Littelfuse Inc (LFUS) 2012 Q4 法說會逐字稿

Good day, everyone, and welcome to the Littlefuse Incorporated fourth-quarter 2012 conference call.

Today's call is being recorded.

At this time, I would now like to turn the call over to Chairman, President, and Chief Executive Officer, Mister Gordon Hunter.

Thank you and good morning.

And welcome to the Littlefuse fourth-quarter 2012 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 as we expected, excluding the special charges, as Phil will cover in a few minutes.

Although there were some bright spots, the overall electronics market remained weak.

And we also experienced the normal fourth-quarter seasonal decline.

Our automotive sales benefited from the acquisition of ACCEL last June and growth in the passenger car market.

However, the core automotive business continued to be impacted by slowdowns in Europe and in commercial vehicle sales.

In the electrical business, both major product lines had another very good quarter.

I'll discuss our performance and 2013 Outlook in more detail in a few minutes.

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

Thanks, 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 the fourth quarter of 2012 were $158.8 million, which was up 8% year-over-year and consistent with our guidance.

Earnings for the fourth quarter of 2012 were $0.44 per share compared to $0.70 in the fourth quarter of 2011.

As detailed in the press release, the fourth quarter of 2012 included $13 million of non-cash charges, primarily related to impairment of the Shocking Technologies investment and partial settlement of our US pension liabilities.

Excluding these charges, earnings were $0.81 per share, which was consistent with our guidance.

For the full year 2012, sales and gross margin were essentially flat with 2011.

However, operating profit declined slightly year-over-year due to higher operating expenses related primarily to our recent acquisitions.

Although we executed well across most of our businesses, it was difficult to overcome the combined effects of the poor European economy, weakness in the global electronics markets, and the second-half slowdown in the US commercial vehicle market.

A notable bright spot for the year was cash flow.

Even after making $10 million of voluntary contributions to our US pension plan, we generated $116 million of operating cash flow.

This put us in a net cash position of over $150 million at the end of 2012, and positioned us well to pursue our growing acquisition pipeline in 2013.

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 a review of our three business units.

I'll cover the financial results, major new business wins and new products for each business, and describe how these relate to our growth strategies and market position.

I'll also comment on the outlook for each business.

Let's start with Electrical, which accounted for 20% of total Littlefuse sales in 2012.

Electrical sales were $33.4 million for the fourth quarter, a 15% increase from the fourth quarter of 2011.

For the full year, Electrical sales of $132.2 million were up 17% over 2011.

Sales of our custom Electrical products continued to lead both the fourth quarter and year-over-year growth with increases of 37% and 36%, respectively.

Protection Relay sales were up 20% for the year, including Selco which we acquired in August 2011, but were down about 7% in the fourth quarter, and our core electrical fuse business had another good quarter with sales up 9%.

And for the full year, electrical fuse sales increased 5%.

The decline in fourth-quarter Protection Relay sales was due to the general slowdown in the global mining market.

But within this environment, our sales remain relatively strong as a result of our strategy to expand our relay products, markets, and geographical presence.

We've talked in prior calls about our new line of Arc-Flash relays, which continue to spark interest around the world as potential customers experience serious electrical incidents in their facilities.

Our product is an easy-to-use solution that detects an arc flash within a fraction of a second so that power can be quickly disconnected before extensive damage occurs.

The benefits can be very significant.

For example, an Oklahoma-based customer recently prevented an estimated $1 million in damages by installing our Arc-Flash relays just days before an actual arc flash occurred.

Other customers that have ordered Arc-Flash relays to prevent similar incidents include a coal mine in Kentucky and a major paper mill in Wisconsin.

During the fourth quarter, we introduced a new industrial ground fault circuit interrupter, the industrial Shock-Block.

This new product is the only shock protection device for higher current industrial applications that is listed by Underwriters Laboratories, and this is a competitive advantage for us in this market.

An interesting win in another market segment during the fourth quarter was a large order for our neutral grounding resistors and monitors for generators being installed in a large expansion project at the Calgary International Airport.

And while the vast majority of our relay sales are still in North America, we had good success in Chile and Peru this past year.

New customers accounted for over 50% of our revenues from these two countries.

We also added new distribution in Mongolia, and started receiving orders for relays from a number of gold and copper mines, including the new Ovoot Tolgoi mine that is currently under construction in the Gobi Desert.

As these examples illustrate, the market for our protection relays is very broad, both geographically and in a variety of market segments, providing excellent opportunities for future growth.

The Custom Products business had a record year in 2012 due to the strength of the potash mining market.

The main drivers behind this growth are the multiple mine capacity expansion projects that have been underway for several years.

These projects were initiated in order to help the potash producers keep pace with the long-term demand projections from existing markets as well as to supply the growing need for potash in China and India.

Several of the expansion projects are nearing completion later this year.

And while the expansion projects have increased capacity, demand has temporarily slowed down with the price of potash now in the $400 per ton range.

This compares to about $500 to $540 a ton in 2011.

Potash has lagged the global mining industry where the downturn has been well publicized for some time.

With the uncertainties in the global economy, some farmers have been reducing their spending on fertilizer, or even deciding to skip a year.

And as a result, there are fewer major mining expansions in the pipeline, which will impact our sales in 2013 for new projects.

However, that doesn't mean the market will dry up.

We expect to see continued sales of our Custom Products to support the ongoing production requirements within existing mines as they drill further and further underground.

And as mining production moves further away from the main mine shaft, additional power centers are required to support cutting and moving the potash material towards the surface.

We also will continue to receive orders to replace existing equipment that's been in service for years.

We have to remember that our products are used in very tough environments.

While they are very robust and built for these severe conditions, they do take a lot of abuse and eventually must be repaired or replaced.

We've also talked in earlier calls about a large greenfield potash expansion in Saskatchewan, and we continue to work on this, which should become a significant project for us in our Custom business in the future.

The slowdown in potash consumption is expected to be temporary with several macro trends providing a positive outlook.

Farmers can only avoid putting down nutrients for one season before their output is significantly reduced.

The global population continues to expand and people must eat.

We also see further growth in emerging nations because, as their people become wealthier, their diet tends to include more meat.

That requires more grain for feed, which in turn means more potash for fertilizer.

We also expect to offset the Custom Products slowdown in potash with new Custom Product business from other types of mines in other vertical markets such as oil and gas.

We've been working on multiple large projects in these areas and have millions of dollars in new business opportunities currently pending.

Last quarter, we talked about the Canadian oil sands and the new infrastructure being put in place to extract, refine, and transport the Canadian oil into North America and Asia.

We expect to report successes from this area as well as other markets later this year.

We also are utilizing the global sales network we have for our Protection Relays to leverage our song brand and expect our custom products into new customers and new markets.

To summarize, the long-term outlook for our Protection Relays and Custom Products remains very positive.

And while we expect to see an impact in the second half of the year from the temporary slowdown in Canadian potash mining, we are working to offset this by diversifying into other markets and internationally with a number of major opportunities in the pipeline.

Now, let's move on to the core electrical fuse business, which had another strong quarter.

The continued strength in the OEM segment was again led by the solar and HVAC markets.

In the solar market, we are continuing to receive strong initial orders for the new SPFI in-line solar fuse we talked about on prior calls.

This product was officially released during the fourth quarter, and it's a first in the market approach to protecting solar power systems that provides high reliability at a lower cost.

We expect this new product will generate substantial revenue and market share gains for us in 2013.

Another new product introduced during the fourth quarter is a redesigned in-line fuse holder that is used to protect fuses in outdoor lighting applications.

This new product is just one way we are capitalizing on the growth in LED street lighting and the opportunities in this market.

In the HVAC segment, we are close to securing a leading position with another top 10 multinational manufacturer.

We expect to receive the first production orders in the coming months, which will result in substantial new business for us.

Looking at the full year, the second half of 2012 was much stronger than the first.

In addition to significant orders in the HVAC and solar OEM segments, we also benefited from some key industrial and commercial construction distributor conversions.

For example, in the second half of 2012, six electrical distributors switched to Littlefuse POWR-GARD fuse products, each with purchases greater than $100,000.

This compares to a recent historical average of just two to three distributor conversions per year.

This increased distributor presence is key to the future growth of the fuse business.

With the addition of the Protection Relay line, we are now much more than just fuses.

Our ability to leverage our broader product portfolio has just started to gain traction.

And, beyond that, we also have the advantage of a well established reputation for high quality and excellent global customer service support.

So, looking to 2013, the base fuse business will continue to be driven by the industrial segment, although a modest rebound in the commercial construction segment is anticipated for the back half of the year.

In addition to the specific products and markets I mentioned, our Electrical business as a whole is well-positioned to benefit from an over-arching megatrend, the increasing global focus on safety and reliability.

And, as a result, we expect another solid year in 2013.

That brings us to our Automotive business, which accounts for about 30% of total Littlefuse sales.

Fourth-quarter automotive sales of $50.3 million were up 10% from the fourth quarter of 2011.

For the full year, Automotive sales of $206.2 million were up 4%.

The increased sales include ACCEL, which we acquired in June, and Terra Power Systems, which we acquired in October and discussed in our last call.

Excluding these two acquisitions, Automotive sales were down slightly in the fourth quarter and were down 2% for the year.

The decrease reflected the weaker euro and lower production of commercial vehicles, somewhat offset by increased passenger car production in all regions except Europe, where they were flat.

The revenue loss attributable to the weak euro was $500,000 in the fourth quarter and $5.1 million for the year.

The slowdown in Europe continued throughout the region, and we expect to see a further reduction in production volumes as inventories at OEMs and dealers reach target levels.

According to LMC, European car production hit the bottom in the fourth quarter and production is expected to remain flat with the fourth quarter of 2012 for most of 2013 with only a slight increase in the fourth quarter.

Overall, 2013 production in Europe is expected to be about -- down about 6% compared to 2012.

To add further color to this, announcements by high-volume European manufacturers, including PSA, Renault, Ford, and GM, indicate they will continue to reduce capacity and to close plants over the next three years in order to bring their remaining facilities back to profitability.

While these factors will continue to present a short-term challenge for our Automotive business in this region, we believe we will continue to outperform the market because of our substantial market and technology wins over the past few years.

The situation is much better in Asia where we had a very positive fourth quarter.

We are well positioned with localized Western OEMs and tier 1 suppliers in China, which are increasingly transferring production into Asia instead of shipping components out of Europe.

Demand for cars produced by these manufacturers increased in the fourth quarter, due to the ongoing territorial dispute between China and Japan.

However, the expectation in the market is that the trend of Chinese customers choosing products from countries other than Japan will soon come to an end.

We were very close to a second consecutive record quarter in China, but missed it by a few thousand dollars.

The long-term outlook for China remains very positive, and we expect to reach the $20 million revenue milestone for the first time this year.

The local OEMs in China are implementing new risk quality initiatives to win market share.

Our team in China is well-positioned to be viewed as a development partner, and we expect to participate in this growth.

That said, we are also maintaining our strong position with the Western OEM brands and reducing advanced technology into the China market and, with it, content growth.

An important step for us in further expanding our business in China was the startup of production for our high current Master fuse line at our Suzhou, China facility.

Many of our customers prefer a local production for key car components such as custom master fuse products.

And, as a result, we expect to build on our local presence with additional capacity and new product launches in China over the next few years.

In India, we are participating in a trend towards blade fuses and away from the glass fuses for two-wheel motorbikes and scooters.

We also won new blade fuse business with one of the biggest two-wheel producers, and expect sales to this segment will continue to grow.

And even though the number of fuses per two-wheeler is relatively small, the volume is very high as there are nearly 20 million bikes and scooters sold each year in India.

We are also seeing a positive trend with Japanese car manufacturers.

Several of these companies are moving to less centralized decision-making in Japan and they are outsourcing development to the United States as they see this market as a priority.

This is providing opportunities for us to work more closely with their engineers as they develop new car lines and we benefit from seeing the trends earlier in this process.

We anticipate this more open technology participation will provide some future design-in opportunities.

During the past few quarters, we had numerous wins in one of our key focus areas, high-current fuses that protect an increasing amount of electrical equipment in today's vehicles.

In North America, this technology is now designed into almost all new platforms.

In the fourth quarter, we started production on one of our newest technologies, the Single ZCase for a new Chrysler car.

In 2013, we'll have additional global launches from design wins this past year for Master fuse and the ZCase Master fuse.

The launches are expected to generate peak revenues of over $8 million in the 2014 and 2015 model year.

Looking at new projects, we won additional business for Volvo's next-generation car platform called the SPA, which includes the S-80.

Geely, the Chinese company which bought Volvo in 2010, is investing significantly in this new modular system.

This is good for us because the new platform drives the demand for common components.

We will be just supplying our Master fuse and solar sensors for the SPA architecture.

The Master fuse sales are low and are expected to generate a peak revenue of about $3 million per year with production starting in 2015.

In China, we began delivering fuses for a new GM small class platform that will launch in the first quarter of 2013.

This is one of GM's highest volume cars in China that is expected to reach up to 600,000 cars per year in its peak year.

Revenues are expected to be more than $1 million by 2015.

Looking at 2012 overall, it was a very successful year for us in winning future projects and introducing new products and technologies.

And while sales were down in Europe, most of the other regions met or exceeded our expectations.

As I indicated, European car production is expected to be down about 6% from 2012.

Nevertheless, the numerous projects we've won over the past two years are now starting to ramp up and are expected to help generate higher sales for us in 2013.

Now, let's move onto commercial vehicle products.

While fourth-quarter sales were down, it was a very strong quarter and year for both new business wins and new product launches.

It will help us grow our CVP business in the years ahead.

The commercial vehicle markets we track are construction equipment, heavy truck, and agricultural equipment.

The fourth quarter saw declines in most of these end market segments.

For example, in North America, the heavy truck producers were down 21% compared to last year, and Europe was also down significantly.

For the full year, heavy truck in North America was up 2%, but that was due to a strong first half of the year.

The agricultural equipment market in both America North America was flat in the fourth quarter and down 3% for the year.

The bright spots for our CVP business in the fourth quarter were into categories.

Sales of several of our new power distribution module products were up, including flexible electrical centers and hard-wired boxes.

These are all relatively new CVP products that were launched into the market over the past two or three years.

Sales are growing as programs ramp up production and we continue to win new programs.

The second growth area in the fourth quarter was service parts for some of the heavy truck OEMs.

Just as we experience in the passenger car market when production and sales of new trucks are down, sales of service parts increase as older equipment stays on the road longer.

As I mentioned, we had some very good business wins and product launches in the fourth quarter.

We launched a new electrical power distribution box for a major construction equipment manufacturer in China, which will begin with their Excavator platform in early 2013.

We also launched a new power distribution module for a major forklift manufacturer in Europe, which will also start production early this year.

Other fourth-quarter launches in North America included new Smart Battery isolators for a police motorcycle program and foreign agricultural equipment manufacturer.

Last quarter, we announced the acquisition of Terra Power Systems, which specializes in products for the Class 8 heavy truck segment.

We saw Terra Power as an excellent opportunity to help us achieve product and business growth in the Power Distribution segment.

Terra has already brought us new customers and we've successfully designed and won new business together, and we look forward to building on this space in the year ahead.

The CVP industry is expecting some recovery from the significant downturn during the second half of 2012, but not until later in 2013.

Helping to compensate is our heavy duty aftermarket business, which is always much stronger in the first two quarters as distribution channels build their inventories for the year.

With new product and program launches already announced or in development for 2013, we look forward to continuing to grow the CVP business.

The slowdown in the European automotive market also impacted the results of ACCEL, the automotive sensor business we acquired in June.

Because ACCEL sensors and switches are custom made for a particular OEM car or truck model, sales are very dependent on OEM production rates.

But similar to our CVP business, we continued to make progress in the areas of new products and new businesses.

During the fourth quarter, we introduced a new series of seat buckle switches for BMW, Maserati, and Jaguar.

We purchased ACCEL because we determined that sensors for driving lights, climate control, and safety is a higher growth market that complements our existing automotive business and leverages our automotive expertise and customer base.

By selling both our automotive circuit protection products and the new sensor products into the same vehicle platform, we can significantly increase content per vehicle at a higher margin.

ACCEL is the first step in a new strategic platform for Littlefuse and we plan to continue to invest in and grow in the years ahead.

So, in summary, despite the headwinds of the weaker euro and the slowdown in Europe, our Automotive business had a good quarter and a full year of 2012.

We continue to launch new products and win new programs in our core Automotive business as well as in our targeted growth areas of commercial vehicle products and sensors.

And we believe these competitive advantages will enable us to continue to outperform in the market.

So that brings us to our Electronics business, which accounts for the other half of total Littlefuse sales.

Fourth-quarter Electronic sales of $75.1 million were down 14% sequentially from the third quarter.

This was due to the continued slowdown in several of our end markets and the nominal sequential drop in sales we typically see in the fourth quarter.

Compared to the fourth quarter of 2011, sales were up 4%.

For the full year, Electronic sales of $329.5 million were down 7% from 2011.

To summarize the year, we experienced an inventory correction in the distribution channels in the first half but since then, there has been no significant increase or decrease in channel inventory levels.

We believe our channel inventory is at the right level for current business conditions.

The global electronics market remains depressed during most of the fourth quarter, resulting in a book-to-bill ratio of 0.98-to-1 for the quarter.

Orders began to pick up towards the end of the fourth quarter and, as we indicated in the news release, the book-to-bill is currently running significantly above 1.0.

We anticipated this upturn as factories in Asia placed orders ahead of the Chinese New Year coming up next week.

Let's review some of the key Electronics market segments.

As we've indicated on prior calls, personal computer unit sales have declined year over year, due to saturation in the mature markets as well as cannibalization by the tablet market.

So far, the launch of Windows 8 has not created an increase in demand for PCs.

In fact, the latest information indicates that global PC sales during the fourth quarter were down 6% from the same period in 2011.

However, the Ultrabook subsegment of the PC market continues to grow at the expense of normal notebook PCs.

The increase in Ultrabook sales reflects the improved performance, pricing, and popularity of these thin, lightweight ultra portable laptops.

And as we've discussed previously, we are well positioned in the Ultrabook market with a broad offering of fuses, PTCs, and TVS diodes designed into these products.

As a result, we stand to benefit from the ramp up in sales as the cycle picks up.

We've also talked before about the fast-paced growth of the tablet and eReader markets worldwide.

The latest reports from Display Search estimate that tablet sales will reach 240 million units in 2013, exceeding notebook PCs, which are estimated to be about 207 million units.

As we mentioned last quarter, we are continuing to work with engineers at key OEMs to design our overcurrent and ESD products into the next generation tablet platforms where they protect charges, battery packs, inverter circuits, and data lines.

Our revenues from this segment were about $6 million last year and expected to grow by more than 15% in 2013.

This increase will come from the overall growth of the market as well as additional design wins with new eReader and tablet manufacturers.

A recent success was the design-in of our multilayer varistor with the manufacturer of a new Windows 8 tablet.

Revenues from this win are expected to be about $300,000 in 2013.

In the eReader market, recent wins for our diode array of products are expected to produce an estimated $1 million in revenue this year.

The continued growth of tablets and smartphones is driving demands for faster broadband delivery.

This, in turn, provides opportunities for infrastructure products such as data switches, Ethernet connections, and femto and picocells.

We haven't talked about femto and picocells before, but you may be familiar with them.

They provide low power, local data connection in the home or office via the phone network to enable high-speed data connection without using additional spectrum or bandwidth.

They connect through a wired port to the Internet service provider.

All of the infrastructure products I mentioned require protection from ESD and higher power surges to extend their operating life.

And we are in a good position to provide this with enhanced versions of our diode array and SIDACtor products.

We estimate revenues in the Broadband Infrastructure segment of about $2.5 million to $3 million in 2013.

Another new term we haven't talked before is the phablet.

This refers to the device that is in between a smartphone and a tablet.

Depending on your preference, it's either a smaller tablet or a bigger smartphone.

Whether it's a tablet, a smartphone, or a phablet, they all have one common need -- longer battery life between charges.

And battery pack design engineers are continually working to improve battery life even further with longer-lasting and lighter-weight designs that demand ultra-low resistance and low-profile circuit protection components.

Our products meet these needs, and we've been working to leverage our already strong position in this market.

In the fourth quarter, we introduced our latest polymer PTC offering that boasts the lowest resistance in the smallest form factor in the market today.

We expect our battery protection business in the smartphone and smaller tablet segment to more than double this year to over $8 million from about $4 million in 2012.

As we mentioned last quarter, up 3.6 x 10 cartridge fuse was initially selected by the leading tablet makers for use in their wall chargers that operate at 10 W and higher.

Many other smartphone and tablet manufacturers are now also specifying this product.

We are also winning new business in other growing segments and for a wide range of applications.

One of these that we've highlighted on prior calls is LED lighting.

We have numerous wins for products, including AC line fuses, metal oxide varistors and TVS diodes with the leaders in the retrofit bulb market as well as in the commercial luminary placement market.

As part of our continued expansion into this segment, we recently launched an LED SPD module that protects outdoor street lighting from high-level lightning events.

This integrated module combines our industry-leading TMOV technology with our proprietary thermal disconnect feature to provide a high level of protection along with easy assembly and maintenance that appeals to customers.

Our sales into the LED lighting market were about $7 million in 2012, up from $4 million in 2011.

Our estimates are that this segment will generate about $8 million to $9 million in sales this year.

A recent design win in another segment of our outdoor market was for an outdoor air conditioner unit produced by a Korean manufacturer.

This win was for our 6 x 32 millimeter fuse, which, in this application, must pass severe thermal shock cycles because it's exposed to extreme temperature ranges.

The potential revenue for this product is $125,000 in 2013 with further increases anticipated in 2014.

So, as you can see, we won significant new business in 2012 with more in the pipeline.

We also won a key award, the Technical Support Award, from Huawei, a global telecom industry leader.

This award recognizes suppliers that provide advanced technology support for the company's products.

We were selected from a field of over 200 suppliers as a result of our strong design-in support as well as custom product design work with Huawei's engineers.

For example, we designed a new 6 x 25 fuse to specifically meet Huawei's specifications.

The expected revenue from this win alone could be as much as $500,000 this year.

So, in conclusion, the Electronic inventories are stable, we are winning new business and introducing new products in the segments that are growing, including Ultrabooks, tablets, and LED lighting.

We are encouraged by the recent increase in Electronic sales.

If this trend continues, we expect to see improvement in our Electronics performance, beginning in the second quarter.

So, that completes my review of the three business units.

To sum up the year, the first half was better than the second.

It was a mixed year and, given the challenges we face in electronics, commercial vehicle products and the European automotive market, we believe we performed very well.

Our operational excellence focus saw significant gains in the quality and delivery performance of our recent acquisitions.

And our core business experienced solid improvements in inventory performance across all product families.

From a financial standpoint, we are very healthy and very profitable.

We increased the quarterly cash dividend for the third year in a row.

We made good progress on our focused growth areas, completed two acquisitions that expand our Automotive business, and continue to extend our lean program across the Company.

So, what's next?

We recently completed a strategy review and update that takes us from 2013 to 2017.

We introduced the Refresh strategy at our analyst day in New York City on December 10, so some of you are already aware of our plans.

I can sum them up in two words -- faster growth.

Our goal is to build on our leadership position in circuit protection to also become a leader in power control and sensing.

Our leadership in circuit protection is well known and we have good growth potential, both organically and through opportunistic consolidations.

We have built the power control business over the last few years through acquisitions, including Teccor, Startco and Cole Hersee, and we plan to further grow this business, both organically and through acquisitions.

And, as I mentioned earlier, our acquisition of ACCEL is the beginning of a new platform we plan to build on in the higher-growth automotive sensing market.

We are actively seeking good synergistic acquisitions that will help us to expand the platform and our customer base.

Our overall objectives are to step up our growth by making acquisitions at double our historic pace and to grow organically at a rate that is faster than our markets.

And as the news release indicated, we currently have a cash balance of $151 million.

This gives us the ability to actively pursue potential acquisition opportunities while, at the same time, continuing to invest in new product development and return capital to shareholders.

On the operations side, we plan to continue to leverage our fixed costs to sustain and operating margin in the high teens.

And we believe we have the pieces in place to successfully execute on this strategy.

We know where we want to go and we know how we are going to get there.

We are excited about the opportunities ahead.

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

Thanks, Gordon.

The first quarter is always difficult to forecast with the uncertain effects of Chinese New Year.

That said, our guidance is as follows.

Sales for the first quarter of 2013 are expected to be in the range of $158 million to $168 million.

Earnings for the first quarter of 2013 are expected to be in the range of $0.75 to $0.88 per diluted share.

This implies an operating margin in the 15% range and a tax rate of approximately 26%.

The full year of 2013 is shaping up to look much like 2012, but with different cross-currents by business unit.

We expect sales and margins in our Electronics and Automotive businesses to improve as the year progresses.

But, as Gordon said, we expect this to be offset by second-half weakness in our Electrical business resulting from the temporary downturn in our Custom Products business.

This guidance does not contemplate any further acquisitions, which we believe are reasonably likely over the coming quarters.

This concludes our prepared remarks.

But before I conclude, I'd like to mention that Gordon and I are at the Stifel Nicolaus conference today, so will not be available for questions by phone later on today.

But if you have anything that's time sensitive or urgent, send me an e-mail and I'll try to respond.

Otherwise, I'll be back in the office tomorrow.

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

(Operator Instructions).

Shawn Harrison, Longbow Research.

Hi.

Good morning.

Just wanted to follow up on the Electrical business and the commentary there.

With the weakness expected in the second half in the Custom Products business, do you expect overall Electrical sales to be down then for fiscal 2013?

Was that the implication?

It could be.

I mean, certainly, as you know, Shawn, that's been a big driver of our growth there.

And it's not exactly clear how much sales are going to decline in that segment because we are working on some things to try to bolster those sales.

And we do expect growth in the power fuse business, but it's certainly possible that, if we have a meaningful downturn in that custom business, that overall Electrical sales could be down.

And if I am correct, the custom business is running at somewhere between $70 million to $80 million of annual revenues.

That would be the custom and relay business together would be at that.

Right.

So the custom business is a little less than that, but it's the bulk of the $70 million to $80 million.

Okay.

And then, two clarifications.

Capital spending expectations, I guess, for the first quarter and for the year?

Yes.

So we have talked about some of these bigger facility related expansions that got a little bit pushed out, although we did see some of that spending occur in the fourth quarter as you saw CapEx tick up.

For the year, CapEx should be a little bit higher than 2012, probably somewhere in the $25 million to $30 million range.

We're not going to try to break that out by quarter since it's pretty difficult to forecast the exact timing of that, but figure on a $25 million to $30 million annual.

Pace and you can probably divide that by 4 would be about our best guess.

Okay.

And then the final follow-up, more of a clarification.

The above-the-line charges, or acquisition, the pension, and then the settlement of liabilities, was that -- how was that broken out between SG&A and COGS?

It would have all been in SG&A.

Okay.

Perfect.

Thanks, Phil.

Okay Shawn.

John Franzreb, Sidoti and Company.

Good morning, Gordon and Phil.

Around the commentary about the Electronics book-to-bill running significantly above 1, can you put that in context on a year-over-year basis concerning Chinese New Year?

I am sure there is some advanced ordering.

How does it look on a year-over-year January versus January?

I am not sure that it's significantly different than it was last year.

I mean, we saw orders pick up last year as well and it's not a typical, what we are seeing right now, but it is at least encouraging that, with the weakness that we saw, particularly early in the fourth quarter, that things have ticked up meaningfully.

And I think it's a reasonable indicator that we'll see an uptick in sales coming out of Chinese New Year like we would typically expect.

Okay.

Some of the large distributors are out there making commentary along the lines that they expect a return to normal seasonal order trends in 2013.

Is that what you are planning for in 2013, certainly on the Electronics side of the business, Gordon and Phil?

I think so.

I think we think we are sort of back to normal.

We clearly feel the inventories were at the appropriate levels, given the sort of flat performance in the second half of the year.

And now we are seeing this uptick in orders that we just discussed.

And I think the feeling in the industry is we are sort of back to normal and should have normal seasonal patterns.

And I think a little bit like last year, there is sort of optimism about the second half, but I think people haven't really been able to define quite where that optimism is coming from.

There was a little bit the same last year, a feeling that we might have Windows 8 and new Ultrabooks in the second half of 2012, and that never happened.

So, I think there's a little bit of a redo of the optimism of the beginning of 2012, but a little undefined exactly which segments it's coming from and which geographies it's coming from.

Okay.

And could you just talk a little bit about the Shocking Technologies investment?

I think you made two in the last couple of years -- investments in that business?

And why the write-down?

Could you just give us a little bit of background on what happened there?

We've invested -- we made an equity investment of $16 million there and that -- we just wrote that down by about 50%.

And really what that relates to is this is a technology that we've been talking about for a while.

It's kind of right within our core.

It's ESD protection technology.

The technology actually has proven to work quite well and provide benefits to the customer.

The challenge is getting conversion of big mobile phone customers where we are really targeting this technology, where Shocking is targeting the technology.

And that adoption has been slower than what was originally expected.

So with the timeline there pushed out, we thought it appropriate to write that investment down.

We also indicated in a note in the press release that they are looking to obtain additional financing as their timeline is stretched out.

And depending on the success or not of that, we could potentially see further write-downs over the coming quarters there.

But we do believe in the technology, but it is going to take longer to get it commercialized and we need to get over this funding hurdle that the Company has right now -- that Shocking has.

Now, you were involved in the last two financings.

Are you not going to be involved in the third one?

We are not going to comment on that right now.

It's an evolving situation and we are continuing to evaluate it and we'll talk about that at the next -- probably at the end of the next quarter.

Okay, guys.

Thank you very much.

I'll get back into queue.

Param Singh, Stifel Nicolaus.

Hi.

Thanks.

This is Param sitting on for Matt Sheerin.

So firstly, on your margin, obviously you guys had incremental SG&A costs from acquisitions.

What are you guys doing to curtail costs there?

And now that you think that the electrical market is going to be weaker, especially in the second half, what leverage do you have to actually maintain those margins?

I mean, are you going to be negatively impacted by mix as well?

Yes, so, as Gordon mentioned, we've got a whole range of lean activities in our factories as well as in our office areas that we think will lead to more efficient cost structures and continuing to lean out the organization.

We are not intending to do any major cost cuts.

We believe that this downturn in Electrical is temporary.

As Gordon said, we are still very bullish on the long-term market there and we believe that will be a growth market for us.

It's going to be a -- we believe it to be a temporary situation.

And while we will be watching our costs very carefully, we're not going to take big chunks of cost out of that business because we feel like we need to continue to invest in some of the initiatives that we've been talking about for the last couple of years there.

Okay.

Great.

And do you think you can maintain or get back to the operating margin level you had in 2011 for this year?

Well, if we see -- depending on how big the decline is there, we still see very -- we're still going to see very strong margins in that segment.

But if there is a big decline, it will be difficult to hold the same margin levels that we were at in 2011.

It just depends on volume, really, more than anything.

Great.

I had one more question.

What are you guys seeing on the commercial vehicle side right now?

The comments from Caterpillar and other major manufacturers are it's still little dicey, so are you seeing any change there?

No, I think we got on with that.

I think we, certainly for North America and probably Europe too, feel that the first half of the year is going to be a little down.

And I think I'd mentioned in the comments the sort of optimism that things will pick up in the second half of the year.

We have seen orders tick up a little bit, but they are still below where they would have been a year ago.

Great.

Thanks, guys.

Anthony Kure, KeyBanc.

Hi.

Good morning.

Just wanted to round out the discussion on growth.

Could you just talk about or comment on what your normal seasonality on a sequential basis is in both Automotive and Electrical into the first quarter?

Yes, so our seasonality has changed a little bit in those segments with the mix of business, but generally speaking, Automotive is a little bit stronger in the first half of the year than it is in the second half.

It could be a little bit different this year if the commercial vehicle market plays out like a Gordon described with that strengthening further as we get into the year, so that could offset some of the normal seasonality there.

But there is not a huge amount of seasonality, typically, in Automotive.

The Electrical business -- the core fuse business tends to peak in the summer months.

Particularly the third quarter is generally our best quarter, and as we get closer to the end of the year and generally in the early parts of the following year, it generally tends to be weaker.

The Custom and Relay business, there tends to not be a lot of seasonality there.

I think we might see some seasonality due maybe to shortened quarters due to holidays, but that would be about it.

Okay.

So if I were to -- if we are talking about -- you mentioned an earlier question, the expectation for Electrical on a full-year basis, and then given all the commentary, you still expect organically to grow the Automotive segment and the Electronic segment in 2013?

Would that be a fair expectation?

That would be a fair expectation.

Okay.

And then as far as book-to-bill, just about a little bit of visibility and Electronics obviously provided that.

Did that say one quarter of visibility?

Is that correct?

Yes, that's pretty much it.

I mean, we are typically, in the semiconductor business, the semiconductor products we probably -- we generally would have about a quarter of orders in backlog.

In the passive components piece of Electronics, it would be less than that.

It would be -- we are generally, maybe going into a quarter, we might only have half of the quarter booked.

Okay.

And then just to round out a question from -- you mentioned last quarter the ramp up of a project with Tata Motors.

I think you said it would be significant revenue when that ramps.

Is that a 2013 event, and can you just comment on the progress on that?

Yes, it's the beginning of the end of 2013, and we are very pleased with our relationships with Tata Motors.

We have a very good team of people now in India.

That was one of the places we invest in building a team and, I mentioned earlier the success also in the two-wheeler segment.

So we're still investing in India.

Great.

Thank you.

Okay, Tony.

(Operator Instructions).

Peter Lisnic, Robert W. Baird.

Good morning, gentlemen.

I guess first question, is there anything unusual from a pricing perspective in the Electronics business that you saw in the quarter, or that you're seeing in the bookings to date?

No real trend change there.

I mean, it's always our toughest business from a pricing perspective and, as we've mentioned before, particularly in some of the consumer areas, it's the toughest little -- it's a little more favorable in some of kind of our broadly distributed products through distribution.

But we haven't really seen any change in that trend at all.

Okay.

Pretty consistent.

All right.

And then just circling back on Electrical, with some of the puts and takes you talked about from a revenue perspective, I'd like to get a better feel for what the incremental profitability might look like or decremental I guess.

Can you give us a little bit of a feel as to how mix should work if, indeed, the back half of the year is pressured by some of the issues or -- issues with potash?

As we've talked about, Pete, the Electrical segment overall is our highest margin, most profitable segment.

The Custom Products piece of that is quite profitable.

I mean, it has margins that are fairly consistent with the overall segment there, maybe not quite as high as fuses or relays, but it's still a very attractive margin business.

So, it will -- and then the margins there, particularly operating margins, are well above our average operating margin.

They are up into the 20s%.

So it will have an impact, a mixed impact, on the back half of the year.

We will replace that volume with, hopefully, with some growth, at least replace some of it with some growth in some of our other product lines, but it is a relatively high margin segment for us.

Okay.

All right.

And then, if I understood the top line commentary right, it sounded like that slowdown there is more projects being deferred versus canceled, for lack of a better term, or just demand not being there.

Is that the right way of thinking about it?

Is that what you're hearing from your customers?

Yes, I think, particularly, I think there was a big expansion over the last couple of years that was really planned for the out years with the long-term growth in potash.

And some of those new mine expansions are just sort of coming to an end.

So, I think a lot of the very feverish activity over the last couple of years is tailing back to more normal levels.

There are some greenfield projects that are planned that will come online in the next couple of years, but I think the market is just sort of going through a little bit of a pause.

They've put a lot of extra capacity in place, a lot of new mines, and now we are just seeing a pause before the next wave of expansion comes.

Okay.

All right.

And then, last question, two-parter just on cash flow.

Should we expect similar kind of conversion in 2013 from a cash flow perspective?

You gave us a little color on CapEx, but I'm just wondering working capital and what that might look like.

And then --

Yes, I would say our operating cash flow should look quite similar to the 2012 number.

We'll have a little bit higher CapEx, so maybe free cash flow might be a tad lower, but it's going to be -- it's going to look pretty similar to 2012.

Okay.

And is there anything material from a pension contribution perspective?

We are in pretty good shape on our pension.

Our plan right now is to probably contribute about $5 million a year, which we've -- so we will almost certainly do that each year for the next several years.

Ultimately, over the next several years, we'd like to get out of the pension business and that's really our goal, is to wind this thing up, sell it off and get rid of it.

But we need to -- we are going to do that at the most favorable time.

And the interest rate environment for annuities and for selling those kinds of liabilities off to insurance companies is not so favorable right now, but we're going to get ourselves in a position over the next couple of years at the right time to get out of that business, but expect about $5 million a year of contributions.

Okay.

Got it.

All right.

That does it for me.

Thank you very much for your time and your help.

I appreciate it.

Okay, Pete.

Thanks.

Gregory Macosko, Lord Abbett.

Yes.

Thank you.

Just with regard to sensors and ACCEL, what was that growth on a comparable basis?

Well, the sensor business was a business that we acquired during 2012, so we didn't have that business a year ago.

We had a -- I'm sure, if we went back and looked at that business, they would have been down in the fourth quarter versus where they were prior year relating almost exclusively to just the weakness in the European market which is the biggest part of their revenue stream.

Okay.

So the point being that there was a relatively easy comp there and that was -- how much of the business is in Europe, would you say?

I think it's 55%, maybe 60%

Okay.

And is the idea to basically see those sales move or move more sales overseas -- into the United States and Asia?

Yes, absolutely, the United States and Asia as well.

I mean, we are working on that through -- I mean, we have obviously very good relationships in the US and in China as well in places like India.

And we are looking to use those relationships to begin to penetrate sensor markets where the prior company really didn't have those kind of capabilities.

Any success so far?

Yes, there is a few.

It's still early days.

Those things take some time to actually win the designs and certainly take some time before those platforms start production.

But we did talk about the example of one of the leading customers.

This was a Swedish originated company and very good success with Volvo.

And with Volvo being acquired by Geely, we now have a very good partner in China.

So that's a good example, and we've got a very strong automotive team in China.

I talked about us getting to record levels of sales in the China automotive industry.

So we are very bullish about the opportunities for winning more designs with the sensor product into the OEMs that we already have very good relationships.

And just, again, within the auto business, how is business with VW and have you seen any wins there recently?

Yes, VW is one of our largest customers, very strong relationships of designing in.

Particularly, we've talked on many calls about Master fuse wins on multiple VW platforms as they kind of standardize the electrical system across many VW and Audi vehicles, some very high volume platforms.

And we've become a very strong partner with VW, particularly in China.

And it's the leading -- one of the leading manufacturers, if not the leading, volume manufacturer in China with great ambitions for its own volumes to get to a number one position.

So, a very, very important customer for us and we have a, I'd say, extremely good relationship there.

And opportunity for sensors, potentially, as well.

Yes.

Okay.

Good.

And then, finally, just could you help me with regard to acquisition versus core growth, just overall?

I don't believe I heard that.

If we take the whole year and the fourth quarter, what was core growth versus the total growth that you called out?

Yes, so I don't have those numbers right in front of me, but basically the year was -- the year-over-year was just about flat.

If I take the acquisition revenue that we got and it gets just about offset by currency effect, so on kind of a core organic growth basis, excluding currency effects, it's pretty flat as well year-over-year.

In fourth quarter?

Yes, I don't have those numbers specifically in the fourth quarter, but we were up overall in the fourth quarter.

I believe we were up slightly on core growth, but most of the growth would have been related to acquisition revenue.

Okay.

Thank you very much.

John Franzreb, Sidoti and Company.

I'm sorry if I missed this, but I think you mentioned a capacity expansion.

I was just trying to put that in context with maybe lower second-half revenues in Electrical and a weak European Automotive market.

Where is that expansion capacity being directed?

Yes, so we have a few that we've been working on.

One that we've recently completed up in Canada for the Starco business and obviously we are making these capacity investments for the long term.

We're not obviously doing it based on what's happening in the next few quarters.

But we believe enough in that business that even with the downturn that we're expecting in the back half of this year, we still believe we're going to need additional capacity there, and so we've invested in that.

We built on our site down in Mexico.

We have a new building there that we're using to consolidate operations into -- from more disparate operations that we have today as well.

We need some capacity for the Automotive business that we're expanding there.

That's something that we'll be spending money on in the back half of this year.

Then we are also -- we also have an expansion planned over in the Philippines for our Electronics business and that probably isn't going to happen until late in 2013.

Okay.

Shifting gears, in the sensor market, could you talk a little bit about your thoughts on ACCEL and is it performing up to your initial expectations?

And also the opportunity pipelines in the sensor market, do you think you are going to go through a digestive process with ACCEL before you can see some more M&A?

Just a little color along those lines would be great.

You know, we are very pleased with ACCEL.

Obviously since, as Phil mentioned, the majority of that business is in Europe with European platforms and it's a specific custom product for a given platform, the downturn in European production has obviously impacted it.

So the numbers are not as great as we would like, but we fully understand the programs and the volumes on those programs.

More important is being the new design wins and the new product developments which we are very encouraged by.

These products are becoming more sophisticated, having more features built into them, and the team there is really developing new products.

As the question came earlier -- are we able to take those products to other platforms in North America, in Asia, very encouraged by that.

In terms of doing further M&A, do we need to digest this?

I don't think so.

This business is pretty well run.

It's pretty stand-alone.

It's up and running.

And I don't think it requires a digestion period too much.

So we are very actively looking for complementary sensor products that would fit with ACCEL, fit into the strategy, fit with the existing customer relationships we have.

So we are very actively working on that and think we've done a pretty good digestion.

We've got a very good management team with that business, which is very important, and we are going to be moving that forward pretty quickly.

Thank you very much Gordon.

We have no further questions at this time.

I would now like to turn the call back over to Mr. Gordon Hunter.

Okay, well, thank you for joining us on today's call.

We appreciate your interest in Littlefuse and we look forward to updating you on our progress again next quarter.

So have a great day.

Thank you.

Ladies and gentlemen, this concludes today's conference.

Thank you for participating.

You may now disconnect.