Littelfuse Inc (LFUS) 2012 Q1 法說會逐字稿

Good day everyone and welcome to the Littelfuse Incorporated first quarter 2012 conference call.

Today's call is being recorded.

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

Gordon Hunter.

Please go ahead, Sir.

Thank you and good morning.

Welcome to the Littelfuse first-quarter 2012 conference call and joining me today is Phil Franklin, our Vice President of Operations Support and Chief Financial Officer.

As you saw in the news release, our sales and earnings for the first quarter were both above the guidance we provided in our fourth-quarter conference call.

Sequentially, first-quarter sales increased for all three business units and our margins also reflected the higher sales.

Year-over-year our first-quarter sales were down as a result of a continued inventory correction in the electronics business.

The good news is we believe the inventory correction is now behind us as reflected in our increasing shipments and the strong first-quarter book-to-bill ratio.

I have more comments on the quarter on each of our business units but I will first turn the call over to Phil 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 statements based on the environment as we currently see it and as such do include various risks and uncertainties.

Please refer to our press releases 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 of 2012 were $160.6 million, which was up 9% sequentially but down 5% year-over-year.

The electronics inventory correction, which impacted us significantly in the fourth quarter, continued to affect us in the first quarter.

However, shipment rates improved as the first quarter progressed.

Margins and earnings for the first quarter also increased compared to the fourth quarter and were above the high end of our guidance due primarily to improving electronics sales.

Earnings per share for the first quarter of 2012 were $0.81 compared to $0.96 in the first quarter of 2011.

The primary reasons for the year-over-year decline were lower electronics sales and production volumes and the effects of a weaker euro.

Operating cash flow was on track in the first quarter at $8 million after funding a $5 million voluntary pension contribution and paying over $10 million for 2011 bonuses.

Now I will 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.

As always I will be highlighting the markets, products and design wins for each business to give you an overview of the many ways we are benefiting from our broad and deep product portfolio, our growth strategies and industry leadership.

Let's start with automotive.

In first quarter, automotive sales of $52.6 million were 33% of total Littelfuse sales.

Automotive sales increased 15% sequentially but were down 2% compared to last year's record first quarter.

The decline was due to a weaker euro and a favorable impact in last year's first quarter of one-time stock fill for our newly won contract with O'Reilly Auto Parts and this was partially offset by increased sales of commercial vehicle products.

The double-digit sequential improvement over the fourth quarter of last year was primarily driven by higher sales in North America and Europe.

Global car production for the first quarter was up approximately 2% from the fourth quarter.

Our higher percentage increase was due to several new programs started around about late last year and are now generating increased revenues.

A bright spot for us in the first quarter was a double-digit sales increase in the US.

This was mainly driven by increased production for the Big Three as well as incremental sales to a key customer for a temporary production fix that will fade out during the second quarter.

The increase in our European sales was due to strong sales of VW cars where we are very well positioned along with increased sales of our high-current products such as MasterFuse that we have introduced over the past few years.

While Europe had solid overall performance for the quarter we are seeing a slowdown by French OEMs as they are delivering mainly into the Southern European countries where the economic distress in the region is delaying some new vehicle purchases.

In Asia, our passenger car sales were flat compared to last year's first quarter as the China car market is slowing along with the overall economy.

During the first quarter, we continued our focus on strengthening strategic partnerships with our leading Tier I customers in the hybrid electric vehicle market.

All of our major partners involved in green car initiatives have now been introduced to our new high-current fuse that was specifically designed for the HEV market.

In addition to our existing high-current products a new requirement has surfaced for an HEV fuse up to 450 volts but very low current requirements.

This application has the potential to become high volume application for cars with lithium-ion battery technology.

We are on the leading edge in meeting this need and have begun partnering with several OEMs to develop a product roadmap and specifications for this new segment.

We've already delivered our first electronic fuse for this application to one car manufacturer for systems test validation.

This initial product will be used as the basis for developing the final design of the new fuse.

Moving to design wins and new business awards, we won a large volume design competition and a multi-year agreement for our high current MasterFuse with one of our biggest Tier I suppliers in China for a VW platform that launches in 2013.

We also began a new strategic partnership with one of the top five local fuse box manufacturers in China that extends our position from providing products for European cars produced in China to providing similar technologies for local Chinese OEMs.

In Italy we won our first project with a manufacturer of popular scooters.

This opens the door for us for future business with a number of different products we've developed for this market segment over the past few years.

In the US we won additional project for our high performing HEV fuse for a Ford model through one of the major Japanese Tier I suppliers.

We expect this win will give us the opportunity to expand this product into more programs of this Tier I and possibly including some programs with Japanese OEMs.

We had a good win with Tata Motors in India on the Ace Truck platform for a specialty fuse holder.

This win has already started to contribute revenues to Littelfuse.

We are also in discussions to get this product designed into other platforms of this major OEM.

As we grow and extend our line of specialty fuse holders we expect to see even more wins in the near future for these products.

In conclusion, our automotive business is very healthy and is performing well in most geographies.

Although LMC, the automotive forecasting company, has reduced its estimate of global car production growth from 7.4% to 5.3% in 2012 we believe we will continue to outperform the market as a result of our new business wins, our innovative new products and strategic positioning.

Now let's talk about our commercial vehicle products, which we call CVP.

This business continues to make a significant contribution to the overall results of our automotive segment.

First quarter Cole Hersee sales were up 26% sequentially and 5% year-over-year.

Sales to our largest customer Caterpillar helped to drive a sequential increase.

We also saw very strong growth from our master distributor in Australia that services the mining industry.

And from Case New Holland service parts and other heavy duty aftermarket distributors.

The biggest growth in the first quarter came from our Master Disconnect product line many new customers have adopted these products into their vehicles including manufacturers in China, South Korea and Australia.

We also benefited from sales of our new FLEC Power Distribution Module with several new business wins now in the rampup phase.

Building on our success we are further expanding the CVP line with a number of new products one is a new sealed high-power disconnect for harsh engine starting applications and we will soon release a new low voltage disconnect that is programmable, completely sealed and could carry 250 Amps in a compact package.

We are also competing for new design wins in Modular Power Distribution Modules and expect to announce some new program wins in the future quarters.

On the new business front we have a design win in the Toyota Forklift of America to provide a no-dead battery solution with our Cole Hersee FlexMods.

These are programmable solid state switches that are used to keep loads from draining in a vehicle battery.

As you can see our overall automotive business is performing well.

We are winning new business for both our automotive and CVP products and we have a number of new products in the pipeline.

We have a solid customer base around the globe and look forward to the continued growth of this business.

Now let's move on to the electrical business unit, which accounts for 19% of total Littelfuse sales in the first quarter.

Electrical sales were $30.9 million for the first quarter a 19% increase from the first quarter of 2011.

Significantly higher sales of protection relays and custom electrical products continue to drive the growth of our electrical business.

Sales for the core electrical fuse business were basically flat for the quarter.

Strong demand from both our industrial MRO and OEM customers was offset by continued weakness in the solar market and in commercial construction.

We are expecting -- we are expanding our presence in the industrial market with new design wins in a variety of end customer segments including conveyer systems, drive manufacturers and HVAC equipment.

New business won in these segments during the first quarter is expected to add about $250,000 of incremental revenue to our electrical fuse business.

As you discussed last quarter, the solar market was soft throughout most of last year and this trend continued in the first quarter.

However, we continued to secure design wins for our new line of high efficiency solar fuses winning new business for inverter and combiner box applications at four of the top 10 global inverter manufacturers.

We also had several new wins with solar equipment manufacturers in the emerging markets of India and China.

We anticipate that in total this new business will add about $1 million of annualized revenue to Littelfuse.

So while the rebound in the solar market is moving more slowly than we anticipated we are cautiously optimistic about the future of this segment.

Moving on to protection relays and custom products, both of these product lines had significant increases in the first quarter with protection relays up 35% and custom products up about 50% from last year's first quarter.

As we discussed on prior calls mining continues to be the number one driver for both of these product lines.

The global demand for precious metals diamonds, ores and potash remain very strong.

We are also continuing to benefit from a large installed base of mining customers in North America as well as from our initiative to expand our presence in Central America, South America and Australian mines.

We believe the global outlook for mining will continue to be positive for at least the next few quarters as our customers maintain or increase their capital expenditures.

To meet the increasing demand for our custom electrical products in the mining industry and to reduce lead times we are expanding our facility in Saskatoon, Canada.

The design work and permitting was completed during the first quarter and construction has now begun.

We are also expanding our capabilities in the oil and gas segment with the opening of a new sales and engineering office in Calgary last week.

This office will focus on opportunities in Alberta's oil sands for both our custom electrical products and protection relays.

Alberta's oil sands is the third largest proven crude oil reserve in the world next to Saudi Arabia and Venezuela.

Oil and gas is an attractive growing market and we are making good progress in penetrating customers in both North and South America.

Another successful market for our protection relays is general industrial applications where our products are used to protect equipment and personnel from electrical hazards.

We are seeing increased demand for our safety products including the Arc-Flash protection relay we launched last year.

Looking at new business we had several good wins in the mining industry during the quarter.

We secured a large order for grounding resistor relays for a leading electrical equipment supplier in Germany for equipment that will be used in the expansion of the Tintaya mine in Peru.

We sold our Arc-Flash protection relays to a large mine in Chile.

This was the first sale of this new product into the Chilean market.

This win is especially significant because the customer is a major mining company in Chile and the products they use tend to be adopted in the industry standards.

We also landed an important order for ground check protection relays with a Chinese mining OEM.

This is one of the first conversions of a Chinese underground mine to a safer electrical design that could potentially drive more relay orders from this region.

Beyond mining we secured an order from a large Korean electric vehicle charger manufacturer for protection relays.

We also sold our protection relays into a leading solar inverter manufacturer in China and won a position with Petrobras in Brazil to include neutral ground resistance monitoring at one of their facilities.

As we look ahead, we expect continued growth from our electrical business.

The base fuse business will continue to be driven by the industrial segment and we expect to see improvement in the solar segment later in the year.

Drivers for our protection relays and custom electrical products include the continued growth of the mining industry, increased penetration into the oil and gas industries, international expansion and increased sales of the new Arc-Flash relay.

That brings us to our electronics business, which accounts for the other half of total Littelfuse sales.

First quarter sales of $77 million were up 6% from the fourth quarter but were down 12% from the first quarter of last year.

As we indicated in the news release this decrease was primarily due to inventory swings in the distribution channel.

A year ago, distributors were building inventories while this year they were reducing inventories.

This inventory correction began early in the fourth quarter when channel partners pulled back as market condition softened.

As you may remember from our call last quarter we had anticipated distribution channel inventories would likely reach equilibrium during the first quarter and we were optimistic that sales would begin to increase in the latter part of the quarter.

Our predictions appear to be correct with additional inventory reductions in the channels in the first quarter we believe the worst of the inventory correction is behind us and the inventories are now at an appropriate and stable level.

In fact, since the middle of the first quarter, we've seen an improvement in market conditions as evidenced by an increase in shipments of our products from our distribution channel partners to end customers.

And our channel partners are increasing their orders to us ahead of the seasonally stronger second and third quarters.

And this is indicated in the book-to-bill ratio of 1.16 for our electronics business in the first quarter compared to 0.96 for the fourth quarter.

While we are now back to more normal inventory levels concerns about the European region as well as a slowing in high growth regions like China could still have an impact on our overall 2012 performance.

Looking at some of the key electronics markets, global personal computer sales as reported by IDC, a leading market research company, were up 2.3% in the first quarter compared to the same period last year.

PC growth has been limited by saturation in the mature markets as well as some supply chain disruptions for hard disk drives due to the flooding in Thailand.

The PC market is expected to improve significantly during the latter half of the year as a result of new Ultrabook introductions and the release of Windows 8.

We've talked about Ultrabook on prior calls this is a category of thin and light-weight ultra-portable laptops.

IDC anticipates at about 25 million Ultrabooks will be sold this year the majority in the second half.

This compares to less than 1 million sold last year.

Intel is one of the big drivers of the anticipated jump in sales with the release of a new processor and a large marketing campaign already underway.

Most manufacturers are improving their Ultrabook performance and pricing.

These developments combined with the anticipated launch of Windows 8 in the fourth quarter are expected will create new consumer interest in PCs, particularly Ultrabooks.

As a mentioned a few quarters ago, the Ultrabooks are designed by the same companies in Taiwan that make the majority of all the PCs and notebooks in the market and we have very strong relationships with the design engineers at these ODMs and OEMs.

Thus we have a broad offering of fuses, PTCs and TDS diodes designed into these machines and stand to benefit from the rampup in Ultrabook sales.

We continue to grow our position in the tablet and eReader segment with a design win and the start of shipments of our semiconductor ESD protection products to a leading consumer electronics manufacturer for their computing platform.

This win is expected to contribute $500,000 in revenue in 2012 and is one example of the progress we are making with our significantly expanded semiconductor ESD offering.

We also serve this customer with over-current protection solutions and have continued to penetrate with our new fuse products as well.

And this illustrates the extensive capabilities we have with our broad and deep portfolio both over current and over voltage circuit protection products.

We've talked in several prior calls about the fast pace growth of the tablet and eReader markets worldwide.

And as you may have seen in market news this segment is growing at a rate above 50% right now and is expected to continue to grow at a good pace.

We are continuing to work with engineers at key OEMs to design in our over-current and ESD products in the next generation platforms to protect charges, battery packs, inverter circuits and data lines.

This activity is expected to deliver about $6 million in revenue to this segment in 2012 nearly the double the level of 2011.

Moving on the new fuse products, in 2011 we introduced a number of new fuses designed to meet customer needs for higher energy circuit protection in a smaller fuse package.

We discussed a number of these new fuse products in the last call.

During the first quarter, we extended the current range of some of these newer fuse products, for example our 6X32 size cartridge fuse rated at 1000 volts AC and are now down to a 350 milliamp rating.

This makes them well suited for certainly ground volt detector and interrupter applications.

The new lower current fuse has just been designed in by Growatt New Energy in China initial order for this win is over $100,000 for this fuse and the matching clip.

We've not highlighted our Varistor business much in the past.

However, I wanted to discuss this product line today because we recently introduced a new line of products that includes thermally protected metal oxide varistors that are used in surge protection applications that are subject to stringent UL test requirements.

These devices combine our expertise in both over-current and over-voltage technologies into one module and are the smallest form factor in the industry.

With this new product line and our well-established expertise in protecting these applications we expect to gain traction over the coming months with the potential for $1 million to $2 million in additional business in 2012.

Another market that has continued to grow is LED lighting, which we discussed in detail last quarter.

We have numerous wins for products including AC line fuses, metal oxide varistors and TDS diodes with the leaders in the retrofit market where incandescent lamps are swapped out with LED versions and also in the replacement market where the entire fixture in commercial and outdoor lighting is replaced with an LED version.

We've also talked in the past about the growth in wireless infrastructure and the opportunities it presents for our semiconductor and ceramic over-voltage products.

The significant growth in smartphone adoption, increased consumer data usage and the related pressure that puts on the data communications infrastructure continues to feel the growth for equipment.

We have a market leading protection offering for these higher power equipment applications as well as long-term engineering engagement with the equipment market leaders.

With the progress we continue to make in this segment we expect to see continued growth in this area for existing and new products.

Projected revenue for our wireless infrastructure segment is over $6 million in 2012.

So in summary, the electronics segment inventory correction is now behind us and we are excited about the organic growth opportunities for electronics products.

And as a result we believe electronics business is positioned a double-digit sequential growth in the second quarter.

So that completes my review of our three business units but now I would like to update you on several operational initiatives.

As many of you know we've completed a major business simplification program two years ago.

We consolidated our manufacturing into six world-class facilities with higher production capacity and also consolidated distribution and customer service in strategic locations in lower cost areas that are close to our customers in North America, Europe and Asia.

This smaller, more flexible footprint is generating significant cost savings as indicated by our improved margins.

And although the major consolidations are behind us we are always looking for opportunities for reduce costs and improve efficiency.

Our global operations team employs many approaches to achieve these goals including value engineering, supplier localization and a consolidation and our lean enterprise initiative.

These approaches yield many small gains across the business that accumulate into significant savings and can also yield larger individual improvements.

A significant example currently underway is the consolidation of the recently acquired Cole Hersee distribution center in Schertz, Texas into the Littelfuse state-of-the-art North America distribution center located in Piedras Negras, Mexico.

This project is expected to be completed in the third quarter and is projected to yield an annual cost savings of more than $1.5 million.

We are also focused on reducing the precious metals content in our products.

A current project in this area involves reducing the gold usage in one of our electronics product lines.

This project will be completed in the second half of 2012 and is expected to reduce our material cost by over $2.5 million per year.

These are just two of the many projects underway across the company to continually reduce our costs while maintaining the quality products and customer service that are hallmarks of Littelfuse.

Finally, as you saw on the news release we made an additional $10 million investment in Shocking Technologies a Silicon Valley startup that makes a specialty polymer material that products ESD protection in circuit boards.

We believe this polymer technology could provide some interesting opportunities for the future of circuit protection.

Our total investment in this company is now $16 million and we have an ownership stake of about 18%.

So to sum up the quarter, we made good progress in all three businesses with increased sequential sales, improved margins, new products and new business wins.

The electronics inventory correction is pretty much been resolved and we look forward to regaining our growth momentum as we progress through the year.

This is a good segway to Phil who will provide the outlook for the second quarter and then we will open the call for questions.

Thanks Gordon.

Following is the guidance for sales and earnings for the second quarter and comments regarding cash flow for the reminder of the year.

Sales for the second quarter are expected to be in the range of $168 million to $178 million, which represents 5% to 11% sequential growth.

Earnings for the second quarter are expected to be in the range of $0.94 to $1.04 per diluted share.

As is typical for our business we expect operating cash flow to improve as the year progresses.

We also expect capital expenditures to increase over the next few quarters related to capacity expansions and support of our growth initiatives.

The highest priority for our free cash continues to be acquisitions and we are currently active on the M&A front.

This concludes our prepared remarks now we would like to open it up for questions.

Thank you.

We will now begin the question-and-answer session.

(Operator Instructions) our first question comes from Shawn Harrison from Longbow Research.

Hi good morning Gordon and Phil can you hear me?

Yes, good morning Shawn.

Just first question maybe if you could talk about there is a demand environment in terms of are you seeing restocking down the channel or you just back to kind of a normalized pattern?

How did April go relative to March, maybe just a little bit kind of you know what you've seen so far in the second quarter?

Yes, I think that the book-to-bill number obviously shows that we've seen that strengthening and it's been really as we predicted starting from a slow start to the year with, particularly with the Chinese New Year in January and then gradually through the quarter getting stronger and continuing.

And so we, everything I've said there in the section about the inventory is that we are pretty confident it's all behind us, I mean the level of orders that we see and what we call the POS data that the sales from our distribution channels to the end markets are also picking up.

And that's really the leading indicator that tells us that the distribution channels have the appropriate level of inventory and they are going to start reordering and we expect it to strengthen.

And the positive trend Shawn that we mentioned that we saw towards the later part of the first quarter those trends have continued into Q1 in terms of good order rates and good book-to-bills.

Okay, and then there is a follow up question within the guidance with the June quarter it looks as if there maybe some incremental costs coming back just incremental EBIT margin looks a little lower than what you would have seen off the bottom in the March quarter, if you could just help out either is there some cost pressure or something coming back in SG&A.

We are certainly expecting significant sequential margin improvement going from Q1 to Q2.

I think that in terms of cost pressures that we are currently seeing we are certainly seeing some effects of the weaker euro -- is pressuring margins a bit in our European business, I think we had about $1.2 million of euro impact in Q1 versus the prior year quarter.

We have also seen as a lot of people have higher transportation costs and some other material costs driven by the higher cost of oil.

But and obviously the wage pressures in China and some of the other developing countries continue as well.

So we are definitely facing some margin pressures but Gordon mentioned a whole series of cost reductions that we are working on and those combined with the operating leverage that we will see in the business as the business recovers, we are very confident that we will see operating margins if not in the second quarter certainly in the third quarter back up to the levels we were seeing at the kind of the peak quarters last year.

Okay, and I guess that implies incremental gross margin is kind of in the mid 40s going forward is that the best way to think about it.

Incremental gross margins I would say would be probably closer to 50%.

Okay, perfect.

Thanks so much.

Sure, thanks Shawn.

Our next question comes from [Paran Singh] from Stifel Nicolaus.

Please go ahead.

Yes, hey this is Matt Sheerin calling and good morning.

So question Gordon on the auto business it looks like that was, a bit unseasonal and certainly you are not the first supplier to talk about robust sales there.

Could you remind us what the geographic breakdown of your business is now by region and then also talk about electronic content trends; is that beginning to also have a favorable impact on your broader business there?

Yes, first of all that the, I think it is robust I think that having the geographical presence that we've got has been strong and I think we've said several quarters that we've been surprised how Europe with the macro problems that we hear about Europe, how strong the European automotive business has been and a lot of that has been European exports.

For a long time in our passenger car model before we talked about CVP and the addition of Cole Hersee the European business was the largest part, sort of in the mid 40%s as a percent of the total business.

And really was driving the last couple of years particularly with the strong euro as we sell in euros in Europe.

I think it's continued because of the strength of a lot of the German manufacturers with their exports with particularly the high end BMWs and Porsche's being successful in exporting to China and the Middle East and Russia and even India.

So there has been very strong health in the German automotive mark through exports.

Obviously that percentage when we now look at our bigger automotive segment since the Cole Hersee acquisition, which had brought about $50 million of revenue was mostly in North America business that we are really trying to expand into other parts of the world as part of our strategy in commercial vehicles.

So that 45% or so was sort of a model number for passenger cars that is obviously being diluted a little and overall market.

Regarding your second question about electronics content absolutely a main driver for our business.

The fuse content and circuit protection content continues to be increased with the amount of electronics in vehicles.

It's also really a significant reason that we focus on the commercial vehicle segment because there's an even more dramatic increase in electronics content in commercial vehicles.

If you look at new agricultural and construction equipment it's a lot of electronics content in there and it needs to be very specialized it's in very harsh conditions, harsher environment that it works in and so making really robust reliable products for electronics in commercial vehicles as well as passenger cars is a major part of our strategy and we believe that's a real growth opportunity for us.

Hey, Matt to answer your questions specifically on the percentages in the passenger vehicle as Gordon said 45% maybe that's declined a little bit as some of the other markets have been a little stronger than Europe off late.

So it's 40% to 45% for Europe about 30% to 35% in the US and about 25% in Asia.

Obviously that -- if you look at the whole automotive segment that we report now as Gordon said that includes Cole Hersee in it, which was primarily North America.

So North America with Cole Hersee is closer to 50% of our total automotive segment now.

Okay, that's helpful.

And then just sticking to auto if you look at and you are just coming off obviously a very strong quarter or anything typically seasonal you see sort of a mid-single-digit sequential increase in June and then it's down in September because of the product changeovers and that sort of thing is that sort of how you are feeling about how the -- year plays out?

I think the, you know because of the strong first quarter in Cole Hersee generally first quarter is seasonally the strongest quarter for them I would expect automotive to look pretty flat going from Q1 to Q2.

And then typically Q3 is a little bit lower for automotive.

Okay, and then on an operating or EBIT margin basis is that kind of flattish too or just mix change that for that segment at all in the next quarter?

I think that you know probably as a result of some of the things we are doing on the clock side, Gordon mentioned a couple of them, we would expect some EBIT margin improvements in the automotive business as we go through the year.

Okay, that's helpful.

Thanks a lot.

Thanks Matt.

Our next question comes from Tony Kure from Keybanc.

Please go ahead.

Hi good morning gentlemen.

Good morning Tony.

Good morning Tony.

Just to round out the automotive discussion I guess and just sort of revisiting some comments from prior, from last quarter as we look at a pretty little bit stronger than expected first quarter.

Do you think it's fair to assume with the production being still forecast at 5% that the auto business for you with the commercial vehicles now should grow mid- to high-single digits for the full year is that a fair way to think about it?

Yes, I mean I think mid- to high-single digits is a rule in terms of what we think we can grow in a typical year growing forward I think that's about right.

I think that, I would probably characterize it for 2012 more as a mid-single-digit kind of growth year it is our expectation.

Okay.

Particularly given the euro some of the euro weakness which is going to that's going to probably give us in the automotive at least a percent or so headwind on growth and some of the concerns about the European domestic market keep that number probably more towards the mid-single digit rather than the higher-single digit that we might more typically expect going forward.

Okay and then similarly if we look at electronics I think we are talking about sort of a flattish type maybe up a percent or two growth environment, organically for Littelfuse in 2012, does that still hold even with a pretty good start to the year.

Yes, I mean I think that we are still expecting to grow that segment this year and obviously even with a slightly better first quarter we still going to have to see some pretty good acceleration in Q2 and Q3, which is what we are currently thinking and currently planning for.

So I don't think our views in terms of year-over-year growth for that segment has really changed.

Okay and then my last question is just around the investment in Shocking Technologies I guess you gave a little bit of what they do for those of us who aren't electrical engineers.

Can you just talk a little bit more about so what's the strategic fit and the rationale behind the investment?

Yes you know it's not very often in what we would call the circuit protection area that something really different comes along and this is a really a potential game changer in the way circuit protection is embedded, particularly into a cellphone circuit board.

So usually there would be components that would be embedded on to a circuit board in a cell phone and what Shocking has really developed is a way of embedding the polymer material that's the ESD protection material laminated into the actual circuit board manufacturing process.

So it's a way of making a circuit board more robust in the manufacturing process and also more reliable but embedding it at a much earlier stage of production rather than adding a discrete component under the board.

Probably in a typical board or the dozen or more discrete components that give ESD protection probably more than that.

So you eliminate all those discrete components by embedding this material.

It could be said that it's a little bit defensive of defending the discrete components but I think it's more that is, this is a game changing way of doing really the very, very technical and very precise circuit boards that now go into smartphones in particular.

That's sort of an incremental market for us where we haven't really had a strong position and we look at that as being -- if this is a disruptive technology in the sense of how to put circuit protection into a cell phone and a smartphone that's incremental growth for us and really fits right in the place where we have the knowledge of circuit protection.

Is this, Shocking do they have patents on those or is this something that is or does it change so fast they don't even bother with patents; just maybe give an idea where Shocking is in this nascent market?

Absolutely, patents are very strong, this is a very important part of this.

The manufacturing process obviously will be something that has to be an industry standard and has to work with the manufacturers of the circuit boards and the population of the circuit boards.

But the material itself, that is where the real secret sauce is and they have a very strong IP.

Great, thank you so much.

Thanks Tony.

(Operator Instructions) our next question comes from Peter Lisnic from Robert Baird.

Please go ahead.

Good morning gentlemen.

Good morning.

First question Phil just on the model outlook with the second quarter guidance, is it safe to say the full year still top line consistent with kind of what you laid out in the 10-K.

Yes.

Okay.

I don't think we will really see any changes there and as we've said before we still think we can -- relative to last year -- we can grow both the top and bottom line.

Okay, alright.

Fair enough.

And then the comments around oil and gas being strong I was wondering if we could break that a part of it between oil and gas maybe talk about the global opportunities that you see in gas specifically and then if there is anything on the LNG side where you might be able to benefit from that potential trend that would be useful information as well.

That's a good question.

I said for oil and gas is a general term for that market segment as we've said our major focus has been mining and now sort of next step into this in some ways the Canadian oil sands could be characterized as being the oil and gas segment.

But it's sort of very closely linked to mining because the methods of getting oil sands out of the ground are very much linked to a special kind of mining.

But it's sort of obviously to do that is to get oil from the tar sands.

So I'm using that term generally.

We don't have a lot of presence in that market but we believe the market opportunity is huge, so I think at some stage later we will probably start talking about more specifics the Canadian oil sands opportunity where we are going first.

And then oil and gas opportunities, this clearly is a macro market something that's got huge investments going into it in the infrastructure.

There are many places where our protection relays are being used in oil segments and gas but I think that we are looking at that as an opportunity for more understanding as we've learned from the mining segment and think there will be some good opportunities for growth.

Okay.

We have opportunities all the way along that basically that supply chain everything from the frontend drilling and production to the backend refining to the oil sands that Gordon mentioned.

So we haven't really parsed it that finely between oil versus gas but as we get more into those markets we can probably give you some more color on that.

Okay and I was just going to ask whether or not fracturing or hydraulic fracturing would be one of those opportunities as well whether or not you have any color on that one yet?

It's not that obvious that that is.

I think there maybe some opportunities there but for example it's not as, it's not as clear an opportunity as the oil sands in Canada is for example.

Okay, got it and then Gordon a couple of quarters, at least a couple of quarters in a row of comments on lighting.

I am just wondering if you are seeing increased inquiries if you will just based on what looks like stronger faster adoption of LED technologies.

Absolutely, you know you can see this at the consumer level the price of light bulbs if you go to Home Depot you can see the LED bulbs that were available a few years ago much more expensive than today and the lumens output of light from these bulbs are much more like the replacement bulbs you'd use it at a much more reasonable price.

The first place for all of this is really more in the commercial and industrial segments and as the costs come down the adoption goes up the payback period of that investment is much shorter and we are seeing in our sales it was a market that we I would say we weren't that sure we would really have circuit protection content that would be significant a couple of years ago.

And you know its keeping a very strong momentum and at several different products that we are seeing in there, TDS diodes, metal oxide varistors as well as fuses.

So it's protection of the power supplies that are inside these LED lights.

And you know we are very enthusiastic about it.

Okay, is the business buys more towards commercial lumen side of the business versus consumer now is that safe to say?

It is although we are, I would say it's fair to say we are surprised by the consumer part.

But I think that -- I guess our feeling is that when these bulbs become really low cost and there's a belief that an LED replacement bulb will be less than $10 and then the market will really take off.

When they become a standardize design I think the circuit protection content in a low cost consumer bulb will be rather too small.

So we are being very cautious about that part.

But for protecting the power supplies and the industrial segments our street lighting, our commercial areas, we think there's a very good opportunity.

Okay, thanks gentlemen that was very helpful.

Thank you.

Our next question comes from Alek Gasiel from Barrington Research.

Hi Phil, hi Gordon.

Hey Alek.

Most of the questions have been answered.

However, I've got a couple just curious by commodity year-over-year impact?

Could you repeat your question?

Your commodity year-over-year impact from commodity prices?

Probably not significant if anything if you look year-over-year it would probably be a slight benefit.

I think copper prices were slightly lower in the first quarter of '12 versus '11 not a material impact on the business one way or another.

Okay.

And then with the tax rate I know it's a little higher in the quarter.

So for the year do we still expect 28% to 28.5%.

Yes, I would expect for the year 28% or possibly a little bit lower than that.

I think we have mentioned on the last call and it's still the case that we will have a little bit higher rates for the first half of the year.

We are expecting, we are working on some things from a tax claiming perspective, which should help us probably very late in the year we also are working on attaining some lower tax rates.

At least one of our China locations with a high tech exemption there, which could give us some benefit in the second half of the year.

So I think, 28% is probably a safe number to use for the year but it could be a little bit lower than that depending on when some of these tax savings come true.

Okay, I might apologize for this question just sequentially the gross margin in SG&A going from Q1 to Q2 I mean did you guys say something about sequential improvement in that.

Yes, then I mean there would be sequential improvement driven largely by the operating leverage.

So I think if you figure the revenue increase and assume as we mentioned that it's about 50% variable contribution margin and on that additional sales that gets you 100 and some basis points of gross margin improvement.

Okay.

And one last question this was hit on the call concerning I know you guys are economists but with the mood in Europe and during some of the softness in Asia, wonder if you could provide any additional color on that at all.

Well, I think that for us certainly in Europe as I mentioned the automotive -- Southern Europe is a little bit of a concern, the French and Italian OEMs.

But Germany has remained remarkably robust and that's the major market for us for all of our businesses in fact.

Certainly, it has impacted the solar business the governments who were very much behind the growth of solar with the feed-in tariffs, there were political decisions that drove a lot of the solar business and that's certainly slowed for us.

So it has impacted our business for sure, and I think the slowing of China you know was, as the country just gets a much bigger economy I think everyone expected that you know they are going to start slowing from double-digit GDP growth to high single-digit.

But it's a much bigger economy and I think we are still very bullish on Asia in general as they try to control that growth and the size of the economy now.

But you know I just recently read the car manufacturers do not see that sort of flattening right now of the Chinese car market as a big concern; that their belief is that there is still many years of growth in China car market.

So I think we are still very bullish about the continued growth in Asia and you know while we are concerned about Europe I don't think that we are overly worried about the impact on our business.

Phil, will the Dartmouth comment be any different from a London comment.

I think that -- I'm in agreement.

Okay, so no -- I mean if there is concern of a double dip in Europe and that kind of impacting everything else of lower expectations or something like that.

Correct.

Okay, alright.

Thank you so much gentlemen.

Okay, thanks Alek.

Next question comes from John Franzreb from Sidoti & Company.

Good morning guys.

Good morning John.

Gordon in your prepared comments you mentioned some enthusiasm that the Ultrabook sector relative to we are seeing the decline in the PC market.

Wonder if you kind of put some numbers around that give us a sense of what your average content is in Ultrabooks relative to PCs so you kind of get a handle as one improves and another one accelerates what we can look forward to.

Yes, you know we sort of believe that goes through different cycles and there has not really been a compelling reason to replace your laptop either at the enterprise level or personal level in the last year or two.

But with Windows 8 coming and the emphasis that Intel has had, Intel is certainly pushing very hard for their new processors into the Ultrabook market.

And you know our content is not so different to where it was really with laptops and we've always said that to pretty big range depending on the number of ports and power supplies that they're protecting.

So it might sort of average around $1.50 a laptop but the range could be from $0.50 up to $2.

I don't think it's a significant change in content per machine but it's just that I didn't really see it.

But if a rebound with Windows 8 and much sleeker machines becoming available and looking at the market predictions they are being expecting to see market growth in the second half.

I think that $1 to $1.50 would, that would presume that we have all the circuit protection content in the device.

That would be the kind of the high end I think of what we will have the opportunity for.

Okay.

And to switch gears here, your commercial vehicle sales just give me a sense of how much total automotive sales are commercial vehicles?

Yes, I mean the Cole Hersee business is in the neighborhood of about $50 million and then the I think the Littelfuse piece of that is maybe another $15 million or so something like that.

So we are in the $65 million range, so it's starting to get -- approach half of our total automotive segment not quite there yet.

Okay.

And what are you hearing from the customers on that side of the market are they looking for continued strength or what's the feedback you are hearing on the commercial vehicle market?

Yes, I think that it's first of all I think the answer is it's sort of many different segment so those that are doing large truck have a different dynamic to those that are making construction equipment or mining equipment.

Certainly mining equipment is very strong, construction equipment's remained to be pretty strong and there seems to be a rebound in heavy truck.

So it really does depend on the exact vertical segments there but overall I would say that this market is very healthy.

Thus there is a lot of expansion in infrastructure, mining, construction around the world and I think, you know you will see the growth of Caterpillar has had the last couple of years in their global business.

And it's finding the sweet spots of those verticals for us to work with that we've really been focused on.

Okay.

And lastly and you said anything about this topic I apologize M&A potential, how many targets in the year.

What's the pipeline look like and can you just update us on that?

Yes, I think that as I mentioned in my comments John we are quite active in the M&A market right now.

There are quite a number of opportunities that we are looking at and working actively on.

And they are very -- none of them would surprise you they are in the areas that we've talked about they are in the size range that we typically talked about and done and we are pretty confident that we are going to have some things to announce later this year.

We've added a very smart new person in corporate development.

So investing in people in that area I think is an indication that it's one of our strategic initiatives and we believe that it's a key part of Littelfuse growth.

Is that the primary uses of capital at this point.

You do tend to build cash rather quickly.

Yes, I think we said that it's a strategic initiative.

We believe the acquisitions we've made have been -- the fit for strategy.

They have been good bolt-ons to the business and we absolutely believe it's the best use of cash I think if we look back certainly its Startco and Cole Hersee and Concord Semiconductor those have all been I think very good uses of cash.

I think you will see over the next two or three years that you see you know higher percentage of our cash for that than maybe what you've seen over the last three years.

Great.

Thank you that's all I've got.

Thank you very much.

Thanks John.

We have no further questions at this time.

I will like to turn the call over to Mr.

Gordon Hunter.

Please go ahead sir.

Thank you for joining us on today's call.

2012 is obviously off to a good start and we look forward to continued progress in the second quarter and beyond.

And so we appreciate you interest in Littelfuse and we look forward to talking to you again next quarter.

Have a good day.

Thank you.

Ladies and gentlemen this concludes today's conference.

Thank you for participating.

You may now disconnect.