Personal Finance

Littelfuse Hit by China Slowdown

Shipping containers painted with U.S. and Chinese flags, crashing into each other

Circuit protection product manufacturer Littelfuse (NASDAQ: LFUS) reported its fourth-quarter results before the market opened on Jan. 30. Organic revenue growth slowed, and the company expects it to turn negative in the first quarter of 2019 due to a slowdown in China and global trade tensions. The company still expects revenue growth for the year, but it will be facing down multiple headwinds that could derail that plan.

Littelfuse's fourth-quarter results: The raw numbers

Metric Q4 2018 Q4 2017 Year-Over-Year Change
Revenue $402.3 million $304.9 million 31.9%
Net income $32.7 million ($10.8 million) N/A
GAAP earnings per share $1.29 ($0.48) N/A
Non-GAAP earnings per share $1.87 $1.81 3.3%

Data source: Littelfuse. GAAP = generally accepted accounting principles.

What happened with Littelfuse this quarter?

  • Excluding the impact of acquisitions, organic revenue grew by 4% year over year. That's down from 8% organic growth in the third quarter , and lower than the company's guidance calling for 6% organic growth.
  • Electronics revenue rose 62% year over year. Organic revenue was up 7%.
  • Automotive revenue was down 3% from the year-ago period. Organic revenue fell 1%. The company blamed a 4% decline in global auto production for the weak results.
  • Industrial revenue slumped 3% due to the company's exit from the Custom business last year. Organic revenue was up 11%.
  • Electronics segment operating income rose 42.9% to $47.7 million. Automotive segment operating income sank 33.1% to $10 million. Industrial segment operating income declined 29.6% to $3.2 million.
  • Littelfuse spent $318 million on acquisitions in 2018, and spent $63.6 million on share buybacks.

The company provided the following guidance:

  • First-quarter revenue is expected between $404 million and $416 million, down 2% year over year at the midpoint. Organic revenue is expected to decline by 4%.
  • Littelfuse forecast first-quarter non-GAAP earnings per share to come in between $1.86 and $2.00.
  • Full-year capital expenditures between $90 million and $95 million are expected.
Shipping containers painted with U.S. and Chinese flags, crashing into each other

Image source: Getty Images.

What management had to say

CEO Dave Heinzmann reiterated the company's long-term targets during the earnings call : "Our top-line growth target includes average annual organic growth of 5% to 7% and average annual growth through strategic acquisitions of 5% to 7%, coupled with sustained profitability from double-digi t earnings growth."

He commented on the challenges the company is facing this year: "We expect continued growth in 2019, though slower, given softer market conditions driven by global trade tensions, slower economic growth in China, and softer global auto demand. "

CFO Meenal Sethna provided some details on the automotive segment, particularly in China: "Across automotive, while market forecast had estimated a 1% decline in global auto production, auto builds were down 4% and notably down 13% in China. This had an unfavorable impact on our expected automotive sales for the quarter."

Looking forward

Littelfuse will lap the benefit from its acquisition of IXYS in the first quarter of 2019, so that will no longer provide a big boost to the top line. The company is also being negatively affected by the slowdown in China and global trade tensions. After an impressive streak of organic revenue growth, the company expects to post a decline in the first quarter.

These problems are likely temporary, but there's no telling how long they'll persist. Littelfuse still sees revenue growth in 2019, although that forecast could prove overly optimistic if conditions deteriorate further.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool recommends Littelfuse. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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