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Littelfuse Inc (LFUS) Q3 2020 Earnings Call Transcript

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Littelfuse Inc (NASDAQ: LFUS)
Q3 2020 Earnings Call
Oct 28, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to the Littelfuse Third Quarter 2020 Conference Call. Today's call is being recorded. At this time, I will turn the call over to Head of Investor Relations, Trisha Tuntland. Please go ahead, ma'am.

Trisha Tuntland -- Head of Investor Relations

Good morning, and welcome to the Littelfuse Third Quarter 2020 Earnings Conference Call. With me today are Dave Heinzmann, President and CEO; and Meenal Sethna, Executive Vice President and CFO. This morning, we reported results for our third quarter, and a copy of our earnings release is available in the Investor Relations section of our website. A webcast of today's conference call will also be available on our website. Our discussions today will include forward-looking statements. These forward-looking statements may involve significant risks and uncertainties. Please review today's press release and our forms 10-K and 10-Q for more detail about important risks that could cause actual results to differ materially from our expectations.

We assume no obligation to update any of this forward-looking information. Also, our remarks today refer to non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measure is provided in our earnings release available in the Investor Relations section of our website. Before proceeding, I would like to mention that we will be participating in the Baird & Stifel virtual conferences in November, and we look forward to engaging with you during these outreach opportunities.

I will now turn the call over to Dave.

David Heinzmann -- President and Chief Executive Officer

Thanks, Trisha. Good morning, and thanks for joining us today, and I hope all of you and your families are well. I want to take this opportunity to once again personally thank each of our Littelfuse associates around the world. I'm extremely proud of the extraordinary leadership demonstrated by our global associates and business partners during these challenging times. As a result of our ongoing efforts and diligence, all of our facilities are operational and serving customer demands. It is a remarkable focus of our entire team that enables us to execute consistently. We've stated clearly our top priorities during this pandemic: first, protect our global associates, their families and the communities in which we operate; second, support our customers; and third, preserve the long-term financial health of the business. Because of our focus on these priorities, we delivered strong third quarter results.

Our ongoing commitment to operational execution enabled us to meet stronger-than-expected demand from our customers. We recorded third quarter sales of $392 million, which is up 8% versus the prior year period, signaling our return to growth. Sequentially, net sales were up 27%, largely due to higher-than-expected demand in automotive end markets and strength in several end markets like consumer electronics, gaming, appliances, medical equipment, HVAC and renewables. Our focus on serving critical customer needs enabled us to fulfill much of our backlog demand resulting from second quarter COVID-mandated manufacturing shutdown. The incremental revenue improvement, along with our ongoing disciplined cost management actions, delivered an adjusted operating margin of 17% and adjusted EBITDA margin of 23%. We achieved an adjusted EPS of $2.16, an increase of 21% year-over-year. Meenal will provide additional color on our strong financial performance. During the quarter, our Electronics Products segment saw robust demand led by Asia, particularly in China, with a strong COVID-19 recovery. In North America, demand rebounded post-second quarter shutdowns. Europe also showed signs of recovery. Our third quarter electronics revenue growth was driven by higher-than-expected demand from ongoing work, study and stay-at-home trends.

These lifestyles are driving particular demand for our passive components and semiconductors in applications such as data centers, 5G infrastructure, white goods and appliances, laptops, tablets, gaming devices and medical equipment. Weeks of inventory of our products at our distribution partners are flat at the lower end of our normal 11- to 14-week range. Exiting the third quarter, our electronics book-to-bill was around 1.0, which indicates a sustained healthy level of demand for our products into the fourth quarter. We continue to work closely with our distribution partners to proactively manage inventory consistent with demand patterns. Moving on to our Automotive Products segment. During the third quarter, we experienced a meaningful sequential improvement in sales. Across passenger vehicle markets, our revenue grew over 75%, coming off historic lows during the second quarter. Continued content gains allowed us to grow above market. China saw robust end customer demand. Europe saw solid demand, partially driven by emissions regulations, and North America experienced a strong recovery, especially for SUVs and pickup trucks. Revenue for our commercial vehicle products was down year-over-year.

However, sales rebounded during the third quarter as our manufacturing plants and customers reopened following second quarter shutdowns due to the pandemic. For the full year 2020, we expect a global car build of approximately 73 million cars, which is down nearly 20% versus 2019. The ongoing recovery will depend on consumer confidence, economic recovery and COVID-19 containment. We expect our long-term growth to continue outpacing global car build with our ongoing content opportunities. In our Industrial Products segment, a focus during the third quarter was our manufacturing ramp-up to meet backlog demand following the second quarter shutdowns due to the pandemic. After second quarter lows, we did see better demand in some end markets, including renewables, power conversion and HVAC. We continue to see soft demand in the U.S. nonresidential construction, oil and gas and mining markets. We are confident that our industrial business will continue to drive long-term profitable growth, through our increasing number of design wins and our strong project funnel.

We're about a month into our fourth quarter and continue to see firm demand in many of our end markets. However, the COVID-19 situation remains uncertain and could create risk to end market demand and supply chain disruptions. Our global teams remain focused on what we can control to limit disruptions to our business. We are originally adhering to global safety requirements and stocking additional raw materials and finished goods to serve the critical needs of our customers. The long-term secular growth themes of a safer, greener, more connected world continue to drive strong design activity. In today's environment, quality of life is playing a greater role in people's everyday lives, driving an acceleration of these themes and their long-term sustainability. We have proven that our leading technologies in circuit protection, power control and sensing, are critical to enabling the ecosystem of applications surrounding those themes. As a result, we continue to expand existing positions and gain market share. During the third quarter, we capitalized on our design activity with several strategic wins and high-growth industrial, electronics and transportation applications. Our customers and their engineers continue to remain focused on new product development as we jointly navigate progress in an ongoing remote environment.

Our engineering teams are helping drive customer-focused innovation, and design activity remains robust across industrial applications. Based on our ability to pair the right product and application expertise with customers' needs, we have demonstrated capability differentiation. For example, in many instances, we have developed efficient solutions to address higher power requirements in smaller spaces with lower installation costs. During the quarter, we had key design wins across multiple regions in renewable energy and energy storage, factory automation, HVAC, power conversion, motor drives and industrial safety. We continue to increase our content with our broader portfolio of industrial fuses and relays and power semiconductors. Notably, we won new business in Europe with our high-powered bipolar semiconductor modules for motor drives and marine icebreaker ships. Wins like this further diversify our presence in the heavy industrial space. In industrial safety applications, companies across spectrum of industries continue to prioritize innovative safety enhancements for employees that work near electrical power. With recent changes to the U.S. National Electrical Code, or NEC, we've been proactive in our response to customers' inquiries in regards to compliance to new standard and safety guidelines.

This is helping drive new opportunities for our industrial safety products. One of the recent highlights of our industrial business is the expansion of our protective relay offering. Our newest solution is the only industrial-grade ground fault circuit interrupter on the market that meets UL requirements. This offering allows customers to meet recently adopted NEC code, ensuring personnel safety when employees are near higher power electrical loads and liquids are present. Since this protection is mandatory, we're already seeing strong customer demand. We secured a key strategic design win within the food and beverage industry, and are well positioned to leverage these technologies to other customers in the space. Our broad industrial design and activity further diversifies our business across many industrial markets. The long-term macro trends of greater electronics content and the expansion of connectivity have been key drivers for electronics applications for many years. We are seeing those trends amplify in the current environment. Our innovative, diversified solutions, engineering support and customer relationships continue to set us apart from other suppliers.

We secured broad regional design wins in the quarter for battery management systems and power supplies for cloud computing and consumer electronics as well as key sensor wins for smarter, more complex, large and small appliances as well as building at-home automation applications. Connected data-rich devices continue to drive demand for our products in data center and telecom infrastructure applications. For transportation applications, we see good customer engagement and strong design activity across several xEV platforms. The global long-term EV outlook is bullish, and the industry is seeing momentum in areas like commercial vehicles and high-end passenger cars. With our global infrastructure, technical expertise and deep OEM and Tier one relationships, we are well positioned to continue our growth and ongoing EV opportunities. In the quarter, we secured over a dozen xEV design wins broadly across Asia, Europe and North America. We won new business for battery management systems in North America, Japan and a number of other countries in Asia.

We also continued our wins in electric vehicle infrastructure applications. In the U.S., we won new business for offboard energy storage systems and commercial charging stations. We also secured automotive electronics wins in xEV applications in China and India. In addition, our high-powered semiconductors secured strategic wins for heavy industrial transportation applications in Europe for two high-speed passenger train applications. The evolution of the standard internal combustion engine vehicle also continues to increase the content for our products. Our proven technical expertise and product performance continues to drive robust design activity. In our passenger vehicle business, we secured key wins for on-battery harness and Masterfuse protection applications in Japan, Europe and China. In addition, we captured new business for seat and motor -- and window motor applications in Japan and North America. Furthermore, our automotive sensor portfolio continues to enable enhancements in safety, comfort and convenience. We saw strategic wins for seatbelt buckle and tailgate applications in China and North America. We also continue to see a strong pipeline of new business opportunities for our commercial vehicle business, and secured a wide range of key design wins during the quarter. Customer responsiveness and operational execution helped us win new business with the European manufacturer of electric street cleaning vehicles. Infrastructure projects in China are driving many new opportunities in the construction equipment market, where our portfolio of high-quality switches is being designed into a line of excavators from a leading local manufacturer. Material handling remains a strategic growth market that continues to drive new design activity.

We won new business in the quarter for electric forklift platforms in China for our relay products, and in North America for temperature sensors assemblies. We are also identifying opportunities in vertical markets like commercial vehicles to carry over our traditional passenger car sensors, where we won new business in heavy equipment application. Let me take a moment to again recognize the ongoing contributions of our global associates, which makes Littelfuse a stronger, more resilient company. We take pride in the performance of the billions of components we manufacture and deliver everywhere, every day. In recognition of our focus on operational excellence, we received two prestigious awards. For the second consecutive year, our team in Kaunas, Lithuania earned the Supplier Quality Excellence Award from General Motors, recognizing their hard work, dedication and 0 compromise on quality. And our India team has been recognized for the fourth consecutive year for a Best Protective Device Award for its technology and product innovation. These awards showcase the efforts of our highly skilled associates around the world and their commitment to strengthening our global brand and reputation. I'm proud of the team's contribution, which make these awards a reality.

I will now turn the call over to Meenal to provide additional color on our financial performance and outlook.

Meenal Anil Sethna -- Executive Vice President and Chief Financial Officer

Thanks, Dave. Good morning, everyone, and we appreciate you joining us today. I hope everyone and those close to you have continued to stay safe and healthy. Since the early days of the pandemic, we implemented a number of priorities across the company, including building on our strong financial foundation to resume our profitable growth trajectory. We made great progress during the third quarter with our higher-than-expected sequential sales growth of 27% and growth of 8% versus last year. The growth was led by a combination of stronger-than-expected demand and our team's responsiveness in meeting customer requirements around the world. Adjusted operating margins were 16.9% for the quarter, up 230 basis points versus last year in a function of higher volume leverage and continued cost management. This also drove sequential operating margin flow-through of 50%, better than we had forecasted. Adjusted EBITDA margins finished over 23% in the quarter and are over 20% year-to-date.

Third quarter GAAP diluted earnings per share was $2.25, with an effective tax rate of 17.9%. Adjusted diluted EPS for the quarter was $2.16, up 21% last year due to the sales growth and improved profitability. Adjusted diluted EPS also finished much better-than-expected due to the higher-than-expected sales growth and a lower-than-forecasted tax rate. Our third quarter adjusted effective tax rate was 15.7%, as we reduced our full year tax rate estimate due to improved profitability and lower tax jurisdictions. As we recorded a year-to-date reduction in our tax rate, the lower rate improved our adjusted EPS by $0.22 in the quarter. Moving on to our segments. All had significant sequential margin improvement in the quarter due to higher sales volumes. Electronics segment sales were up 14% sequentially, and up 12% over last year. Sales growth, coupled with our cost management activities, drove an 18% operating margin in the quarter, a 280 basis point improvement versus last year. Auto segment sales were up 69% sequentially. Our teams did a fantastic job managing through a record demand decline in the second quarter, followed by this quarter's faster-than-expected recovery in the market. Margins improved sequentially to 14.7% in the quarter. Margins were up 380 basis points versus last year, a result of last year's rightsizing activities, cost management efforts and foreign exchange benefit.

We've stated our target margins for the segment are the mid-teens, and this quarter showed our execution to achieve our goal. Sales were up 43% sequentially in our industrial segment. Sequential margins improved to 15.6% this quarter versus a loss last quarter. Margins were down versus last year due to additional costs we are incurring for our manufacturing plant transfer as well as pandemic-related supply chain inefficiencies. Our balance sheet remains strong. We ended the quarter with $642 million in cash, about half of that in the U.S. Solid working capital contributed -- solid working capital performance contributed to $51 million of free cash flow in the quarter. On a year-to-date basis, we've generated $123 million in free cash flow, with a net income conversion rate of well over 100%. We repaid $60 million on our revolving credit facility, ending the quarter well under 1.0 times net debt-to-EBITDA. So in summary, this was an exceptional quarter, both operationally and financially, while we resumed our top line growth trajectory. Moving on to our outlook.

Our third quarter finish reflects the demand environment that's stronger than we expected 90 days ago. But we are continuing to monitor the macro dynamics, especially pandemic uncertainties, which appear to be getting worse in many areas around the world. Assuming no new disruptions, we expect fourth quarter sales to grow in the range of 7% to 10% versus last year, with growth across all of our segments. We typically see a sequential decline in all of our businesses going into the fourth quarter. But given current market signals, we expect sequential sales growth across our auto and industrial segments. We do expect our electronics segment sales to be seasonally down after an exceptionally strong third quarter. We're assuming car production of 22 million for the quarter, and we're assuming about a 40% year-over-year operating income flow through. On other financial items, we expect interest expense of about $21 million for the year and amortization expense of $40 million. We are forecasting an adjusted effective tax rate of 19% to 20% for the year. The lower end of the tax rate range assumes we receive approval for a pending foreign income tax holiday that would be retroactive to the beginning of 2020, and we're maintaining a full year capex forecast of $60 million to $65 million. I'd like to also thank our teams around the world for their ongoing dedication and resilience as they continue to serve our stakeholders through these challenging times.

And with that, I'll turn it back to Dave for some last comments.

David Heinzmann -- President and Chief Executive Officer

Thanks, Meenal. In summary, we delivered strong third quarter performance, and are pleased to see a return to year-over-year growth. As we near the end of 2020, we are confident that the actions we have taken this year position us well for sustained profitable growth. Our fundamentals are solid, and as always, we are balancing our attention to ongoing design and activity and investments for growth, while maintaining our operational excellence. As we near 2021, the latter portion of our current 5-year growth strategy, I'm excited to share that on February 23, we will host a virtual investor and analyst event. We look forward to sharing the specific details with you then, which reinforce how we will continue to deliver ongoing value to all stakeholders.

With that, I'll now turn the call back over to Trisha. Thanks, Dave. For participants, Meenal and Dave are in separate locations this morning, so feel free to direct your questions to one or the other of them. Operator, please assemble the Q&A roster.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from Karl Ackerman with Cowen. You may proceed.

Trisha Tuntland -- Head of Investor Relations

Good moring, Karl.

Karl Fredrick Ackerman -- Cowen and Company -- Analyst

Hey, good morning everyone. So it's nice to see the material improvement in your results and outlook relative to the first half of the year. However, I'm curious, given the fact that you just guided the December quarter in line with seasonality, is there any reason not to think your revenue trends wouldn't grow in line with seasonality in the first half of 2021?

David Heinzmann -- President and Chief Executive Officer

Yes, I'll take that, Karl, and thanks. So obviously, we guided to normal seasonality in the electronics portion of our business. Actually, not normal seasonality in the industrial and the automotive portion, which typically are also seasonally down in the fourth quarter. In both cases, industrial and automotive, we believe will actually be sequentially up. I think electronics has a very strong third quarter, and with that strong third quarter and the comparative of the sequential, we're seeing kind of normal downturn there. What that bodes for next year, there's just a lot of variability out in the marketplace and what's going on. We're not giving guidance on what next year looks like. However, one of the strong things in electronics is the fact that our inventory positions are quite healthy. They're at the lower end of our normal range, so we won't have inventory corrections and things like that to impede our ability to grow next year.

Karl Fredrick Ackerman -- Cowen and Company -- Analyst

Very helpful, Dave. For my follow-up, one of your peers earlier today spoke about the industry shift toward electric vehicle powertrains, particularly from Asia Pac. Today, you're a little bit less exposed to Asia from a geographical basis, but at the same time, you have internal capability for GaN on silicon carbide from the IXYS acquisition that would seem to apply very well to electric vehicle, for powertrains and charging capabilities. And I think you mentioned in your prepared remarks some compound semi design wins for trains. But I guess, what sort of opportunities and design wins are you winning for your GaN on silicon within electric vehicles? Thank you.

David Heinzmann -- President and Chief Executive Officer

Yes. So of course, from a technology standpoint, we do not have GaN technologies that we have in the marketplace. We do have silicon carbide in the marketplace. And where our focus is, in the EV space, in our power semiconductor business, is really in the charging infrastructure. The bulk of our opportunity in the near-term exist in charging applications, particularly the higher speed charging applications, where you get more of a DC-to-DC type of high-speed charging. Content opportunity and the opportunities are significantly larger than on type 1, type 2 types of chargers. So that's where we're seeing today the best opportunities for ourselves, and we are getting design wins in those spaces.

Karl Fredrick Ackerman -- Cowen and Company -- Analyst

Thank you.

Trisha Tuntland -- Head of Investor Relations

Thanks Karl. We'll take our next caller, please.

Operator

And our next question comes from Gausia Chowdhury with Longbow Research. You may proceed.

Gausia Fatima Chowdhury -- Longbow Research LLC -- Analyst

Good morning. So with regards to the auto production, a peer of yours just noted that they expect the fourth quarter to be peak in production and for it to decline from there. So if the fourth quarter is a peak, how do you think about operating margins within auto and maintaining it within that mid-teens range that you spoke about? And then if you have any thoughts on inventory levels within auto, too, that would be helpful, please.

David Heinzmann -- President and Chief Executive Officer

Sure. So we haven't really given guidance to what next year's volumes look like. And I know the peer you're talking about in their financial calendar shows that as the beginning of the year. Certainly, we're expecting the car builds in the fourth quarter for us being the peak of this year. We haven't really given particular detailed view on what next year is. There's just too many wildcards out there. How extended are the pandemic-related shutdowns? That seem to be getting a little worse right now. What's the economic confidence in different regions of the world? So, we believe certainly that there'll be a bit of a challenge going into next year on car builds to continue to drive significant growth there in -- from a car-build standpoint. However, we do expect that car build next year will have high single-digit growth, maybe as high as 10% growth compared to a very soft year this year. So those things will support our ability to keep margins at a reasonable level in the automotive business. But as a reminder, there are a lot of costs today that are -- we've reduced costs overall, but some of those costs that we've reduced are temporarily cost reductions, whether they be reductions in compensation and those types of things, reduction in travel. Some of those hopefully will come back during the course of next calendar year, which will make a bit of a challenge for us to continue to drive growth to our bottom line.

Meenal Anil Sethna -- Executive Vice President and Chief Financial Officer

And then if I can just add, Gausia, just on your question on margins to add to what Dave was saying, we've talked about our target margins for our auto segment in that mid-teens, call it, the 14% to 15% range. And with the current sales levels we had, but also, as Dave pointed out, with a much lower spend than we would expect to see because of all the discretionary cuts we took, we're at that margin. I think we'll continue to see a balance, sales will grow, but spending will start to resume a little bit more on the discretionary side. So we stick to our target margins of the 14% to 15% for the auto segment.

Gausia Fatima Chowdhury -- Longbow Research LLC -- Analyst

Okay. Great. That's helpful. Thank you. With regard to the electronics market, can you just provide some detail around the book-to-bill of 1. How did that look by region? And then is there -- if it's seasonally down, is that typically down mid-single digits? Is that the right way to think about it there?

David Heinzmann -- President and Chief Executive Officer

Yes. So first of all, I think normal seasonal pattern for us in electronics, if you look at sequential third quarter to fourth quarter, kind of normal is in the high single digits to low double digits is kind of normal seasonally declines that we see in the fourth quarter. Book-to-bill, exiting the third quarter was right around one and we didn't see a huge differential in book-to-bill across the different regions of the world. And keeping in mind, when you look at book-to-bill, regions of the world really relate to manufacturing locations, which don't necessarily rate crisply to end market drivers and where the end sales of the devices are coming. So we didn't see a huge differential between the regions for ourselves during the third quarter. We've continued to see solid bookings also through into the fourth quarter. So we feel good about that.

Gausia Fatima Chowdhury -- Longbow Research LLC -- Analyst

Great, thank you.

Trisha Tuntland -- Head of Investor Relations

Thank you for your questions, Gausia. We'll take our next caller, please.

Operator

And our next question comes from Christopher Glynn with Oppenheimer. You may proceed.

Christopher D. Glynn -- Oppenheimer & Co -- Analyst

Thank you. Hey, good morning. So a lot of operating discussion, but your operations and your demand patterns are normalizing here. So I was kind of curious about the balance sheet. The actionability of the acquisition pipeline, your appetite and notional thoughts on share repurchase?

David Heinzmann -- President and Chief Executive Officer

Meenal, why don't you take that?

Meenal Anil Sethna -- Executive Vice President and Chief Financial Officer

Yes, I could take that. So from a balance sheet perspective, our view hasn't changed much in the past quarter. We've talked about -- we want to make sure that we have a strong balance sheet. I would say, yes, we are seeing recovery today. But as Dave commented, still a lot of uncertainty out there. It's still a lot of lack of future visibility right now. So we want to make sure we have that solid ground. We are absolutely looking at M&A. We have the balance sheet to do that, and that was always the intent. But I would say right now, the M&A market has not really returned to what I would call any sort of normal pattern right now. In general, a lot of folks are still sitting on the sidelines. Don't know that this is necessarily the environment from a seller perspective that they want to look at things. So we're looking at that, but we'll see how the market continues to evolve from an M&A standpoint. And then, as it relates to share repurchase our philosophy on capital allocation has always been share repurchase for us, this is more opportunistic. We always prefer to look at M&A first. And right now, given the environment, we're holding on to more, we'll keep an eye out on M&A, and share repurchases is just sitting on the shelf right now for us.

Christopher D. Glynn -- Oppenheimer & Co -- Analyst

Okay. And just curious on the margin guidance for the fourth quarter, the 40% incrementals year-over-year implies kind of 75% sequential decrementals at the midpoint of the revenue guidance. Are you seeing -- are you planning a lot of cost restoration? Or that number seems a little high. Just wondering if you kind of have in your normal cost base reloaded into the fourth quarter?

Meenal Anil Sethna -- Executive Vice President and Chief Financial Officer

Yes. So I would say on your comment on the sequential, if you go back to Dave's earlier comments also around -- we talked about a normal sequential decline in the quarter, and that's on the electronics side. Our electronics business, we've always talked about, tends to have the higher margin flow-through above the company average. So when you look at it sequentially, it's not a surprise for us that we would see a bit of a higher decremental. But again, our normal incremental range on a year-over-year, we're talking about 40%, that's well in the range that we've talked to -- for a normal incremental range on a year-over-year basis. I think it's just the business mix on a sequential basis.

Christopher D. Glynn -- Oppenheimer & Co -- Analyst

Okay. So there are no particular cost restorations into the fourth quarter from your belt-tightening activities throughout -- year-to-date?

Meenal Anil Sethna -- Executive Vice President and Chief Financial Officer

No. Nothing out of the ordinary, no.

Christopher D. Glynn -- Oppenheimer & Co -- Analyst

Ok, thank you.

Trisha Tuntland -- Head of Investor Relations

Thanks for your questions, Chris. We'll take our next caller, please.

Operator

And our next question comes from Luke Junk with Baird. You may proceed.

Luke L. Junk -- Robert W. Baird -- Analyst

Good morning. Yes. Meenal, I was just wondering, first, if it would be possible maybe just to put a finer point on some of the temporary cost factors in your auto margin this quarter? I guess I'm just trying to think of a normalized margin to build on from here in that segment.

Meenal Anil Sethna -- Executive Vice President and Chief Financial Officer

Yes. I would say we've not gone in detail for each one of our segments margin by margin. But what I've said, from a total company perspective, is over a 2-year period, from '18 to '20, we will have taken out about $80 million in OpEx, about half of which I've talked about is more a fixed OpEx, headcount, and we took a lot of those actions in end of '18 into 2019, and we're still seeing some benefits from that. The other half being more discretionary or variable spend, and that was a little bit of Dave's comment there. So think about things like compensation, variable compensation items, we really don't have people traveling, et cetera. So you can assume that, of that $80 million, there's a portion of that going into automotive. Some of that will come back next year. We'd like to put the variable compensation back for our employees, and we'll see what happens with things like travel expenses. So that's part of the additional costs we've been talking about. At the same time, we do expect, as we get through the next several quarters, we'll see a pickup on sales. So how that timing works between the add-back versus the sales growth, I think, is going to be a '21 question.

Luke L. Junk -- Robert W. Baird -- Analyst

Okay, great. And then, Dave, for you, just bigger picture, maybe if you could talk a little more about the opportunity in vehicle charging for EV, specifically? With the election coming up, who knows what's going to happen, but if there's a change in administration, one of Biden's proposals would include investments in EV charging infrastructure. And just if you could talk about how Littelfuse would be positioned to benefit as that comes to fruition potentially?

David Heinzmann -- President and Chief Executive Officer

Sure. No, no. It's a great question, Luke. I would say that EV charging in general, is an application, whether it's on-vehicle or off-vehicle that creates opportunities for our Littelfuse core products. EV off-board charging is certainly an area -- it really depends on which types of charging devices that we're talking about, because there's three levels of charging. For sure, the high-speed charging is where the content is the richest for us. And the opportunity there exists in our traditional passive components. It exists in our industrial type of fuse products, and then it exists in our power semiconductor products. The challenge a little bit on where you capture that is much of that doesn't show up in our automotive segment, much of that ends up showing up in electronics as well as in our industrial business. That kind of gets spread among those. But it's a meaningful opportunity for us. We've had good design in activity. We continue to be very robustly engaged. There are many, many different OEMs that are working on charging there are some leaders, certainly, but there's many EV charging companies out there. Some of them most of us have never heard of. Some of them are large OEMs as well involved in that globally. So a nice opportunity for us.

Luke L. Junk -- Robert W. Baird -- Analyst

Great. Thank you, both.

Trisha Tuntland -- Head of Investor Relations

Appreciate your questions, Luke.. We'll take our next caller, please.

Operator

And our next question comes from Shawn Harrison with Loop Capital. You may proceed.

Shawn Matthew Harrison -- Loop Capital Markets -- Analyst

Hi, everyone. Good morning. Many congrats on such a strong quarter. Wanted to talk about the electronics business. And just what feedback you're getting from distribution, knowing that demand is so strong, yet inventory at the channel is still at the lower end. Are there any signs they'd look to add inventory? And just within that context, where are your lead times right now for your products that go through distribution versus normal?

David Heinzmann -- President and Chief Executive Officer

Sure. Yes. As you can imagine, these are discussions that are ongoing all the time, particularly in these kind of volatile environments. And where -- of course, our revenues of sell-in electronics were quite robust in the third quarter. We did not see an increase in inventory in the channel. So obviously, our sales in were flowing through as our point of sales were up nicely for our products. So it's quite well matched in that. Our lead times at this stage continue to remain pretty sound. There are a couple of areas where we had a bit of catch-up we had to do after mandatory shutdowns in the second quarter, but our capacity has enabled us to respond to that pretty rapidly. So we really haven't seen strong increases in lead times for our products. So I don't think there's a huge indication right now of a need to increase weeks of inventory because of our ability to respond to pretty strong increases. If there is sustained point-of-sale increase trend, then I think our distribution partners will have to evaluate that and consider the ability to do it. And as you know, our distribution partners, big differentiation between the public guys and the non-public guys and how they view those things. So right now, we continue to have those discussions and watch it. We don't see any particular message that there's a solid effort to try to increase inventory for our products at this stage.

Shawn Matthew Harrison -- Loop Capital Markets -- Analyst

Very helpful. And then, Meenal, if you could maybe speak about IXYS and just the integration. Exiting this calendar year, where will you be at in regards to that integration? And I'm also looking at whether there's some additional savings from that. That will flow into '21 that you're not seeing right now or any other kind of permanent fixed cost reduction actions that you've taken here in '20 that could maybe help some of the leverage in '21?

Meenal Anil Sethna -- Executive Vice President and Chief Financial Officer

Sure. So really, what's left for us with the IXYS integration, we've talked about in the past few quarters, but it's really what I'd call supply chain manufacturing footprint. We had talked about a few different consolidation efforts we were going through. We just completed one of the smaller ones that we had to do, so we expect it's a small amount of benefit coming from that in 2021, where we did two U.S. plant consolidations. But really, our larger activities are a consolidation from a couple of our European sites into a new facility in the Philippines. That's really going to go on through all of 2021 for us. So I think as we get into the back half of '21, we'll start to see a little bit of the savings. I would also say part of our challenge right now is given the fact that you're not really traveling across the ocean anywhere. We've had a little bit of slowdown in some of the transfers, not just from our side necessarily, but even customers who want to come and qualify products. So that's why I would say this is stretching through 2021. So I think a little bit toward the back end, but we really would expect to see some good savings coming out of 2021.

Shawn Matthew Harrison -- Loop Capital Markets -- Analyst

And good savings, is that a few million dollars? Is that $5 million? Just -- I'm always trying to put a fine point on anything.

Meenal Anil Sethna -- Executive Vice President and Chief Financial Officer

Yes. Yes. What I would say is we will get into more detail later, let's just call it several million dollars, and as we get further into '21, we'll talk about that.

Shawn Matthew Harrison -- Loop Capital Markets -- Analyst

Thanks so much.

Meenal Anil Sethna -- Executive Vice President and Chief Financial Officer

Sure.

Trisha Tuntland -- Head of Investor Relations

Thanks Shawn for your questions.

Operator

[Operator Instructions] And our next question comes from David Kelley with Jefferies. You may proceed.

Trisha Tuntland -- Head of Investor Relations

Good morning, David.

David Lee Kelley -- Jefferies LLC -- Analyst

Hi. Good morning Dave, Meenal and Trisha. And maybe, Meenal, I wanted to follow-up on the auto margin discussion. I was curious if there were any one time costs in the quarter, things like over time to help meet what was clearly outsized ramp that might be getting lost in the shuffle, given your strong execution in the third quarter?

Meenal Anil Sethna -- Executive Vice President and Chief Financial Officer

Yes. What I would generally say is, we touched on the fact that what you see, not just in automotive, but in all of our businesses, is there's a fair amount of discretionary, what we call the variable discretionary spend that just isn't happening right now, right? We've cut out a lot of the variable compensation we have, and we really don't have anybody traveling -- hardly any travel, no trade shows, things like that. So that's a benefit that we're seeing coming through. I'd say right now, it's a little bit more benefit than we are seeing additional costs from things that you talked about, whether it's inefficiencies that we're seeing in some factories and things like that. So that's why I think we had an earlier question on that, I mentioned that as we get into 2021 and beyond, and we start to see, we'll start to add back some of this discretionary spend. But at the same time, we would expect sales to continue to improve. We mentioned in our prepared commentary as an example that our commercial vehicle parts of our business are still down. And as the market improves, we'd expect that improvement. So net-net, how the timing will work between expense add back in a quarter versus sales growth remains to be seen, but that's why we're saying, really, our target margin remains to that 14% to 15%.

David Lee Kelley -- Jefferies LLC -- Analyst

Okay. Got it. That's really helpful. And maybe a question for Dave. Could you give us a sense of channel inventories in auto? It's been a popular discussion over the last few days of this earnings cycle. I was just curious if you're seeing customers build inventory? Or can they even build inventory? I think one of the questions out there is the supply chain just simply trying to keep pace with demand at this point. So again, just curious to hear what you're seeing.

David Heinzmann -- President and Chief Executive Officer

Yes. It's -- first of all, it's many, many customers, many, many different regions, and so it's hard to kind of make blanket statements. We did not see wholesale shift in inventory that we can identify, right? Obviously, OEM -- vehicle manufacturer, there has been a fill of inventory as dealers have been depleted and things like that, that certainly has driven some of the in-demand. But from a supply chain perspective, there are certainly areas where we've seen some customers increase their inventory as they've tried to ramp up. There's also cases where we've seen people bleed off inventory. If you remember, actually kind of late last year going into the beginning of this year, there were some inventory increases that took place. So I don't know that it's been a huge driver for us in the performance in the quarter.

David Lee Kelley -- Jefferies LLC -- Analyst

Okay. Got it. Thank you. And maybe if I could just squeeze one more in there, Dave. Could you talk about the commercial vehicle orders? The trajectory you're seeing, it sounds like exposure improved sequentially, but it's trailing auto recovery? And maybe if you could just remind us of your commercial vehicle exposure, that would be great.

David Heinzmann -- President and Chief Executive Officer

Yes. From the commercial vehicle exposure, if you look at our automotive segment, it's about a quarter of that segment of our commercial vehicle revenues. And from an order pattern, obviously, the overall commercial vehicle space is coming off kind of pretty challenging times, a year and a half ago, pretty strong and went through kind of cycle and kind of a down cycle. We are seeing some improvements in some of the construction vehicle types of applications for us. Heavy truck in North America, which had been down meaningfully is beginning to kind of turn that corner and show some strength, although Europe is not showing as much strength in the heavy vehicle side of things. So you've got a lot of movement in a lot of different directions in different parts and regions of the business. But we do believe we're gaining some momentum there. And we do think we'll see year-over-year growth in that segment in the fourth quarter.

David Lee Kelley -- Jefferies LLC -- Analyst

Yeah, great. Thanks everyone.

Trisha Tuntland -- Head of Investor Relations

Thanks for your questions, David. Next caller, please.

Operator

And our next question comes from Matt Sheerin with Stifel. You may proceed.

Trisha Tuntland -- Head of Investor Relations

Good morning, Matt.

Matthew John Sheerin -- Stifel, Nicolaus -- Analyst

Yes, hey. Good morning, all. You've answered most of the questions here. I guess one follow-up, Dave, regarding your commentary on the electronics business. And it looks like you saw strength across several end markets and guiding to seasonally down. But we're hearing from other pockets of the supply chain that we're seeing peak numbers in demand and things like work-from-home, PCs, consumer electronics, concern that, that market is going to start to tail off? And any read there on any of those end markets? Or is it just seasonal at this point?

David Heinzmann -- President and Chief Executive Officer

Yes. What I would say is that's an area where there has been pretty strong demand out of those spaces in the last quarter, and which were -- are certainly moving into fourth quarter as well, we continue to see demand there. But there are certainly questions, how long will that be sustained or not. We are seeing some improvement in kind of, if I would say, the industrial electronics portion of our business. So we see that as maybe a more sustained improvement level through the course of next year to help continue to balance and create opportunities for growth for us in that business as well.

Matthew John Sheerin -- Stifel, Nicolaus -- Analyst

Ok, that's it for me. Thanks so much.

Trisha Tuntland -- Head of Investor Relations

Appreciate your question, Matt. That concludes today's conference call. Thank you for joining us and your interest in Littelfuse. We look forward to talking with you again soon, be safe and stay healthy.

Duration: 48 minutes

Call participants:

Trisha Tuntland -- Head of Investor Relations

David Heinzmann -- President and Chief Executive Officer

Meenal Anil Sethna -- Executive Vice President and Chief Financial Officer

Karl Fredrick Ackerman -- Cowen and Company -- Analyst

Gausia Fatima Chowdhury -- Longbow Research LLC -- Analyst

Christopher D. Glynn -- Oppenheimer & Co -- Analyst

Luke L. Junk -- Robert W. Baird -- Analyst

Shawn Matthew Harrison -- Loop Capital Markets -- Analyst

David Lee Kelley -- Jefferies LLC -- Analyst

Matthew John Sheerin -- Stifel, Nicolaus -- Analyst

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