Littelfuse Inc. (NASDAQ:LFUS) Q4 2019 Earnings Conference Call - Final Transcript

Jan 29, 2020 • 10:00 am ET

Previous

Littelfuse Inc. (NASDAQ:LFUS) Q4 2019 Earnings Conference Call - Final Transcript

Share
Close

Loading Event

Loading Transcript

Q & A
Operator
Operator

Thank you, sir. [Operator Instructions] Our first question comes from Shawn Harrison from Longbow Research. Please go ahead.

Analyst
Shawn Harrison

Hi.

Executive
Meenal A. Sethna

Good morning, Shawn.

Analyst
Shawn Harrison

Good morning, everyone. I wanted to delve in more to the operating profit margin in the electronics business. I have to go back to 2011 to find something this low. And I understand volume and the incremental margins associated with that are high, but it was surprisingly low and it seems like at least the lift implied in the March quarter guidance is going to be a little bit less than typical. So if you could kind of walk me through the drags there and kind of how we should expect that margin to rebound as you progress through 2020 as distribution demand normalizes?

Executive
Meenal A. Sethna

Sure. Hi, Shawn. So just -- just stepping back. The level of decline that we've seen in our sales across electronics, right, we haven't seen this type of decline in 10 years. So the combination of the macro factors that we've seen, plus the inventory destocking, not just channel, but also with end customers like EMS and OEMs that's had a significant impact from an absorption perspective and just the variable margin that we see across electronics is fairly strong.

The other thing I would point out is that our margins have been running a little bit lower already with IXYS coming into the fold. And there is a -- while we've recognized a fair amount of the synergies that we've committed to, there is still that last batch that we said that we've got to work on that's really primarily going to impact gross margin. So, we also expect to see a gross margin uplift over the next 12 months to 24 months as those programs get into place, and we start to see those efficiencies as well.

Analyst
Shawn Harrison

I guess as you ramp here into the first half of the year, it feels as if the leverage off the bottom is less than we would anticipate. Is there something incrementally from a cost perspective that's pushing down profitability be it, some of the cost take out actions or something else that's limiting leverage off the bottom?

Executive
Meenal A. Sethna

I would say, I mean if I just look at the overall company, the other piece I would also talk about is foreign exchange. That's also been a drag, where if I go back to 2018 and '17 where foreign exchange -- we've talked about had been a nice tailwind for us. We saw some better pricing when there were shortages in the market. But now we've got foreign exchange, that's now a headwind for us, a big headwind in '19, but even in '20, going into the year and we've seen pricing come back to more normalized levels across electronics.

Analyst
Shawn Harrison

Okay. And then I guess just a quick follow-up. Dave, in kind of the full year view, would you expect either your distributors or OEM or EMS customers to begin destocking is really the baseline view for