Littelfuse Inc (LFUS) 0 Q0 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Littelfuse, Inc.

fourth quarter 2011 conference call.

Today's call is being recorded.

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

Gordon Hunter.

Please go ahead, sir.

Thank you and good morning and welcome to the Littelfuse fourth quarter 2011 conference call.

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

As you saw in the news release, our fourth quarter sales and earnings came in above the middle of the range we stated on our last call.

These increases were driven by our Automotive and Electrical businesses, which performed very well.

However, as we anticipated, the fourth quarter was challenging for the Electronics business due to the inventory correction in the distribution channel as reflected in the 16% decline in Electronic sales for the quarter.

In spite of the soft fourth quarter, the full year 2011 was another excellent year for Littelfuse.

Sales, earnings, and cash flow all set new records for the second consecutive year.

A number of factors contributed to the record performance.

Our operating structure continues to provide greater efficiency at a lower cost.

We saw increased sales of existing products, and also introduced a number of innovative new products that leverage our expertise and provide solutions for our customer's circuit protection, safety, and electrical challenges.

And we made two strategic acquisitions that expand our automotive and electrical capabilities and provide additional opportunities for future growth.

I'm going to cover both the fourth quarter and the full year in more detail in a few minutes, but first I'll turn the call over to Phil Franklin who will give the Safe Harbor statement and a brief summary of the news release.

Thank you, Gordon, and good morning, everyone.

Before we proceed, let me remind everyone that comments made during this call include forward-looking statements 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 fourth quarter of 2011 were $147 million, which was up 3% year-over-year due to continued organic growth in the Electrical and Automotive businesses, acquisitions of Cole Hersee and Selco partially offset by lower Electronics sales.

Fourth-quarter sales including Cole Hersee, and Selco declined 6% year-over-year.

GAAP earnings for the fourth quarter were $0.70 per diluted share, down from $0.88 in the fourth quarter of 2010.

The decline in earnings reflects lower sales and production volumes in the base business coupled with higher commodity prices.

Non-GAAP earnings of $0.67 per share were consistent with our guidance of $0.60 to $0.70.

We had another strong cash flow performance in the fourth quarter with cash from operating activities coming at $36.8 million.

For the full year, as Gordon said, we set records for all key financial metrics.

Sales of $665 million were up 9% year-over-year.

This strong organic growth in the Electrical and Automotive businesses and the addition of Cole Hersee, and Selco more than offset a 5% decline in the Electronics business.

Full year GAAP earnings of $3.90 were up 11% from the prior year.

Cash from operating activities of $121 million was up 15% year-over-year, and for the first time free cash flow exceeded $100 million.

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

Thanks, Phil.

Now let's move on to the review of our three business units, starting with Automotive.

This business contributed approximately 30% of total Littelfuse sales in 2011.

This was a record year for our Automotive business, the second in a row, in fact.

2011 sales of $197.6 million increased 42% over 2010 sales.

Excluding Cole Hersee, which we acquired in December 2010, the strong 2011 performance put us about 8% above last year's record sales of $139.1 million.

Fourth quarter Automotive sales of $45.6 million were up 37% year-over-year.

Excluding Cole Hersee, Automotive sales were up more than 4% over last year's fourth quarter.

The continuing increases in demand in both Asia and the United States were the primary drivers behind the fourth quarter sales increases.

The fourth quarter Automotive sales were down about 4% from the third quarter and this is typical for this business as car production slows down over the Christmas vacation periods and new models are in the ramp-up phase.

Our strongest geographic area was China, where we achieved a double-digit increase in fourth-quarter sales compared to both the third quarter of 2011 and the fourth quarter of last year.

This was mainly driven by increased car production in preparation for strong September to December car sales that typically occur before the Chinese New Year.

During the fourth quarter we focused on strengthening strategic partnerships with our leading tier one customers in the hybrid electric vehicle market.

Last quarter we presented our high-performing fuse for the HEV market that now delivered samples to all of our major partners involved in green car initiatives.

The feedback from them and OEMs on our technology approach and solution has been very positive.

We're now in the system test phase, as specifications in this relatively new segment are changing fast and there is currently no global standard.

This new product line is an excellent example of our industry leading circuit protection expertise that puts us in a very good position to take a leadership role in the future of the electrical vehicle segment.

Building on our success at signing long-term agreements, we won another multi-year contract with a well-established tier one supplier in the fourth quarter.

This win was for our bolt-down high current fuses, which will be used in the PSA Peugeot Citroen platform that launches in 2013.

We also won new business with a major supplier of lithium ion batteries out of South Korea for a French OEM that will launch its electric car this year.

What's interesting about this application is that each battery cell censor line will be protected by a very small, high-voltage fuse, which is placed in the battery pack.

We signed a new strategic agreement with one of the top five local harness manufacturers in China.

This company has been primarily using our competitors' products, so this is a nice incremental new business for us.

We expect to see sales from this agreement beginning in the second half of the year.

Looking ahead, global car production for the first quarter of 2012 is forecasted to be flat compared to the first quarter of 2011 where we had double-digit growth.

Inventory levels have reached the target level and most OEMs are cautious about increases much beyond that.

For the full year, LMC, which recently bought JD Power & Associates, has reduced its estimate of global car production growth to 5.3%, which would be approximately 80 million vehicles.

This is down from their 7.4% estimate at the end of the third quarter.

Last week JD Power announced that the market outlook of 80 million vehicles in 2012 is expected to increase to 100 million vehicles by 2015.

Although the Japanese car manufactures, with whom we don't have a lot of business, will be a significant part of the recovery and growth in 2012, we expect the majority of our growth to come from the local Chinese and US OEMs.

Europe, at the moment, is forecasted to have negative 3% growth.

With our new products, new business wins, and strong customer relationships, we believe we will continue to outperform the market.

Moving on to our commercial vehicle products, the major end markets for this business in North America were relatively flat for the fourth quarter compared to the third quarter.

North American construction equipment was up about 3% from the third quarter to the fourth.

Agriculture and farm equipment production was flat for the fourth quarter compared to the third and down about 5% from the fourth quarter of 2010.

The heavy truck market in North America was the bright spot, finishing up a very significant 58% for the year.

Littelfuse commercial vehicle product sales were down about 8% in the fourth quarter compared to the third.

This is historically a normal trend for North America with fewer shipping days due to the Thanksgiving holiday as well as the shutdown for the last week of December.

And in addition, our heavy duty aftermarket customers typically purchase fewer products in the fourth quarter and that was again the case this year.

For the full year our CVP business saw solid growth compared to 2010.

The acquired Cole Hersee business and the Littelfuse off-road truck and bus business both saw sales increases between 5% and 6% for the year.

Our largest customer in the CVP segment is Caterpillar, which outperformed the market in 2011.

Our sales to Caterpillar are up 25% in 2011 compared to 2010.

The integration of Cole Hersee into Littelfuse continues to go very well.

Delivery performance has steadily improved throughout the year, and we also improved our lead times and inventory position.

These improvements contributed to increases in both sales and profitability that were ahead of our plan for the year.

The next step in the process is converting Cole Hersee to the Littelfuse SAP system, which is already underway.

You may recall our discussion last quarter about a new business win for a Cole Hersee master disconnect switch with Sany in China for a new excavator program.

During the fourth quarter, this application extended to other vehicle programs at Sany beginning with the new concrete pump vehicle.

Sany is a very strategic customer for us.

With annual revenues of approximately $8 billion, Sany is the largest construction equipment manufacturer in China and the seventh largest worldwide.

Its product line includes excavators, concrete pump trucks, crawlers, cranes, and motor graders.

Sany has two manufacturing facilities in Asia and recently opened two new production facilities, one in Germany, and one in North America in the Atlanta area, and the company has about 70,000 employees worldwide.

Another fourth quarter win was new design-in business for a high-current pre-fuse box with Leyland Trucks in Europe.

This program will start production in 2013 and should contribute over $300,000 in annual sales once peak production ramps up.

We also achieved our first CAN protocol multiplex module design win with a major North American agricultural equipment manufacturer.

Production is scheduled for 2014.

If you aren't familiar with CAN, it is an automotive communication protocol that enables electronic control modules supplied by different manufacturers to communicate and function together inside a vehicle.

Looking at our plans for 2012, we anticipate that our commercial vehicle product sales will be up about 7% in 2012 over 2011 with strong growth in both North America and China.

We plan to further penetrate the China construction equipment market by adding Cole Hersee products to our inventory and our distribution centers that support the local market.

In North America, we'll see increased sales from the ramp up of design wins for Flexible Electrical Center and FlexMod modules that we won earlier in 2011.

Flex Mod is a new Cole Hersee electronic programmable switch module that was launched in 2011 and is starting to gain momentum.

During the year we won several small new programs at fleet customers as well as at some OEMs, where FlexMod is managing a variety of timed or conditional switched applications.

In conclusion, our Automotive business is very healthy and is strong in all geographies.

The addition of Cole Hersee provides a solid platform for growing the commercial vehicle products business.

Our core Automotive business continues to develop exciting new products and to benefit from well-established customer relationships across the globe.

As a result of all these factors, our Automotive business unit is on track for continued growth.

Now let's move on to the Electrical business unit, which accounted for 17% of total Littelfuse sales in 2011.

Fourth quarter Electrical sales were $29.1 million, a 27% increase from the fourth quarter of 2010.

For the full year, Electrical sales were $112.9 million, an 18% increase from the prior year.

Excluding Selco, the Danish protection relay and engine control products company we acquired in August, Electrical sales were up 17% for the fourth quarter and 15% for the year.

Sales of protection relays and custom electrical products continued to drive the overall increase in Electrical sales.

Although, we are encouraged by the improvement we saw in our base fuse business in the fourth quarter, sales for the electrical fuse business were up 11% in the fourth quarter and 2% for the full year.

The slowdown in the solar market impacted our fuse sales for most of the year primarily in Europe.

Several very large European solar OEMs simply stopped buying products because of the glut of inventory in the pipeline.

And after being down for three consecutive quarters, we are pleased to see the uptick in solar-related activity in the fourth quarter.

We're optimistic that this trend will continue in 2012, and we'll see a good recovery in our solar products business.

Several factors support this.

Excess inventory is being reduced, which should result in a more typical demand pattern going forward.

And in addition, we expect to benefit from the growth of the solar market overall and an increase in our market share resulting from the new products we introduced in 2011.

One of these new products is our series of high efficiency 1000-volt string and array fuses, which have outperformed the competition in many comparisons being conducted by industry leading inverter manufacturers.

This is getting us preferred supply of status on many new designs that will drive our growth in the solar market in 2012.

Another example of the growing momentum for the new fuse array line is a win with a long-standing customer of ours that started a new product design for a solar central inverter.

We met their very aggressive release-to-market schedule, generating sales of about $140,000 in December alone.

Our fourth quarter fuse sales also benefited from the continued overall strength of the industrial market.

We saw a strong demand with both our industrial MRO and OEM customers in sectors including irrigation and lighting.

This strength helped to compensate for the commercial construction side of our business, which remains at historic lows.

However, indications are that there may be a slight improvement in the construction market in 2012, which would be welcome news as this market has historically represented a significant amount of our demand in the US.

With the new products, continued growth in the industrial market and a rebound in solar products, we anticipate an even better year for the base fuse business in 2012.

Our Electrical business also includes protection relays and custom electrical products.

Sales of these product lines increased 46% in the fourth quarter, and were up 41% for the full year compared to the same periods in 2010.

The increases reflect our continued focus on growth markets, particularly Canada's mining industry, and other key international markets.

Mining is the primary end market for both product lines.

The domestic and international mining industries remain strong in the fourth quarter, driven by the rising cost of precious metals.

The outlook for mining and emerging markets remains robust.

Some of our largest customers are the Canadian potash mining companies.

The global demand for potash remains strong.

This is due in part to rising prices for crops that are heavy users of potash fertilizer such as grains, oil seeds, and other commodities.

Metal prices are also expected to stay strong in 2012, and this positive trend will support the continued investment in electrical equipment, therefore, creating demand for our products.

One region that is expected to grow substantial is Latin America where the mining project portfolio is expected to require an investment of over $200 billion over the next 10 years.

The region also remains the top destination for exploration spending for gold and other metals.

We expect to see continued growth from this region as well as from other international markets where we've invested in building a presence over the past year including Asia and Europe.

We also expect to see continued growth in our protection relays in the North American industrial base, as customers begin to adopt our new Arc-Flash protection relay that we introduced in the second quarter.

We're also receiving a very positive response in other geographic regions.

A recent example is a large global mining company which ordered Arc-Flash protection relays for one of their mines in Ecuador.

This was the first order for our new Arc-Flash relay from this company and our first sale to Ecuador, a country with several large projects in the early planning stages.

We had several other good wins for our relay products during the fourth quarter.

In the US, a leading coal mine installed our newest ground fault relays for one of its underground coal mines.

The customer is very pleased with the product and will be specifying it for an additional 17 underground substations.

We're helping a larger mine in the southwestern part of the US that was forced by the Mine, Safety, and Health Administration to improve protection on their equipment.

The mining company purchased a number of our ground fault relays in the fourth quarter, and we expect additional sales in 2012.

Several other mines in the area are also experiencing the same regional push from the MSHA and have already began talking with us.

Outside of the mining area, we won new business with a world-class generator manufacturer that includes our ground fault protection on units for select applications and environments.

As we look ahead, our Electrical business is positioned for growth in all three product areas.

The base fuse business will be driven by the industrial segment and the anticipated improvement in the solar segment, while our protection relays and custom electrical products will benefit from the continued growth of the mining industry, expansion into international markets, and increased sales of the new Arc-Flash relay.

Part of the recent success or our both Electronic, Automotive and Electrical businesses is strategic acquisitions that provide a platform for future growth.

On the Automotive side, the acquisition of Cole Hersee gives us a strong foothold in the commercial vehicle products business.

And in the Electrical business, the acquisition of Startco three years ago enabled us to enter the highly successful customer electrical products and protection relay markets, and we further expanded this product line with the Selco acquisition this year.

The acquisitions, combined with our ongoing investments in new product development, provide many opportunities for further growth for both of these businesses.

Now let's focus on the other half of our total sales, the Electronics business.

In our call last quarter, we said we were anticipating a sequential decrease in sales from the third quarter of about 25%, primarily due to inventory reductions in the distribution channel along with the normal seasonal decline.

Our estimates were on target.

Fourth quarter Electronic sales were $72.5 million, a decline of 25% sequentially from the third quarter and a decline of 16% year-over-year.

Our channel inventories were down significantly at the end of the fourth quarter, resulting from a pullback by channel partners when the market conditions softened.

So while sales from our channels to end customers were down 15%, the amount of our product our distribution channel partners purchase from Littelfuse was down 25%, therefore reducing inventories at the distribution level.

For the full year, Electronic sales of $354.5 million were down 5% from 2010, which was a very strong year that was enhanced by channel inventory replenishment.

Business conditions stayed very positive during the first half of the year and started softening in the August timeframe.

Clearly, concerns about the European region, as well as slowing in emerging regions like China, had an impact on the global economy.

With a significant reduction in channel inventories in the fourth quarter, we believe the worst of the inventory correction is behind us, and inventories will likely reach equilibrium during the first quarter.

Orders have already begun to improve, which makes us optimistic that sales will begin to increase in the latter part of the first quarter, consistent with the normal seasonal pattern.

Looking at some of the key Electronics markets, global personal computer sales were down about 1.4% in the fourth quarter, driven by saturation in the mature markets as well as supply chain disruptions for hard disk drives due to the flooding in Thailand.

Part of this decline is also as a result of the netbook market losing ground to the popular tablets and eReaders.

Netbook sales were about 12% of total PC sales in 2011.

PC companies are now trying to recover ground with their new ultrabooks.

We've talked about the growing ultrabook category before, but to summarize, these devices are thinner, lighter, faster, and more portable than traditional laptops.

Ultrabooks also have more features than the lower priced netbooks.

Like the rest of the PC business, the primary design work for ultrabooks is performed in Taiwan by the same OEMs and ODMs who are the main laptop manufacturers.

The Littelfuse team in Taiwan has good penetration into these accounts, and we have a number of design wins for both fuses and TVS diodes, at companies including Wistron, Quanta, and Compal.

So as shipments move from laptops and netbooks to ultrabooks, we are well-positioned to capture the business.

We've talked on several prior calls about the fast-paced growth of the tablet and eReader markets worldwide.

A recent report from Pew Research indicated that the percentage of adults in the US who own a tablet or eReader grew from 10% to 19% following the holiday season.

Similar demand exists in other global markets.

We have well-established relationships with many of the leading companies in the tablet and eReader market, including Apple and Samsung.

We have a variety of products in these devices providing over current protection in charges, battery packs, and internal inverter circuits, as well as ESD protection for the ports and systems.

Our sales into this market were approximately $3.5 million in 2011.

We also had a number of good design wins during the year that should add another $6 million of revenue in 2012.

TV sales were sluggish throughout 2011 as the conversion to flat screen, LCD, and plasma sets slowed in mature markets such as North America and Europe.

However, the sharp drop in prices on larger size TVs, greater than 40 inches, is expected to invigorate the market.

DisplaySearch is estimating a 5% to 8% increase in TV unit volume growth in 2012.

And while there will be a shift from the sales of smaller size TVs to larger sizes, we still expect to benefit from this market growth.

Once again, Littelfuse is well-positioned, providing circuit protection solutions to the leading companies such as Samsung, LG, Panasonic, and Sony.

With the general slowdown in Electronics worldwide, we saw a sharp drop in the overall power supply market in Asia.

Many consumer electronics manufacturers outsourced their power supply demand to companies like Delta and Emerson.

We have a very strong presence with these companies, so as market conditions improve, so will our revenues in this segment.

In addition to the impact of market conditions, our sales throughout 2011 were also affected by the earthquake in Japan and its aftermath.

On prior calls, we indicated the impacts from the crisis would be about $1.5 million per quarter, which has turned out to be an accurate assessment.

However, several other factors have further reduced our Japanese business.

While the Japanese consumer electronic suppliers have started to rebuild their damaged factories and other facilities, they've been hurt by the strong yen, which has impacted their exports.

At the same time, these companies have also been affected by the floods in Thailand where many of them have factories.

As a result, Littelfuse sales to these Japanese companies were down from prior years.

We expect to see a continuation of these weak conditions in the year ahead, which will keep revenues flat at the lower level.

Moving on to new products.

In 2011, we introduced a number of new fuses that are designed to meet customer needs for higher energy circuit protection in a smaller fuse package.

During the fourth quarter, we introduced a new fuse mounting clip family of products for our 5 X 20 high power fuses.

These fuses and clips are quite specialized as they handle high voltages of 450 volts to 600 volts and high currents of 15 amps to 20 amps.

They are used for a wide range of industrial and consumer product applications, including power supplies, inverters in LCD backlight units, white goods, fluorescent lighting, power supply systems and other high energy applications.

Our 3.6 X 10 cartridge fuse, which is the smallest form factor in the market, continues to generate some very nice new business wins.

This product has been designed into the latest LED, TV models at LG and is also being designed into the charger for the Samsung Galaxy tablet.

Together both wins will add about $350,000 annually to our Electronic sales.

Another tablet win was with a Taiwanese ODM for the NEC tablet where our chip fuse is being design win.

This win will add $150,000 to annual sales.

The LED lighting market continues to gain momentum, providing more opportunities for Littelfuse products.

The growth in this market is driven by government regulations, such as a potential ban on the sale of incandescent bulbs of 100-watts and over in the US.

And also the tremendous energy and maintenance cost savings of LED lighting and continued decreases in LED lamp pricing.

We participate in two main types of LED lighting projects, Retrofits and replacements.

Retrofits are common in the consumer market and include swapping out incandescent lamps with LED versions of the same form factor.

Companies like Osram Sylvania, G.E, Philips lighting, Lighting Science Group, Sharp, and Samsung are all active in this space.

And we have numerous wins for our AC line fuses, Metal Oxide Varistors and TVS diodes with these companies.

Several of these lamps are now being sold by large retail chains such as Home Depot and Costco.

Commercial and outdoor lighting applications, such as highway and parking lot lights, typically require changing the entire fixture.

This segment is expected to have a faster rate of adoption because the longevity of LED lights is four times greater than that of existing high-pressure sodium lamps, while consuming 80% less energy.

Littelfuse is engaged with a number of companies in this segment as well.

We had sales of $3 million into both the consumer and commercial lighting markets in 2011 and expect this to substantially increase in 2012 as the LED market continues to grow and unit prices continue to decline.

To summarize, while we faced some challenges during the last half of 2011, we continued to invest in new products and to win significant new business with many of the leading consumer electronics companies.

Our base Electronics is solid, and the overall outlook for our end markets is positive.

We have a strong position as the global leader in circuit protection, and are optimistic the business will pick up as we get further into the year.

That completes my review of the three business units.

So to sum up the year, we delivered record revenues, earnings, and cash flow.

We expanded our Automotive and Electrical businesses with two successful acquisitions that broadened our product portfolio in markets with very good growth potential, protection relays and commercial vehicle products.

We invested $19 million in developing new products, such as our high performing fuse for the hybrid electrical vehicle market, the 1000-volt DC [string] fuse line for the solar market, and the 3.6 X 10 cartridge fuse line, which provides circuit protection for electronics that are increasingly smaller and lighter.

We have grown geographically as well, with an expanded presence in India, Russia, Poland, and Brazil, to list a few.

We also continue to move forward with implementing lean concepts across the business, and have made some very successful process improvements that save both time and money.

Littelfuse is the global leader in circuit protection, and as you've heard today, we have excellent growth opportunities in all three of our businesses.

Even more important, our financial strength enables us to pursue these opportunities for the benefits of our customers, shareholders, and associates.

Thank you.

And I'll now turn the call back to Phil, who will provide the outlook for the first quarter and then we'll open the call for questions.

Thanks, Gordon.

The following is our guidance for the first quarter of 2012.

Sales are expected to be in the range of $148 million to $158 million.

Earnings are expected to be in the range of $0.68 to $0.78 per diluted share.

For the year 2012, capital spending is expected to be approximately $35 million.

The increased spending compared to the last two years is primarily related to building expansions at our manufacturing sites in Canada, the Philippines, and Mexico in support of our growth initiatives.

This concludes our prepared remarks.

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

Hello?

We're ready to open up for questions.

(Operator Instructions)

Josh Chan of Robert W.

Baird.

You guys talked in the press release about book-to-bill in the electronic business being significantly above 1 in the first quarter so far.

Would you characterize that as being above normal seasonal patterns?

Or is that something you would expect at this juncture of the year?

It's probably a little bit higher than we would normally expect.

But some of that is just due to the slow start to the year and the early Chinese new year as well.

So our shipments were probably lower than normal for the beginning of the year.

And our orders were more than our shipments, but I wouldn't take a significantly above 1 book-to-bill necessarily to be something that's extraordinary on the upside.

It's consistent with what we would expect though and consistent with shipments that should be improving as the quarter goes on.

Okay.

That makes sense.

And then we switched over to the SG&A, could you comment on the SG&A increase year over year, it seems like a fairly sizable increase at least relative to the sales base

Yes, I think if you really dissect that, I think what you'll find is we added two acquisitions.

The Cole Hersee at the beginning of the year, Selco in the middle of the year, and if you take those two acquisitions out, I think SG&A only went up about 2% to 3% for year.

So most of the increase is related to the acquisitions that we added.

And right now SG&A for both of those businesses as a percent of sales is higher than we would ultimately expect it to be.

As we further integrate those businesses, as we leverage the top line for those businesses, that SG&A percentage should come down.

But for example, with Cole Hersee, we're right in the process as Gordon said of putting them up on SAP.

So we're spending money to do that.

As we get into the back half of this year, we'll have SAP up and running, and we'll have some opportunities to streamline our SG&A.

But it's going to take a while to do that.

Okay.

That's great.

And then last quarter there was a comment about possibly growing earnings modestly in 2012.

Is the headwind that you see in the first quarter potentially too large to overcome to hit that target for the full year?

I don't think so.

We're obviously starting out well below last year in the first quarter.

But we are expecting things to bounce back.

As we said, we think the inventory correction is nearing an end, and we expect to see that inventory come into equilibrium sometime over the next few months.

We think there's certainly an opportunity to see our electronics business come back to more normal levels in either the second or third quarter.

With some of the growth opportunities we have in the electrical business and also automotive, I think there's still a reasonable chance we could increase earnings year over year.

Okay.

Great.

Thank you for your time.

Sure.

Thank you.

Shawn Harrison with Longbow Research.

Good morning.

Just wanted to follow up on the commentary that things seem pretty normal right now.

Coming out of Chinese new year are you seeing any better demand patterns or it pretty much in line with what you would expect?

And any commentary on where you are seeing maybe more of the inventories?

Is it still an Asia problem or is it European focused?

I think the inventory problem has been kind of across the board.

What's typical with that is that Asia usually adjusts their inventory quicker.

They usually carry less and adjust quicker.

The US is usually slower to adjust.

And so I would say it's probably more in the US and Europe, the amount that lingers at this point.

I think we certainly made a good dent in that inventory in the fourth quarter, and we're expecting it, as I said, to be in line as we come towards the end of the first quarter here.

I'd say it's a little bit too early to say coming out of Chinese new year, how do we feel about it?

We don't see anything particularly unusual, but it's a little bit too early to make a call there.

Okay.

That's helpful.

And two brief follow-ups.

The commercial vehicle business.

What is the sales run rate of that business right now?

And also what is the tax rate expectation for both the March quarter in 2012?

The Cole Hersee business, it ran for the year at about $46 million run rate.

And as Gordon said, I think we were expecting that to be a higher single-digit growth rate for 2012.

So it should be somewhere in the $50 million run rate range.

And regarding tax rate, we had an unusual low tax rate in 2011 for a number of reasons.

We did have some favorable tax benefits that may not be reoccurring, probably won't be.

We also had some favorable mix of income skewed towards lower tax rate jurisdictions, particularly over in Asia.

So I think for the at least the first half of the year, I would expect tax rates to bounce back up to more typical rates which are in kind of the 28% range or so.

I think as we've alluded to in prior calls, we're working on some things longer term that we think could reduce the tax rate really down into the mid 20%s.

But that probably isn't -- and we may start to see some of that in the back half of the year.

It's a little bit too early to make that call.

So I would plan on a rate that's in the 28% range or so in the first half of the year.

And maybe we'll inch down in the second half, but probably a conservative call would be to assume 28% for the year.

Very helpful.

Thanks so much, Phil.

You're welcome.

Anthony Kure with KeyBanc.

Just wanted to clarify or make sure I understood the comment around the distribution sales out and your sales into distribution.

I want to get that number.

I think you said sales to end customers, so that's sales out of distribution were down 15%, but your sales into distribution were down 25%; did I hear that correctly?

That's exactly correct.

Okay.

And then as I look at the midpoint of your first quarter guidance, implies about 14.5% up margins from about what, 12.8% in the fourth quarter, so is it fair to say that the biggest driver for the uplift in margins will be electronics with the other two segments holding steady?

Or if you can talk about how the margin improvement is playing out among the segments for the first quarter.

I would say that's going to be the biggest driver.

It's going to be a ramp up in production rates were very low in the fourth quarter.

Not only were sales low, but we took about $7 million out of inventory as well during the quarter.

So we would expect production rates to improve, which should help the margins in the first quarter.

And that will be largely coming from the electronics business.

Okay.

And then from a sales perspective, do you expect sales to be down again still in the first quarter?

Or see an uptick from the fourth quarter levels?

I'm talking sequentially.

Sequentially, the guidance we gave would imply a modest increase in sales from Q4 to Q1.

Right.

And so even in electronics it should increase?

In electronics, yes.

We should have some uplift.

Typically, first quarter is a pretty good quarter for automotive as well.

They would generally have a stronger Q1 than Q4, but electronics we also expect modest improvements in sales in the electronics business.

Okay.

And then could you just remind us how much you have left on the share repurchase that expired at the end of April?

And it doesn't look like you bought in shares in the fourth quarter, you just confirmed that?

We did not buy any shares in the fourth quarter.

And remind you that we do have -- we have a lot of cash on the balance sheet.

Obviously, we're looking at acquisitions as our first and best use of that cash.

But also most of that cash right now is overseas.

So part of the consideration in buying back stock at this point is, we'd have to probably borrow most of that off the revolver and we want to make sure that we keep our powder dry for some good acquisitions that we think could happen over the next six to nine months.

Okay.

On the stock repurchase program, I think we have a -- we added another 0.5 million shares back last quarter to the 1 million that we had had previously.

And I think we had purchased around between 800,000 and 900,000 off that, So we have a little over 600,000 on the authorization at the moment.

And that expires end of April, is that correct?

Yes.

And then just the last question just given all the discussion around the different markets and the opportunities for the year, do you still -- it sounds like -- correct me if I'm wrong -- it sounds like electrical still has the best chance of being the fastest grower among your three segments in 2012.

Would you say that's about right?

I think that is right, Tony.

Particularly the strength of the mining opportunities that I talked about, the protection relay and custom business has got tremendous momentum.

And we have pretty good visibility into a lot of those long term capital investment programs in the mining area.

And as I mentioned, we're really still gaining momentum in international markets.

A lot of it in the North America position is very strong.

But getting our own resources more into places like South America and Australia and Asia, you know, we are very confident that we're going to have a very strong year again in that segment.

Okay.

Great.

Thank you so much for the time.

Thank you.

(Operator Instructions)

Your next question comes from the line of Alek Gasiel with Barrington.

I know you guys went through extensive detail, but just kind of give us a summary of looking out on fiscal '12 between -- are we assuming electrical mid-double digits?

Automotive, single- to mid-digit?

And electronics kind of flat to up -- or low-single digits?

Yes, we probably if you're going to take a stab at it this point, those would be reasonable assumptions.

It would be continuing on kind of trends that we've seen recently in the automotive and electrical business.

And as we said, we expect some recovery in the electronics business.

But most likely will be in negative territory for the first half of the year, if that business is going to grow, we'll have to make that up in the second half.

Okay.

And then in the automotive segment you mentioned that Europe you expect to be down 3%.

Is Europe -- is that correct to say it's 45% of your sales in auto is from Europe.

Yes.

Just to clarify is what I said was the JD Power, the research company, have stated at the moment that given the concerns about Europe that they expect to see car production down about 3%.

We're not stating our own business necessarily down directly in line.

We've got a lot of new programs, a lot of design wins.

But obviously, we are impacted by global car production as we saw in the big downturn, and there are projections of about 5.5% for growth this year.

Slightly down from where they originally were.

They did break that out to regions and they're concerned about Europe.

And that news changes every day, depending on the Greek crisis and getting resolution there.

I do feel that we were very concerned a year ago about production volumes in Europe, and it did not turn out to be negative.

It did not turn out to be anywhere near as bad as possible.

And a lot of that was driven by exports of cars from Europe.

So cars produced in Europe and exported particularly to places like China and Russia and the Middle East.

So I think that that's a pessimistic view from JD Power.

We've got very good penetration.

It is about 45% -- or was about 45% of our passenger car business.

But as we see the big bounce back in North America, and obviously, the very solid growth in China, that percentage is probably a little less than that.

But we're still very bullish about the business we have there.

Also, we'll be likely be fighting a bit of a headwind from a weaker euro in Europe as well.

So with car build down and the euro weaker and then we'll have some offset from some of the good new programs that we have there.

But that will be tough to grow that business much in 2012, I think.

Okay.

And then just touch on the solar business.

What was revenue for 2011?

It would have been in the neighborhood of about $6 million so down from 2010's revenue, I think was between $7.5 million and $8 million.

We think likely that we'll grow that business at least 50% in 2012.

Is that just going to be coming from US, Asia, or is Europe going to be part of that recovery?

It is probably most of it will be coming from the US and Asia.

Europe can't be much worse than it was in 2011.

So we may get a little bit of help there.

I think the competence that we have in terms of growth opportunities, there is some big programs in the US, and we also have some Asian programs as well that would help us drive that.

Okay.

Great.

Thank you so much.

You're welcome.

There are no further questions at this time.

I would like to turn the conference back over to Mr.

Gordon Hunter for further remarks.

Thank you for joining us on today's call and for your questions and comments.

We believe 2012 is off to a good start, and we're looking forward to building on all we have accomplished over the past year.

And as always we appreciate your interest in Littelfuse and your support.

Have a great day.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect and have a great day.