Vishay Intertechnology, Inc. (VSH)

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Vishay Intertechnology (VSH)

Q3 2012 Earnings Call

October 30, 2012 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

Jim Suva - Citigroup Inc, Research Division

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

Sameer Kalucha - JP Morgan Chase & Co, Research Division

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

Shawn M. Harrison - Longbow Research LLC

Presentation

Operator

Good morning, and welcome to the Vishay Intertechnology Third Quarter 2012 Earnings Call. My name is Melissa, and I will be your conference moderator today. [Operator Instructions] I will now turn the call over to Peter Henrici, Senior Vice President, Corporate Communications. You may begin.

Peter G. Henrici

Thank you, Melissa. Good morning, and welcome to Vishay Intertechnology's Third Quarter 2012 Earnings 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 third 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 third quarter today. On the Investor Relations section of our website, you can find a presentation of the Q3 2012 financial information containing some of the operational metrics Dr. Paul will be discussing, as well as a presentation on Vishay's Growth Plan.

Dr. Paul will be presenting on Wednesday, January 16, at the Needham Growth Conference in New York.

Now I'll 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 at the low end of the guidance. Our pretax results were as we would expect at these revenue levels, according to our business model. Due to a significant shift in the assumed mix of income among our various taxing jurisdictions for the year 2012, the expected annual tax rate increased to approximately 33%. At the end of the second quarter, we had anticipated a normalized annual tax rate of approximately 29%. This increase of the expected annual tax rate to 33% resulted mathematically in an effective tax rate of 45% for quarter 3. We see these relatively high tax rates as a temporary situation. An improvement in our pretax income, particularly an improvement in the profitability of our MOSFET segment, would result in a return to our typical consolidated tax rate in the mid-to-high 20s.

Vishay generated free cash of $53 million in the quarter despite the lower profit level. This was supported by an inventory reduction.

We paid down our revolving credit facility by $74 million. The carrying value of our debt is now in line with the carrying value before we issued the third tranche of converts in May 2012.

Looking at the P&L, revenues in the quarter were $573 million, down by 2.6% from previous quarter and down by 10.2% compared to prior year. Gross margin was 23.3%. Operating margin was 7.8%. EPS was $0.15. We recorded no unusual items in quarter 3.

Reconciling operating income quarter 3 2012 compared to adjusted operating income for prior quarter, based on $15 million lower sales, or $11 million lower excluding exchange rate impacts, operating income decreased by $16 million from $61 million in quarter 2 2012 to $45 million in Q3 2012. The main elements were: average selling prices, which had a negative impact of $4 million, representing a 0.7% ASP decline; volume decreased, with a negative impact of $3 million; variable cost increased, with a negative impact of $3 million due to lower volume-related inefficiencies; higher fixed cost had a negative impact of $4 million, $2 million of which was related to an increase in an environmental liability; and inventory reduction had a negative impact of $3 million, representing a $6 million reduction to inventory, or $12 million excluding exchange rate effects.

Reconciling operating income quarter 3 2012 compared to prior year, adjusted. Based on $65 million lower sales, or $43 million lower excluding exchange rate impacts, operating income decreased by $33 million from $77 million in quarter 3 2011 to $45 million in Q3 2012. The main elements were: average selling prices, which had a negative impact of $24 million, representing a 4.1% ASP decline; volume decreased, with a negative impact of $7 million; higher fixed costs had a negative impact of $8 million, $6 million coming from acquisitions; and exchange rates had a positive impact of $4 million.

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