of particularly fantastic have a business, EBIT new I'm this it's sustainability they story. turnaround a changed wondering my

David Heinzmann

Yes.

our X, it business space. that industrial custom think is electrical for into recall, of because fundamentally I you that, if year, we we were the X embedded business kind Last ago, years of just mining in Shawn, us. some this we, of exited wasn't segment

That has that. So helped. certainly we exited

into last other shut down recall may of that up our and in operation year, You we Canada an transitioned actually operations. one

out of locations. in the has one and factory That So we business. certainly improvement took consolidated an the had

the been all of of fundamental kind management has way just that So business and solid. around

of the forward. those made a reasonable the margin that. good to traction which about our on is been Our that pretty performance sustainability together feel growth. environment, which we are out industrial good. move have to, globally, of gain and as pretty turnaround America-centric some as some North us factories profile fairly business, flat footing a for Volumes up we that things And in allowed All candidly historically, begun has good has has business revenue in

Meenal Sethna

soon. Thanks again day. Littelfuse. look call your your you today's questions, talking for interest We Have forward to Shawn. appreciate and We joining great you. Thank us on with in a

Operator

you. concludes Thank gentlemen, for Ladies you today's this conference and Thank call. participating.

You may disconnect. now

Littelfuse (LFUS) 31 Oct 192019 Q3 Earnings call transcript