Littelfuse Inc (LFUS) 2010 Q1 法說會逐字稿

Good day, everyone, and welcome to the Littelfuse Incorporated First Quarter 2010 Conference Call.

Today's call is being recorded.

At this time, I'd like to turn the conference over to Chairman, President and Chief Executive Officer, Mr.

Gordon Hunter.

Please go ahead, sir.

Thank you.

Good morning and welcome to the Littelfuse First Quarter 2010 Conference Call.

Joining me today is Phil Franklin, our Vice President of Operation Support and Chief Financial Officer.

The momentum from the fourth quarter of last year continued into the first quarter of 2010 with our results coming in as we indicated in our revised guidance on April 9th.

Our sales and earnings grew at double-digit rates, both sequentially and year-over-year where the improvement was especially significant.

And market demand, particularly in electronics and automotive, exceeded our forecasts in all regions and our Startco business continued to perform at the high end of our expectations.

Geographically, our strongest growth continued to be in Asia, where sales more than doubled from the first quarter of 2009.

This was due to the more robust economic recovery in the region and the increasing consumer demand for automobiles and consumer electronic products, such as flat screen TVs and the latest Smart devices.

Both gross margin and operating margin continued to improve.

We achieved our target-operating margin of 15% in the first quarter, demonstrating the leverage we are getting from our improved cost structure as sales continue to increase.

As you know, we've made significant investments in simplifying our manufacturing footprint and reducing our break-even point over the past few years.

The strategy was to position Littelfuse to resume our growth when the economy picked up and while we aren't quite back to the levels of sales we had before the downturn, we're making very good progress.

I'll now turn the call over to Phil Franklin who will give the Safe Harbor statement and a brief summary of the news release.

Thanks, Gordon.

Before we proceed, let me remind everyone that comments made during this call include forward-looking comments based on the environment as we currently see it and as such, do include various risks and uncertainties.

Please refer to our press release and SEC filings for more information on the specific risk factors that may cause actual results to differ materially from those expressed in forward-looking statements.

Sales for the first quarter were $144.4 million, which was up 13% sequentially and 71% year-over-year.

This strong performance was driven primarily by higher electronics and automotive sales in all geographies and continued strong growth at Startco.

Earnings for the first quarter were $0.69 per share as we continued to benefit from our lower break-even point and increased operating leverage as sales begin to approach pre-downturn levels.

Gross margin for the quarter improved to 36.9% compared to roughly 32% prior to the downturn and operating margin reached 15% for the first time since we set this as a target several years ago.

Cash provided by operating activities was $6.9 million for the first quarter, even after funding of $6 million pension contribution and increased working capital to support the ramp-up in sales.

Even though working capital increase, working capital performance improved compared to the fourth quarter with accounts receivable BSO declining from 61 to 59 and inventory turns improving 6.3 to 6.4.

Capital expenditures were $2.3 million for the first quarter of 2010, which was more than offset by proceeds from asset sales of $4.5 million.

Free cash flow was $9.1 million for the quarter.

The book-to-bill ratio for electronics for the first quarter was 1.3.

We believe that this unusually strong book-to-bill was in part caused by distributors placing orders further into the future than normal to ensure product availability in the current high-demand environment.

Capacity utilization in our factories is averaging approximately 85%, although a few lines are currently capacity-constrained.

We are in the process of adding incremental work cells to those lines that are tight on capacity.

We believe that with modest spending for additional work cells and other minor capacity additions, we can support quarterly sales of approximately $180 million.

Now, I'll turn it back to Gordon for some color on market trends and business performance.

Thanks, Phil.

I'll begin with a report on our three businesses and then provide an update on several other key areas of interest.

Electronic sales were $88.7 million, a 73% increase over the first quarter of 2009 and a 12% sequential increase from the fourth quarter.

The strength was across the board in all product lines and all geographies.

As we experienced in the fourth quarter, the strongest area was end market demand for consumer electronic products, such as LCD TVs, computers, and other digital consumer goods which also drove the increase in Asia sales.

As we indicated in the news release, we believe we have bounced back faster than many of our competitors due to a number of factors, including the significant design wins we've talked about in the last few quarters, our ability to quickly ramp up production in response to the sharp turnaround in some of our end markets, and inventory replenishment in the distribution channel.

Orders and shipments continue to be strong as distributors, contract manufacturers and OEMs respond to increased end market demand.

As we indicated in the press release, some of this activity resulted from customers placing orders further out in response to increasing industry lead times.

The longer lead times are more notably on the semiconductor component side rather than the passive products such as fuses and varistors.

Our lead times are acceptable at this point and I believe it's safe to say that on a broad basis, we are still under the lead time of the competition and in some cases, we've been well under the lead time of our competitors.

After the low point of 2009, responding to a rapid increase in demand is a nice problem to have.

The increase in our first quarter sales reflected the improvement in our markets in general, but beyond that our sales have also benefited from a number of successful new products and design winds.

Last quarter, we talked about a new product category called Silicon Protection Arrays.

These semiconductor products protect sensitive electronic components and chip sets from over-voltage threats such as electrostatic discharge.

A major win for the new Silicon Protection Array product line is the large multi-million dollar opportunity I mentioned last quarter for an LCD TV application for a large manufacturer in this segment.

This win contributed $2.3 million in sales in the first quarter, up from $500,000 in the fourth quarter of last year and is expected to continue at the current rate.

This is due to our successful work in getting qualification on significantly all of the TV models that require this device and the changeover of new models during the past few months.

We're also continuing to gain traction with our Silicon Protection Array of products in other digital consumer applications.

One of these is data port and general purpose ESD protection on set-top boxes produced by several leading manufacturers in this space.

These revenues are starting from a small base, but are continuing to increase and should contribute $0.5 million to electronic sales this year.

And as we referenced last quarter, smart-meters are another growing area for our electronic products.

Two smart-meter wins for our team of metal oxide varistor with two European smart-meter manufacturers are beginning to ramp up.

Together, the annual volume for these customers is about $500,000.

As well as our ceramic technology varistors, we're also selling our semi-conductor TVS Diodes into the smart-meter market.

Sales are continuing to grow with design wins also in meter applications for customers in North America and China.

The development of Apple's exciting new iPad created a great opportunity for our new 3.6 x 10 cartridge fuse.

This product was specifically designed for primary protection applications, such as the iPad's charger.

The 3.6 x 10 cartridge fuse is the first of its type in the market.

Innovative design of this cartridge fuse gives it the smallest form factor for a fuse of this type, making it ideal for products like the iPad charger that have a lot of electronics in a small space.

We also had a nice win for another new product, our SMD ceramic chip fuse or a series of Sony LED TVs.

The new chip fuse is designed for a wide variety of consumer electronics applications that require high operating temperatures.

These products are rated up to 150 degrees centigrade, the highest in the industry.

The sales volumes for the new chip fuse are still relatively small, but they are steadily growing.

As you can see, our investments in new product development are generating design wins and incremental sales.

They are excellent examples of how we partner with customers to develop the technology they need to protect their sensitive electronic products.

This is a key growth driver for Littelfuse and the foundation of our reputation as the leader in circuit protection.

That brings us to our second business unit, automotive, which had $34.8 million in first quarter sales.

This was a 16% increase over the fourth quarter of 2009 and a 88% increase from the first quarter of last year.

Global passenger car production was down 2.2% overall for the same period compared to the fourth quarter of 2009.

There are several reasons why our sales, which were up in all regions outperformed the market as a whole.

In North America, automotive sales were up nearly 9%, while North American car production growth was only 4.4%.

This was mainly driven by additional capacity for the low-profile JCASE product and the ability to begin filling a backlog that resulted from a quick increase in demand for new platform launchers.

In Europe, automotive sales increased 20%, even though overall car production was down 3.2%.

This was driven by the OEM market in France, which was up over 9% and GM Opel, which was up 19%.

These are both areas where we have strong market share and a higher sales content per vehicle through supply of our MasterFuse.

In addition, new business won for our many ATO and MAXI fuses at a new Volkswagen Tier 1 supplier in the fourth quarter began to ship in the first quarter.

This initial order to fill the pipeline had a positive impact in the first quarter.

However, this volume of sales will not extend into the second quarter.

In China, automotive sales were up 39% whereas car production was up less than 1% over the fourth quarter and this was mainly due to distributors placing large additional orders in response to their lower inventory levels and some of our standard product failure in the quarter.

We shipped most of these orders in the first quarter, which we expect to result in lower second quarter sales.

We also experienced a significant increase in sales of products for the export business related to the good growth of GM car production in North America and Europe.

In Korea, automotive sales were up 4% despite a 20% decrease in car production.

This sales increase was driven by a large one-time after-market order.

We also made good progress in Brazil and India where we increased sales through new business wins.

Elsewhere in Asia, we started to supply our MINI fuse for Nissan production in Thailand during the first quarter.

And in Japan, most of our business is also for Nissan.

All of the Nissan vehicles we supply have now launched, so our sales should now start to track Nissan car production.

Sales in the off-road truck and bus segment were up substantially over the fourth quarter of 2009, with sales up 71% in Europe and [17%] in North America.

As in the fourth quarter, inventory replenishment was a key factor at both the supply chain and vehicle inventory levels.

The first quarter was also good for our automotive business in terms of new design wins.

We won and started production of a new MasterFuse for two VW sedan models in China, the VW Bora and the VW Lavida.

Our off-road truck and bus segment also achieved design wins for our flexible electric sender junction box in three segments -- fire truck, recreational vehicle and agricultural equipment.

We are currently ramping up production on the fire truck and RV applications.

Looking ahead to the second quarter, our automotive sales are expected to be lower than the first quarter for several reasons.

Global car production is forecast to be down 5% from the first quarter.

In addition, as mentioned earlier, several customers built additional inventory for new programs in the first quarter, which will reduce their demand in the second quarter unless car production increases beyond current forecasts.

For the full year, the forecast for car production is 11% growth over 2009.

This is a slight increase from previous forecasts merely due to a more optimistic increase in North America car production, which is not estimated to be up 25% over 2009 and that increase in the forecast for Europe and China in the second half of the year.

Since we have good penetration in all three of these markets, this should benefit our global sales as well.

The off-road truck and bus segment is expected to continue its momentum in the second quarter and the future outlook is also positive.

Inventory restocking and a stronger-than-expected global rebound are driving growth in the global construction equipment segment.

An issue effecting near-term demand is the 2010 emission mandates.

SAT Research expects the last of the pre-EPA 2010 heavy drug bills to finish in the second quarter, followed by a drop in demand in the third.

Some industry analysts are very bullish on a North American class truck rebound in 2011, with growth forecasts topping 50%.

Industry analysts are less certain about the off-road truck and bus trends in Europe.

For example, PACCAR is expecting heavy truck sales in central and western Europe to be flat over 2009.

On the other hand, we are seeing pockets of growth in areas such as material handling.

So to summarize, our automotive business continues to improve from the lows of 2009 and we are well positioned in China, which continues to be the world's largest and fastest growing automotive market.

The off-road truck and bus segment, which is targeted growth area for us, is also continuing to improve.

Moving on to the electrical business unit, the first quarter was stronger than expected.

First quarter sales of $20.9 million were up 11% from the fourth quarter of 2009 and 42% from the first quarter of 2009.

Most of the improvement came from our Startco business.

However, the base business was up about 13% over the first quarter of 2009 in spite of the tremendous negative drag of the non-residential construction segment, which represents one of the largest market segments we serve.

The fuse business saw some improvement in the first quarter.

It was partially driven by inventory replenishment orders from the industrial distribution base as many distributors began to replace some of the inventory they'd driven out during a very tough 2009.

This was especially evident among our HVAC distributors.

Sales of our solar fuses and holders into the emerging solar market continue to grow in the first quarter.

We shipped products to a variety of solar combiner box manufacturers in both North America and Europe and are starting to see opportunities for these products in Asia.

One opportunity was with a large manufacturer of solar string combiner boxes in China that serves only the domestic China market.

Annual revenues from this win are expect to exceed several hundred thousand dollars.

We anticipate this demand will increase significantly in the coming years as part of the current Chinese national plan to greatly expand utility scale solar photovoltaic systems.

We also had a rather large shipment of solar products to a European company that has formed a partnership with us to supply replacement fuses to the solar industry in Europe.

Another area that contributed to the first quarter sales increase was orders from several manufacturers that purchased metal oxide varistors from us for over-voltage protection on LED lighting.

While the non-residential construction market is slow overall, a bright spot was a large order we received for fuse products that will be used in a new Volkswagen plant that is being built in Tennessee.

Industrial activity is showing signs of picking up.

The industrial production index improved from the fourth quarter of 2009 and was up about 2.6% for the first quarter.

This was a welcome change from the negative trend we saw every quarter last year.

However, non-residential construction contracts continue to be at a historic low.

Year-to-date through February, non-residential contracts dropped an additional 17% over the very weak numbers of last year.

The March data is not yet available, but should do little to pull the numbers up.

The National Electric Manufacturers Association indicates that there will be no improvement in the non-residential and commercial construction market throughout 2010.

The organization is confirming that we are seeing improvement in the industrial segment this year.

However, industrial production may slow in the second half of the year while still showing growth over the 2009 numbers.

The core electrical business had a number of significant wins during the first quarter.

We secured an interesting new customer for our new line of POWR-GARD Protection Relays.

This Chinese customer builds an innovative touch-based directory system for the blind that is being introduced at this year's Shanghai Expo.

While the volumes for this opportunity are modest, the expansion of our Protection Relay product into new markets is very encouraging.

We also received our first orders for a new application at a train manufacturer in North America.

Our fuses were incorporated into a new and more energy-efficient power system that's expected to be used in several new projects.

While we expect most of the revenue to appear in 2010, we do expect to see continuing growth from this account in the future.

The core fuse business is one side of our electrical business.

The other is Littelfuse Startco.

And as I mentioned earlier, Startco is performing very well with first quarter 2010 sales up 80% from the first quarter of last year.

The increase in Startco sales was driven by three factors -- increased production at our next expanded facility in Saskatoon, Canada, increased demand in the mining industry, and currency.

Looking at the mining industry, there was a rebound in potash demand this year.

After 18 months of substantially reduced fertilizer consumption, farmers began to resume using agricultural fertilizers to replenish soil nutrients and sustain crop production, driving down inventories at the distribution level.

In addition, the mining sector in general has been experiencing some rebound leading to increased orders for capital equipment that use Startco protection relays.

Stronger-than-expected demand from the US semiconductor equipment manufacturing sector also helped drive sales of protection relays in the first quarter.

In our custom products group, we still have a significant backlog of power equipment for underground mining.

We're continuing to add production resources and to review cycle times at the new Saskatoon facility.

Our strategy for Startco is to continue to expand the production capacity of the custom products group to meet existing and new demand and to leverage our existing sales and distribution channels across the globe to increase sales of protection relays.

So in summary, while the core electrical business is coming back slower than the other two businesses, we continue to be very pleased with Startco's performance and the strong platform for growth it brings to our electrical business.

That completes my review of the three business units and now, I'd like to update you on a few other items.

As our performance for the past three quarter indicates, the extensive manufacturing simplification project and cost-cutting initiatives we implemented several years ago are producing results.

The majority of the manufacturing plant consolidations have been completed.

The three remaining projects are the transfer of automotive manufacturing from Dunsen, Germany to Mexico, the consolidation of global customer service activities into the Philippines and the consolidation of our wave for fabrication from Taiwan into our new facility in Wuxi, China.

The Dunsen Project has been slightly delayed due to the higher-than-expected demand for the products made in Dunsen, but both this project and the Philippines transfers will be completed by the end of this year.

The Taiwan transfer to Wuxi is on track for the second quarter of next year and the Wuxi facility is already producing the majority of our semi-conductor products and the increased capacity was critical in enabling us to meet customer expectations and our end markets quickly rebounded.

The significant investments we made in this program as well as the expansion of Lean across the company puts us in a strong position to resume our growth as the global economy recovers.

We've targeted a number of markets for expansion, including solar energy, LED lighting, smart grid, digital consumer products and the mining industry that we ended through Startco.

And as you heard in my report today, we're making very good progress in expanding sales into all of these targeted markets.

Another growth driver for Littelfuse is our ongoing investment in new products and product development.

Throughout the downturn, we did not let up on developing the products of the future and as a result, we continue to introduce innovative new product for the market, including the 3.6 x 10 cartridge fuse, the SMD ceramic chip fuse, the Silicon Protection Array line of new -- of protection relays that I discussed today.

These new products and our success in winning new design in programs in all three of our businesses are a result of our extensive circuit protection expertise and our ability to partner with customers to provide the solutions they need for their new products.

We've also been investing in strengthening our relationships with our distribution partners through new training programs, enhanced communications and greater sharing of information.

Our distributor relationships are stronger than ever and provide a good platform for further growth.

In summary, the first quarter gives us a good start to 2010.

Our revenues are approaching the level that they were before the downturn and our profitability has improved significantly.

While much has been accomplished, there's still work to do.

Our markets have not yet fully recovered and we must maintain the levels of cost control we worked very hard to achieve over the past few years.

We are seeing some headwinds from increasing commodity prices and exchange rates and while we can't control these factors, we are selectively increasing prices where we think it is appropriate and where the pricing environment has improved.

I'll now turn the call back over to Phil who will comment on the outlook for the second quarter we provided in the news release and then, we'll open the call for questions.

Thanks, Gordon.

The following is our guidance for the second quarter along some with some additional comments about the remainder of the year.

Sales for the second quarter of 2010 are expected to be in the range of $148 million to $153 million, which represents 2% to 6% sequential growth.

Operating expenses are expected to continue at similar levels to the first quarter before trending down in the second half of the year.

Operating margin for the second quarter is expected to be similar to the first quarter before trending up in the second half of the year.

Earnings for the second quarter of 2010 are expected to be in the range of $0.69 to $0.77 per diluted share, assuming a tax rate of 29%.

Cost savings from the closures of manufacturing facilities in Irving, Texas, Matamoros, Mexico and Dunsen, Germany will be in excess of $15 million on an annual run-rate basis and will begin to show up in the third quarter of this year.

Cost-savings from the closure of the Yangmei, Taiwan manufacturing facility will be in excess of $2 million and will begin to show up in the first quarter of 2011.

Capital spending is expected to increase over the next several quarters as we add incremental capacity to certain lines.

Capital spending for 2010 is now expected to be approximately $20 million, up from previous guidance of $16 million to $19 million.

This concludes our prepared remarks.

Now, we'd like to open it up for questions.

Thank you.

The question-and-answer session will be conducted electronically.

(Operator Instructions).

We'll take our first question from Reik Read with Robert Baird and Company.

Hi, good morning.

Morning.

Just on the I guess the distributor question first.

It still sounds like they are preparing for increased demand and are placing future orders.

Is that going at a relatively consistent rate or are you starting to see those patterns start to look more where sell-in equals sell-out?

You know we think it's been fairly consistent.

They have really provided us very strong POS data and really the end markets have continued to be very strong for them.

So, I think we've seen continuing momentum in almost all geographies in the end market demand, so the POS demands on the distribution channels.

And you know we've I think felt that inventory levels have been very appropriate for the level of business that we have, so that's been one of the key questions that we've really been monitoring.

And Reik, while book-to-bills have come down a little bit in the month of April, they're still significantly above one.

Sure.

And do you guys expect that they will -- are they just trying to maintain their inventory levels with that good demand, Gordon, or are they still building?

I think there's been certainly replenishment, but I think we now feel that they're at the appropriate levels now, but there certainly has been from a very low level of inventory.

Too low for the increased end market demand, there has been inventory replenishment.

But our channel checks really believe that they're at the appropriate levels now.

We're very comfortable with that.

So, is it fair to say as we look into the next couple of quarters that they will try to maintain that level and the POS sell-out that you're talking about will probably be relatively equal to what you sell in to the channels?

That's what we'd expect, yes.

Okay.

And then, just -- if you guys could go over again the transfers.

It sounds like the -- all the [techor] transfers are still unplanned but Dunsen is the one that's delayed?

Not significantly delayed, but I think some of the ramp-in demand that we saw forced us to push that out a little bit.

I think we -- but we still are expecting that to be substantially completed in the second quarter with benefits showing up in the third quarter, which is not far behind what our original plan was.

Okay.

So, you will see the benefits, it's just a little bit more elongated is what you're suggesting.

The benefits are still going to be the same as we originally anticipated and it's probably only a couple months behind the original schedule.

And is there any change -- when you talk about the $15 million, Phil, is there any change in terms of how much will really be realized and I guess what I'm getting at is there's always factors out there whether it's commodity pricing or your own pricing or other things that tend to absorb those.

Has anything changed there?

So, the real question is are there negative factors that will eat into some of those savings?

And I guess the -- I mean the two things that we would -- well, there are a few things we'd look at; exchange rates, what's happened there, commodities, what's happened there and our own pricing, what's happened there.

I think generally speaking and Gordon eluded to this, our own pricing is probably if anything more favorable than normal, as you would expect in this kind of an environment where mentioned that we're seeing selective opportunities to actual put prices up.

In many cases we're able to hold the line better than we would under normal circumstances where lead times were more normal and there weren't any shortages in the market.

So, all this strong demand and pushing out of lead times has obviously helped us from a pricing perspective.

So if anything, I think the pricing is more favorable than what we would have expected when we started talking about these savings and the benefits to us.

Commodities, it depends on the week really.

The -- a month ago, or even two or three weeks ago, we would have said commodities are ramping up faster than we thought and they're eating into some of the savings and some of our margin improvements.

But over the last two weeks, zinc prices have dropped by 15%, 20% and copper's probably down over 10%.

So, we've gotten some favorable impact there.

The one thing that has moved against us significantly has been the euro and you know that will have a negative impact with the weakness of the euro down into the 120s.

The expectation going into this was more kind of a 1.35, 1.40 euro and that will be a drag.

So, I think there's some puts and takes in some of these macro exogenous trends that are outside of our control, but I'd say net-net they're probably fairly neutral or close to what we would have expected when we factor them all together.

Okay and then just on the transition costs, you'd previously said that those would likely peak in the first quarter.

Has that been the case and what would the slope of the curve look like as we go through the year?

Yes, so the transition costs I think we said they'd peak in the first quarter.

They'd still be significant in the second quarter.

That's still a true statement.

The one thing that has happened that is partly related to the transition, it's more related to the ramp-up in demand as we indicated in our press release, we did have higher operating expenses due to freight and distribution costs going up due to a lot of premium freight and higher logistics cost because -- trying to make sure that we didn't disappoint customers where we were -- we got caught short on a few lines on capacity.

That is continuing as we indicated into the second quarter and will be a negative impact on Q2, not relative to Q1 but relative to our original expectations.

Everything else is pretty much on track and even those freight and logistic costs we would expect to come down significantly as we get towards the end of the second quarter.

Okay.

Thank you guys for the comments.

Yes.

We'll go next to John Franzreb with Sidoti & Company.

Good morning, guys.

Could we just go back to the where you're tight on capacity.

Could you provide a little color on what product lines you're tight on?

And Gordon, did I hear you correctly in saying that you're going to be -- the amount of capacity you're adding is going to take you to about a $180 million quarterly run rate?

Yes, a couple things, John, yes.

As we look at kind of our overall capacity that we talked about the space that we built in our factories.

We talked about the systems that we put in there to support higher volumes than what we had in our previous manufacturing footprint, even though we have fewer numbers of plants.

Those are all true statements.

And the comment about $180 million is that we think that $180 million a quarter is where we can get too.

It's going to require some incremental investments in work cells and other capacities -- it's minor capacity related things that's in the millions of dollars, not in the tens of millions of dollars to get up to that level, but we're adding those capacity additions in and within the context of the spending plan we just articulated we can -- we believe we can get to something in the $180 million a quarter level.

So fundamentally we have about 20% more capacity then what we're producing and selling at right now.

But within that, we do have as the demand has ramped up quickly we've had some constraints on certain lines and it's been primarily in the automotive part of our business.

Not across the board, but on specific lines where demand ramped up unusually fast and surprisingly fast in a few areas we got caught short and we're in the process of addressing those areas and should have those aligned by the time we get into the third quarter.

But you know, it has caused us some short-term pain.

Now is there any concerns that the auto dealers have essentially restocked to a comfort level and you might be adding -- I hate to say it, but a little late?

I don't think so.

I think that you know there was certainly a very lower level of inventory everywhere and I think the -- a lot of what we saw in the first quarter was really replenishment.

I mean particularly I think in China distribution channels it got low and you know they're really trying to supply the local Chinese manufacturers.

We saw after market in some places where there was a replenishment in the channel.

So, I think we just -- we saw a tremendous growth in the first quarter, more than expected, a lot of which was replenishment.

Okay, and in the pricing environment.

Is some of the ability to push through pricing.

Is it better in some markets versus others?

Can you kind of give us some granularity there?

Yes, certainly it's better in some markets, in some geographies and it's better with some product lines and it often sort of really depends on the availability and the competitive environment.

Some of semiconductor products our competition has clearly got much longer lead times than we have and so we're in a very strong position to supply in a lot of places and there are really you know I'd say a lot of examples where our competition is just unable to supply, particularly I think in some of the smaller accounts.

And we're able to get back to very favorable pricing.

Okay.

And I don't know if you have this data, but I thought it was kind of -- might be an interesting question considering, Gordon, some of your comments.

Do you have a sense of how much of your revenues is based on new product wins or new design wins?

What sort of percent of sales that kind of represents?

Yes, absolutely.

We track that intensely inside the company.

We have metrics to track that and definitions of what constitutes a new product and new design wins and it varies across, of course, across the company.

You know in some of our more mature business like our electrical fuses, although we've in the last few years seen that ramping up, but that's been significantly less than 10%.

But up into our automotive business it's a high teen's number that we're seeing.

And in some of our electronics areas it's well into the 20's.

so it really depends, but it's certainly something that we track intensively.

And as you'd expect in the fast-changing electronics area in our silicone products, you'd expect to see that be a higher percent there.

I think the important here is, John, that it's you know the trend in every case is on the upside in all three of our businesses.

We're seeing a higher percentage of revenue from new products than we did at any time in the last three, four, five years.

I guess that kind of helps in context of you know -- even versus normalized times, your design wins are just doing substantially better.

Absolutely.

Okay, good.

Thanks a lot, guys.

Thanks, John.

(Operator Instructions)

We'll take our next question from Shawn Harrison with Longbow Research.

Hi, good morning.

Morning.

Morning, Shawn.

First question with the electronics business and the book-to-bill of -- or of at least 1.3, does that mean the quarter is essentially fully booked now for you or is there potential for upside to demand?

No, it's not fully booked.

I mean a typical quarter we would have -- it depends on the business.

But like our electronic fuse business, we would get up to 50% of our revenue from stuff that books during the quarter.

And of that 1.3, as we indicated in our press release, more of that is out further than it would typically would be as well.

So, we have a bigger backlog out in Q3 than we would normally expect to have this time in the quarter.

Okay.

Second, going back to your earlier point on the Euro.

What -- I guess what conversion number do you have assumed in the guidance right now, conversion ratio?

In terms of the Euro to dollar.

I think we probably -- it's something, it would be something in the 130's, certainly not something in the 120's.

Okay.

I guess the point is if it stays down in the 120's there's probably going to be some pressure on both sales and profitability but I guess that -- we'll wait and see how the dollar shapes up here.

Yes, yes.

No, that's a fair statement.

I think you have to look at the whole picture though.

While that would clearly be an accurate statement, at the same time we talked about commodities we've seen significant at the same time that we've seen the Euro collapse, we've seen significant declines in both zinc and copper and some other commodities as well that would be some offset to that.

But clearly, a Euro in the 120's would ultimately not be good for us.

And you should still benefit from the Canadian dollar, if it's appreciating?

Right.

We've got some benefit from the Canadian dollar, at least in the last few weeks some of our short currencies like Mexican peso and Philippine peso have weakened against the dollar, so that's good for us.

So there are some offsetting things, but the Euro is our biggest exposure and it's something we watch carefully.

And then I'd like to get in a discussion around if you're at that new level of maximum capacity, $180 million in quarterly sales, where do you think EBIT margins could go, because running the mat that suggests you could potentially do EBIT margins north of 20% for a cycle.

I just wanted to kind of get into a discussion of where you think margins are maybe at the midpoint of the cycle toward the upper end of the cycle and where you bottom out now as well because it looks like maybe that's in the low double digits.

Yes, I mean certainly you could model -- from where we are now you could model $180 million and come to something in the 20's, there's no question about that, but we're not going to speculate on that or sign up for that.

But what we have said in the past and we'll say again is our target really, this 15% EBIT margin target that we put other there is really to average 15% through the cycle.

So again, not knowing exactly where we are in the cycle now, but it seems as things are ramping up as they clearly are now we'd have to overachieve the 15% on the upside and presumably get to something ultimately up in at least the higher teens kind of numbers so that we could average through the cycle.

We know when things go down that it's going to go down below 15% even with our current cost structure.

And I think what we've also said and still believe is that even on the downside as we model in kind of a typical 20% to 25% cyclical downturn, we believe we can still maintain double-digit EBIT margins even in that kind of a downturn with the cost structure as it will be by the end of this year.

Okay.

And then I guess a two-part question on cash flow.

What will be the cash restructuring cost for the next, I guess the second quarter and the second half of 2010?

And then the other question has to go with cash usage.

Is the acquisition environment getting any better in terms of just what companies are looking for in evaluation or getting companies potentially looking to sell now?

Well, the first question, the restructuring charge.

You're just looking at it from a cash perspective?

Solely from a cash perspective.

Yes, so I don't know what the exact number is but it's probably in the neighborhood of $5 million or $6 million I would guess of expenses that we have accrued where cash would go out in the back half of this year.

Okay.

And then just the acquisition environment?

I'm not sure that we've seen dramatic change, Shawn.

We continue to monitor companies.

We've said several times that you know we are constantly looking for the right fit.

We've cited Startco as an example that we maybe even when the markets were starting to really collapse in September 2008 and it's turned out to be a really great addition.

We're very pleased with that acquisition and we're constantly looking for companies and something like that would be a good example.

And it's a question of when they're available.

I don't think we've seen dramatic changes in either availability or in you know in pricing.

Okay, thank you very much.

Welcome.

(Operator Instructions)

We'll take our next question from Matt Sheerin with Thomas Weisel.

Yes, hi, and good morning.

Just a quick question on your comments on automotive and your expectations for softer quarter after obviously a very strong quarter, three or four in a row.

Is this sort of a normal seasonality, Gordon, or is hard to tell what seasonality is given what's happened in the last year?

And is it just orders that are coming off or are you seeing any cancellations due to the fact that perhaps the auto guys built a little bit too much inventory?

I don't think there was too much, but just a very strong rebound.

I mean we certainly would have normal seasonality in production.

It's forecast to be down 5% in the second quarter.

But I think that the first quarter saw really quite a big replenishment in a lot of the channels and as we I think as we see Asia and the emerging markets having larger part of the automotive production it's a little bit different, I think the structure compared to the US where there's been a very efficient supply chain, a pull system of a very quick delivery to the automotive plants.

I think in China there's a little bit more of an inventory buildup and there was a replenishment of that in the first quarter that we saw.

And that area is like the aftermarket we saw a very big bounce back and we cited the off-road truck and bus segment that just got absolutely decimated in 2009.

And certain segments of that are really starting to come back strongly like construction equipment, agricultural equipment.

So, I think the way to look at it, Matt, is the first quarter for the reasons Gordon mentioned was unusually strong and stronger than we would have expected it to be.

It's not so much that the second quarter is going to be dramatically worse than we would have thought going into the year, it's just that we had this big blip-up in the first quarter and we're not going to see that repeat in the second quarter.

Got you.

Okay, that's helpful.

Thanks a lot.

Thanks.

And with no further questions, I'd like to turn the conference back over to Gordon Hunter for any closing or additional remarks.

Well, thank you for joining us on our call this morning.

We made very good progress in the first quarter and we look forward to talking with you again next quarter.

And as always, we appreciate your interest in Littelfuse.

Have a good day.

That does conclude today's conference.

We thank you for your participation.