Vishay Intertechnology, Inc. (VSH)

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Vishay Intertechnology (VSH)

Q2 2013 Earnings Call

July 30, 2013 9:00 am ET

Executives

Peter G. Henrici - Senior Vice President of Corporate Communications, Corporate Secretary and Treasurer

Lori Lipcaman - Chief Financial Officer, Chief Accounting officer and Executive Vice President of Finance

Gerald Paul - Chief Executive Officer, President, Director , Member of Executive Committee and Managing Director of Vishay

Analysts

Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division

Sameer Kalucha - JP Morgan Chase & Co, Research Division

Gausia Chowdhury - Longbow Research LLC

Jim Suva - Citigroup Inc, Research Division

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Presentation

Operator

Good morning. My name is Kathy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vishay Quarter 2 2013 Earnings Conference Call. [Operator Instructions]

I will now turn the conference over to your host, Peter Henrici. Please go ahead.

Peter G. Henrici

Thank you, Kathy. Good morning, and welcome to Vishay Intertechnology Second Quarter's 2013 Conference Call. With me today are Dr. Gerald Paul, Vishay's President and Chief Executive Officer; and Lori Lipcaman, our Executive Vice President and Chief Financial Officer.

As usual, we'll start today's call with the CFO, who will review our second quarter financial results. Dr. Gerald Paul will then give an overview of our business and discuss operational performance, as well as segment results in more detail. Finally, we'll reserve time for questions and answers.

This call is being webcast from the Investor Relations section of our website at ir.vishay.com. The replay for this call will be publicly available for approximately 30 days. You should be aware that in today's conference call, we will be making certain forward-looking statements that discuss future events and performance. These statements are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements. For a discussion of factors that could cause results to differ, please see today's press release and Vishay's Form 10-K and Form 10-Q filings with the Securities and Exchange Commission.

In addition, during this call, we may refer to adjusted or other financial measures that are not prepared according to generally accepted accounting principles. We use non-GAAP measures because we believe they provide useful information about the operating performance of our businesses and should be considered by investors in conjunction with GAAP measures that we also provide. This morning, we filed a Form 8-K that outlines the various variables that impact the diluted earnings per share computation. We expect to file our Form 10-Q for the second quarter this evening.

On the Investor Relations section of our website, you can find the presentation of the Q2 2013 financial information containing some of the operational metrics Dr. Paul will be discussing.

Now, I turn the discussion over to Chief Financial Officer, Lori Lipcaman.

Lori Lipcaman

Thank you, Peter. Good morning, everyone. I'm sure that most of you have had a chance to review our earnings press release. I will focus on some highlights and key metrics. Vishay reported revenues for Q2 of $598 million, above the midpoint of our guidance, although gross margin percent came in slightly below. GAAP EPS for the quarter was $0.21. The second quarter includes an adjustment of $1.8 million related to performance-based stock compensation for certain former executives. Excluding the after tax effect of this item, adjusted EPS was $0.20 for the quarter. On June 13, Vishay completed the purchase of MCB Industrie S.A., a specialty resistor company located in France. The purchase price was approximately EUR 17.3 million or $23.0 million. For the fiscal year ended March 31, 2013, sales of MCB were approximately EUR 22.6 million or $29.1 million. In Q2, MCB contributed $2.5 million sales to Vishay. We expect MCB to be accretive to earnings in Q3 and going forward. Cash generation returned to more normal levels following a slow start in Q1 with free cash flow of $46 million in Q2. Revenues in the quarter were $598 million, up by 7.8% from previous quarter and up by 1.6% compared to prior year. Gross margin was 23.9%. Operating margin was 8.7%. Adjusted operating margin was 8.4%. EPS was $0.21. Adjusted EPS was $0.20. In Q2, we recorded an adjustment of $1.8 million related to performance-based stock compensation for certain former executives following a determination that the achievement of the 3-year performance targets was no longer probable. These costs have been originally reported as a separate line item upon cessation of employment of these executives in 2011, and accordingly, this adjustment is also reported as a separate line item. Reconciling adjusted operating income of Q2 2013 compared to operating income for prior quarter based on $43 million higher sales or $46 million higher excluding exchange rate impacts, adjusted operating margin increased by $5 million or $46 million in Q1 2013 to $50 million in Q2 2013. The main elements were: Average selling prices, which had a negative impact of $7 million, representing a 1.1% ASP decline. Volume increased with a positive impact of $23 million. Variable cost had a negative impact of $4 million. Fixed cost had a negative impact of $5 million. We discontinued the temporary cost containment measures of quarter 1 and implemented the previously delayed salary increases impacting both fixed and variable costs. Reconciling adjusted operating income quarter 2 2013 compared to prior year based on $10 million higher sales or $8 million higher excluding exchange rate impacts, adjusted operating income decreased by $11 million from $61 million in Q2 2012 to $50 million in Q2 2013. The main elements were: Average selling prices, which had a negative impact of $19 million, representing a 3.1% ASP decline. Volume increased with a positive impact of $14 million. Variable cost decreased with a positive impact of $4 million. Fixed cost increased with a negative impact of $9 million. This is higher than inflation. However, quarter 2 of 2012 include temporary cost containment measures that were not repeated in Q2 of 2013. Selling and general administrative expenses for the quarter were $93 million as expected and as previously announced on our quarter 1 earnings call. For the remainder of 2013, our expectations are approximately $96 million of SG&A expenses per quarter, which includes the impact of the acquisition of MCB. We expected normalized tax rate for the year, excluding unusual items, is approximately 32%, up from the approximately 31% recorded in quarter 1. This increase of the expected annual tax rate to 32% resulted mathematically in an effective tax rate of 33% for quarter 2. The increase rate is based on an assumed mix of income among our various taxing jurisdictions. A shift in income could result in significantly different results. Please note that the year-to-date GAAP tax rate continues to include the onetime $1.3 million benefit recorded in Q1. This benefit is a discrete item not included in our normalized tax rate. Our year-to-date effective rate for GAAP is approximately 30%. Total shares outstanding at quarter end were 144 million. The expected share count for EPS purposes for the third quarter of 2013 is on the same average stock price as in quarter 2 is approximately 152 million shares. For a full explanation of our EPS share count and variables that impact the calculation, please refer to the 8-K we filed this morning.

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