DES PLAINES, IL — Littelfuse reported second quarter 2006 results; which included record sales and cash flow from operating activities.
Sales of $137.9 million for the second quarter of 2006 were up 19 percent compared to the prior-year quarter due to strong performance across all geographies. Electronics end markets were particularly strong, while the automotive and electrical markets also contributed to the increase. Sales grew 10 percent sequentially (9 percent excluding a partial quarter of sales from the Concord Semiconductor acquisition) compared to guidance of 5 percent to 8 percent sequential growth.
Diluted earnings per share were $0.02 for the second quarter of 2006 compared to $0.19 per diluted share for the second quarter of 2005. Earnings for the second quarter of 2006 included pre-tax charges of $17.1 million and $2.8 million related to the closure of the Ireland plant and write-down of Heinrich real estate in Germany, respectively. Earnings also included a tax benefit of $2.8 million, partially offset by tax charges of $0.9 million. The tax benefit related to the recognition of certain net operating losses acquired as part of the Teccor acquisition.
Adjusted operating margin (see Supplemental Information schedule) improved to 12.4 percent in the second quarter of 2006 compared to adjusted operating margin of 7.3 percent for the second quarter of 2005.
Cash flow from operating activities was $25.7 million for the second quarter of 2006 compared to $12.1 million for the prior year quarter. This reflects improvements in profitability and working capital performance.
The book-to-bill ratio for electronics for the second quarter of 2006 was 1.03. This is down from 1.17 for the first quarter but still indicative of a generally healthy market environment.
Overall capacity utilization for electronics is currently running at approximately 85 percent, with capacity utilization for Teccor products also at about 85 percent.
The company has announced five acquisitions so far in 2006. SurgX, Concord Semiconductor, Catalina and SRC have all closed. The Song Long transaction is awaiting Chinese government approval and is expected to close in the fourth quarter of 2006. These acquisitions are expected to add over $10 million of sales in the second half of 2006 and should in the aggregate be modestly accretive to earnings.
Higher sales in the Americas and Europe continue to be driven by increased demand from broadline electronic distributors, reflecting strength in the telecom and general electronics end markets. To a lesser extent, increased electrical sales contributed to the Americas sales growth and higher automotive sales contributed to the gains in Europe. The increase in Asia sales was due primarily to strong consumer electronics and telecom demand in Greater China and increased consumer electronics sales in Japan.
“It was a great quarter on many fronts,” said Gordon Hunter, CEO. “We set new records for sales and cash flow. Our earnings, excluding special charges, were outstanding. We continue to make small but strategic acquisitions which add to our capabilities and improve our market position. We established a clear path forward to move the varistor product line to China. And finally, we are making excellent progress on the Heinrich integration and other critical cost reduction initiatives.”
“As expected, our operating margin for the second quarter, excluding special charges, was similar to the first quarter as the favorable operating leverage from increased sales was offset by higher commodity prices,” said Phil Franklin, CFO. “We have implemented price increases that will partially offset these higher commodity prices, but because of existing contracts, some of the largest increases will not take effect until late this year or early next year.”
Third quarter sales are expected to be up 0 percent to 3 percent sequentially reflecting the recent acquisitions. Operating margin for the third quarter is expected to be somewhat lower than adjusted operating margin for the second quarter due to higher commodity prices and temporary cost increases related to plant, warehouse and office consolidations which will be mostly complete by the end of the year. Diluted earnings per share for the third quarter are expected to be in the range of $0.45 to $0.50.
The company says the fourth quarter is expected to show the typical seasonal sales decline of about 5 percent sequentially. Although Littelfuse currently sees no signs of a slowdown, there is some risk of an electronics distributor inventory correction before the end of the year if the global economy slows.
The effective tax rate for the second half of the year could vary significantly from quarter to quarter, but is expected to average about 35 percent. Littelfuse expects the 2007 effective tax rate to be in the 30 percent to 35 percent range.
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