Littelfuse Inc (LFUS) 2013 Q1 法說會逐字稿

Good day, everyone, and welcome to the Littelfuse, Inc.

First Quarter 2013 Conference Call.

Today's calling is being recorded.

At this time, I would 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 2013 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, we have had a very good start to the year with solid performance in all businesses and all geographies.

Sales and earnings were consistent with the updated guidance we provided on April 10th.

I will discuss our first quarter performance and provide more details on our recently announced agreement to acquire Hamlin, Incorporated in a few minutes.

But, first, I will turn the call to have Phil, who will give the Safe Harbor Statement and a brief summary the of the News Release.

Thanks, Gordon, and good morning.

Before we proceed, let me remind everyone that 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 first quarter of 2013 were $170.9 million, which was up 6% year-over-year and consistent with our most recent guidance.

GAAP earnings for the first quarter of 2013 were $0.66 per diluted share, which included a $0.29 charge related to the write-off of our remaining investment in Shocking Technologies.

Excluding this charge, earnings were $0.95 per share, which was at the high-end of our most recent guidance and well above the $0.80 we earned in the prior-year quarter, primarily reflecting increased sales across all businesses.

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

Thanks, Phil.

I will begin my remarks with a review of the three business units, starting with electrical.

Electrical sales accounted for about 19% of our total sales, and sales of $32.1 million for the first quarter increased 4%, compared to the first quarter of 2012.

Electrical fuse product sales increased 11%.

Sales of custom products and protection were down slightly due to the general slowdown in the global mining market.

The increased sales in the electrical fuse business were driven by continued strength in the OEM segment, and incremental sales from the multiple distributor conversions we've discussed on previous calls.

Many of these conversion have been driven by the added value of our protection really offering, a competitive advantage that sets us apart.

Key wins in the solar and HVAC markets continue to drive the OEM segment.

This was a record quarter for our solar business, and the sixth consecutive quarter of strong quarter-over-quarter growth.

The improvement was due, in large part, to the success of our new products designed specifically for solar applications.

To keep the momentum going, we are already working on our next generation solar products, that will further solidify our leadership position in the solar market.

The solar business continues to shift from the traditional European market to North America and emerging markets, such as India and China.

With our global sales force and global product approvals, we have been able it to successfully follow this business into the emerging markets.

This new business more than offsets any decrease in the traditional markets.

During the first quarter, we won new business with a large white goods manufacturer that expanded our circuit protection products into additional platforms.

We expect to realize more than $300,000 in additional revenues from this win this year.

The increased penetration into the electrical distribution channel is critical to the successful growth of the fuse business.

We continue to convert key electrical distributors to Littelfuse, and expect these conversions to contribute more than $500,000 of annualized revenues in 2013.

We are more bullish on the U.S. industrial and construction end market segments than we have been for some time.

The industrial segment appears to be holding up very well and we continue to have good opportunities in the solar and HVAC markets.

In addition, the architecture billings index recently showed a significant uptick, a leading indicator of more activity to come in commerce construction.

In addition to the positive market trends, we implemented a price increase in March that should help the revenue line and offset some of the margin pressure we experienced in 2012.

In summary, our electrical fuse business is performing very well and we continue to be primarily driven by the industrial segment, with further growth in the solar, HVAC and lighting markets.

Looking at our protection relay business, although the market is softer than it was a year ago, we believe the fundamental long-term drivers remain positive.

Our first quarter relay sales were impacted by the slower mining market globally; the U.S. coal demand has also been off its highs and we are continuing to see the temporary slowdown of our potash business that we talked about last quarter.

Within this environment we continue to win new business and actually (inaudible) on our growth strategies.

These strategies include, geographic expansion; developing new products; diversifying beyond potash mining; and focusing on large OEMs.

Last quarter, we talked about our progress in adding new distribution outside of North America and expanding our relay sales into South and Central America, Europe and Asia, with a number of new customers and projects.

Last year, we also had good success with our new projects for OEMs in the oil and gas and power generation markets.

A new product that also ties into our geographic expansion is a recently developed ground fault relay that is designed specifically for the Australian mining market.

This is the only product of it's type that meets the new Australian Mining Standards, and we expect this, really, to generate more than $250,000 in new revenues this year.

Another new product is our Industrial Shock-Block, which was officially launched in the first quarter.

The new Shock-Block protects against dangerous electrical shocks.

It will help us to expand beyond heavy industry into markets, such as, pulp and paper, oil and gas, water treatment facilities, and amusement parks, to name just a few.

We're seeing early signs of success that we expect will lead to larger orders in the coming quarters.

The new line of Arc-Flash relays that we introduced last year, continues to gain traction in the market.

We've sold multiple units to customers who wanted to sample the product and we have already secured several orders.

Another area of focus is European switch gear manufacturers, where we are actively leveraging our well-established sales team in that region.

We have had several orders already and anticipate substantial incremental revenue from there segment over the next year.

Moving on to our custom products business.

After the incredible momentum we've had over the past few years, sales declined 2% in the first quarter.

As we have discussed, one of our potash mining customers will complete the next phase of it's capacity expansion project this year, and while additional expansions are planned, we expect to experience a temporary slowdown in their ordering patterns until they move forward with developing more capacity.

That said, we have several projects that could materialize into shipments next quarter and we are actively pursuing new opportunities in both potash mining and other types of mining.

One of these projects is the BHP Billiton [Jensen] Potash Project in Saskatchewan.

BHP has been actively developing this project for several years and, recently, started to award contracts to several suppliers for the first phase of the project.

We believe there are good opportunities for us to participate and we hope to have some positive news to report in future quarters.

We're also working to diversify our custom products business into other markets and geographic locations.

We continue to look at several large opportunities in the Canadian oil sands market.

This is a market that requires long-term, complex planning, and engineering work, so the decision making process is quite lengthy.

We've also been pursuing new mining opportunities in Canada and in Central and South America.

One significant project currently under way involves a multi-million dollar opportunity to produce portable, de-watering substations for a Canadian mine.

Engineers at this mine have been using Startco products for many years and our teams have been working with them to help them meet new equipment requirements.

If we are successful, we would expect to see this project awarded for delivery in the third quarter.

The uranium market in Canada has potential to provide new opportunities for both our protection relays and custom electrical products.

A recently-negotiated agreement between Canada and China will allow Canadian companies to increase their uranium exports to China as part of a broader joint trade initiative.

The agreement is expected to be finalized over the next few months.

Major uranium production is located in Saskatchewan, where our custom products are produced.

We have been working with the Company's engineers to help assess their upcoming equipment needs.

The fact they are working in our favor across the entire mining industry is our focus on the safety and reliability of electrical systems.

We're in a segment of unsafe, and as our first quarter results indicate, we're clearly not going to experience the growth rate in custom products that we had last year.

We expect a modest decline in the second quarter, compared to the first, and, then, a large sequential step-down in the third quarter of about $2 million to $3 million.

But as you have heard, there's been a lot of positive activity in the pipeline for both our protection relays and custom electrical products.

While these opportunities have not yet been converted to new business, we believe we are in a strong position to win some of these significant contracts before the end of the year.

And as a result, we are becoming more confident in our belief that the weakness in our potash business is only temporary.

That brings us to our automotive business, which generates about 35% of our total sales.

First quarter automotive sales of $59.4 million, that will be an increase of over 15%, compared to 2012.

In India, car production has dropped significantly because of high-end rest rates and high fuel prices.

First quarter production was down 17% from last year, and the forecast, as in 2013, will be flat with 2012.

As a result, the Western OEMs are holding back on adding more production capacity as they look for a more clear direction on the Indian economy.

Long-term, however, the outlook is still positive with output expected to double by 2020 to over nine million cars.

Fortunately, the market in the U.S. is more solid.

On ton of the positive market conditions, a number of new launches of our high current fuses for Chrysler and General Motors are expected to contribute to an overall sales increase in the U.S. in 2013.

A recent development in the hybrid electric vehicle segment, with one of our major Tier 1 customers in the U.S., were working closely with this customer in developing a fuse for a high voltage application in plug-in hybrid cars.

The test results have been very positive and we expect to launch this new product on several OEM platforms in 2014.

In Europe, we won additional business for another Volkswagen platform, the small car polo platform, we were able to design an MQB master fuse.

This production is expected to start with one car model in 2014 and peak at about 600,000 vehicles per year in 2016.

Looking ahead, we're expecting an increase in global passenger car production of about 2% for 2013, with Europe projected to be down about 5%.

We expect that our automotive business will continue to outperform the market as a result of the growing demand for our new products and significant new business wins over the past several years.

Now, let's move on to commercial vehicle products.

First quarter CDP sales were down 10% year-over-year, with the majority of the decline in the North American distribution channel.

Sequentially, however, our first quarter CDP sales were up 33% from the fourth quarter of 2012.

A welcome sign of improvement.

Sales increased in all three of our key markets, construction equipment, heavy truck, and agricultural equipment.

The increase was primarily driven by higher sales in the North American aftermarket, and in Australia, which are typically stronger in the first half of the year.

Our commercial vehicle business had several solid wins in the first quarter.

One was for heavy duty relays for a North America truck manufacturer, where the quality of the seal on our product helped to solve a moisture problem.

Another win was for our flexible electronic module, that will be installed in up to 1,000 trucks of a major North American fleet customer it correct potential battery drain issues.

Our ability to quickly begin shipping was a strong advantage for us in winning this business.

We will start shipping a power relay module in the second half the year as part of our first win with a major Korean construction equipment company.

The volume of this program will eventually reach 30,000 to 50,000 units a year, and we plan to leverage this new relationship into other opportunities.

Our growth strategy for the CBP business is focused in the area of power distribution modules, high current solenoid relays, and electronic modules.

The trends in the switching market is towards electronic controls that turn the switches on and off as needed, instead of requiring and operator to activate the switch.

An example of this is the flexible electronic module being installed into 1,000 truck fleet, the fleet I mentioned earlier.

In this application, our module will automatically turn the battery voltage on or off, based on preset parameters, helping to reduce the drainage that leads to dead batteries.

We're also working to expand our CBP business beyond our strong North American base.

The win with the Korean construction OEM, on top of previous wins in China, are helping us to establish a solid footing in Asia.

We have sold products in Asia for many years, but as Asia becomes more of a design center, there are opportunities to win new design-in business and to partner more closely with our customers.

As part of our focus on Asia, we are holding a series of technical seminars in China in May that provide an excellent opportunity for us to present our products and capabilities to the very large and diversify CBP marketplace in this region.

With the improving market, and our new products, and new customers, we expect to continue to grow our CBP business throughout the year.

Moving to the Automotive Sensor business, although European sales remained weak overall, Accel's first quarter performance was better than planned.

The key driver was increased sales of solar sensors to Chrysler and Daimler.

It was also a good quarter for Accel in the area of new business wins.

Accel's solar sensors were selected for several next-generation General Motors platforms launching in 2016.

Accel was also selected by Auto Leave to supply seat buckle sensors for programs where the final customers are Ford and BMW.

So, in summary, our automotive business continues to be challenged by the slowdown in Europe, the Accel and Terra Power acquisitions are positive contributors to our overall performance.

We're continuing 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 about 46% of total Littelfuse sales.

First quarter electronics sales of $79.4 million were up 3% from the first quarter of last year, and were up 6%, sequentially, from the fourth quarter.

The increase was due to the seasonal pickup we typically have after early December, with weak shipments.

We also saw a broad-based upturn across many vertical markets, and customers in North America, Europe and China.

This improvement, coupled with some nice design wins, has resulted in a strong backlog at the start of the second quarter, with a book-to-bill of about 1.1.

There's been a strong increase in channel inventory levels, in line with the anticipated market demand for the next two quarters.

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

Looking at some of the key electronics market segments, personal computer sales have continued to decline.

The latest data from IDC showed a 14% decline in PC shipments in the first quarter of this year, compared to a year ago.

Clearly, the cannibalzation by the tablet market is a key diver behind this.

So far, the launch of Windows 8 has not created increased demand for PCs.

The ultra book segment of the PC market continues to grow at the expense of traditional notebook PCs, but not enough to compensate for the overall decline.

However, the tablet, eReader and Smartphone markets will continue to grow and we are very focused in targeting these segments with new products.

The latest report from displacer estimated the tablet sales will reach 240 million units in 2013, exceeding notebook PCs, which were estimated to be less than 200 million units.

A number of companies have introduced smaller 7-inch type tablets, using Android, as well as Windows 8 platforms.

I would like to highlight several good design wins we have in these fast-growing product categories.

As I mentioned on prior calls, our over current and ESD products are used in a varieties of tablet applications, protecting chargers, battery packs, inverter circuits, and data lines.

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

Last quarter, we mentioned the successful 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.

We have, now, expanded our position with a fuse and a TVS diode designed into the charger for a new 7-inch tablet from the same company.

This will add another $200,000 in revenues this year.

There's a trend in the market for larger sized Smartphones, many of you may already be using these phones.

These Smartphones have larger battery packs that look more like those for a tablet than for a traditional Smartphone.

The chargers are 10 watts to 12 watts and dissipate more heat than the 5 watt chargers used on the smaller phones.

In turn, this requires more precise protection, creating a nice opportunity for Littelfuse.

The continued growth of tablets and Smartphones is driving demand for faster broadband delivery.

This, in turn, requires more infrastructure products, such as, data centers, data switches, ethernet connections, and [phampto] and PICO cells.

Many in the industry refer to this overall space as cloud-computing and broadband access.

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

We are in good position to provide this with enhanced versions of our high-amperage DC fuses, diode arrays, and SIDACtor products.

We're estimating revenues from the broadband infrastructure segment of about $3 million to $4 million in 2013.

Last quarter, we talked about the technical collaboration between Littelfuse and Huawei, a leading Chinese telecom equipment manufacturer, and the launch of a new 6 by 25 fuse into their surge protection system.

This fuse meets their high surge requirements in a smaller form factor.

We had sales of $200,000 for this product in the first quarter and we expect total sales to be about $1 million for the full year.

We've also been working with a leading European telecom company that is using our TMOV devices.

Sales are projected to be about $700,000 in 2013, a 50% increase over last year.

This market share gain was influenced by our superior TMOV design and our strong global technical support.

Our revenue from the LED lighting market continues to grow through new design wins.

A recent report from Display Search indicates that the LED lighting market opportunity will double in 2013 from 2012.

We are benefiting from the growth of this segment as well as new design wins into the sockets that are used for both LED bulbs and outdoor luminaries.

Our most recent design win is for a 60-watt branded LED bulb that was launched in the first quarter.

Each bulb includes a nano fuse and a [met lock] side varistor, and production is expected to ramp-up to $700,000 in revenue on an annual basis.

The Company's aggressively marketing the 60-watt bulb at and attractive $10 price point.

This is lower than other competitors' LED bulbs and helps to close the gap between LED and traditional incandescent bulbs.

As part of our continued expansion into the LED segment, we recently launched an LED surge protection module that protects outdoor street lighting from high level lightning surges.

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

Our modules are UL certified, which will facilitate customer adoption.

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

We expect continued solid growth again this year.

Another growth area is the multimedia segment.

We recently designed our SG series gas discharge tube into a set-top box manufactured by a leading Korean OEM.

Our SG Series offers the combined technical value of surge protection and low capacitance in a small surface mount footprint.

We're seeing the same success with North American set-top box manufacturers, where revenues could be up 20% this year.

Annual revenue for the SG Series GDT is expected to reach $800,000 in 2013.

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

We also, recently, introduced three very unique new products.

First is a new low voltage, high surge metal oxide varistor.

This patented formulation gives our product the surge capability as much as four times greater than the competition.

The market opportunity is about $18 million.

Our sales in this area are, currently, only around $1 million, and we expect to gain significant share with this new product.

The second unique new product is a PICO fuse that meets the UL 913 certification for use in hazardous environments.

Our fuse is the first in the market that meets this specification, with a very small form factor.

The market opportunity for this new product is about $3.5 million in North America.

We were, also, first to market with a diode array used to protect the latest generation of high-speed USB ports, used in computing device and game consoles.

Its unique feature is that it protects all six USB lines with a single device.

This new innovation is expected to generate more than $1.5 million in revenues in 2013.

So, to summarize, electronic inventories are stable.

We are winning new business and introducing innovative new products.

We're encouraged by the recent increase in electronic sales, and if this positive trend continues, we should see improved performance in the second quarter and for the rest of the year.

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

Next, I would like to give you a few more details on the proposed Hamlin acquisition and why we believe this will be an excellent addition to our new sensor platform.

As you know, we established the platform with the acquisition of Accel last June.

The announcement two weeks ago of our agreement to acquire Hamlin from Key Safety Systems for $145 million is a major step forward in building out this platform.

Hamlin as leader in sensor technology, with products for the automotive, electronics, and industrial markets.

Sales were $76 million in 2012.

Our plan is to divide the Hamlin product line between our automotive and electronics business units, based on end market applications.

On the automotive side, Hamlin is an excellent fit with Accel.

Both Accel and Hamlin participate in the safety market.

In addition, Hamlin also gives us access to the speed, position, and direction sensing market.

Hamlin and Accel, both, provide seatbelt sensors that detect whether a driver or passenger is buckled up.

Accel offers whole effect technology and Hamlin brings two additional technologies to the portfolio, Reed and Mechanical Switching.

All of these technologies provide information that is used to correctly deploy the air bag when needed.

The sensors trigger the beeping reminder you get when your seatbelt isn't buckled.

This same information is used for the air bag controller; and, if your car has an indicator showing whether the rear seatbelt passengers are buckled up, that comes from the rear seat buckle sensors.

Seat belt sensors also used in the rear seat inflatable seat belts that Ford produced two years ago.

Hamlin will expand our portfolio with a line of seatbelt tension sensors.

These devices detect if a passenger is buckled up, and let the airbag controller know if there's person sitting in the passenger seat, or if there as child seat buckled into that seat.

This information determines whether the air bag will be deployed and to what extent.

Hamlin also offers fluid level sensors that not only tell us how much fuel we have, but the water level for our window washers, and the level of brake and cooling fluid.

In trucks, they sense the level of add-blue and diesel exhaust fluid, that was sprayed into the exhaust, to reduce nitrogen oxide pollution.

Hamlin will also expand our portfolio into the speed position and direction sensing segment.

These sensors enable the gear lever to talk to the electronic control unit in the transmission box, and lets you put your car into park, drive, reverse or neutral.

The sensors are also used in vehicles that have a start/stop system, to reduce gas consumption.

Beyond these two examples, there are numerous other applications for these sensors within a vehicle.

In the electronics area, Hamlin and Littelfuse products have several markets in common, such as, home appliances, white goods, industrial products, and smart metering.

Here, we have excellent opportunities to cross-sell the products of both companies to our vast customer base.

We can also leverage our position as the leader in circuit protection to sell the Hamlin product to our extensive network of global distribution partners.

As an example of the synergies, Hamlin reed switches are used in millions of single part copy machines to detect water level and whether a coffee pot is in the unit.

Littelfuse [Triacs] and TDS diodes are used for the switching, as well as surge protection, on these same machines.

Another example is smart meters.

Littelfuse supplies fuses or overcurrent protection, and varistors, and TDS diodes for surge suppression; while Hamlin reed switches are used as counters and temper switches in those same meters.

Both companies also have strong positions in the security segment, which uses a large volume of Hamlin reed switches and relays, as well as Littelfuse fuses and varistor.

So, I hope you can see why we are so excited about the fit between the two companies and the opportunities we have to leverage each company's established market position into additional growth for Littelfuse.

The acquisition is expected to be completed by the end of May.

The transition team is already in place, and we look forward to executing on our growth strategies for this business.

So, on that positive note, I will turn the call over to Phil, who will provide the outlook for the second quarter and, then, we will open the call for questions.

Thanks, Gordon.

Our guidance for the second quarter of 2013 is as follows, Sales are expected to be in the range of $177 million to $187 million.

At the middle of the range, this represents 3.5% growth over 2012.

Earnings for the second quarter are expected to be in the range of $1.03 to $1.18 per diluted share.

This implies an operating margin in the 18% range and a tax rate of, approximately, 26%.

The above guidance excludes Hamlin.

If Hamlin closes on schedule at the end of May, it is expected to add, approximately, $7 million to sales, and be slightly accretive to earnings, excluding acquisition-related costs.

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 Matt Sheerin from Stifel Nicolaus.

Please go ahead.

Yes.

Thanks.

And good morning, Gordon and Phil.

Morning.

First, on your guidance, your outlook 1% to 6%, sequentially, as we look at each of the three core segments, are you --

Wait, Matt.

Excuse me, that was 1% to 6% year-over-year.

Oh, I'm sorry.

Yes.

That's right.

Yes.

So, sequentially, it's a higher number.

Right.

That's right.

So, are you expecting the electronics business to be up stronger than the other businesses on a sequential basis?

Or are you expecting to be growth in all those segments?

Yes.

The electronics business would be the main driver of the sequential increase.

Typically, the automotive business is pretty strong in the first quarter; usually Q1 and Q2 are about similar.

The electrical business, generally, is a little bit more positive, at least the fuse business is more positive in Q2, usually exhibiting some sequential growth; but, then, there's going to be some offset to that, as we mentioned, the custom products business is starting to show sequential decline, so that will be an offset.

So, the main driver of the Q1 to Q2 growth, sequential growth, is going to be Electronics.

Okay.

So that it looks like, then, in looking at the seasonality in past quarters, or past years, you could be up in high single-digits to low double-digits; is that fair?

Yes.

That's fair.

Okay.

And, then, the other question, just regarding the electrical business and the commentary about some of that mining business rolling off in Q3, and I'm also noticing that your operating margin in that business was down, sequentially.

Is that mix going to work against you through the year, in terms of operating margin in the electrical business?

Or are there other things you can do to offset that?

Well, other things being equal, we'll lose some operating leverage there because we're still going to be investing in sales and in that business.

We think there are a lot of long-term opportunities there.

So, you're going to have pretty flat SG&A on lower sales in the custom business.

However, we also talked about some things we're doing to improve margins in some of the other areas.

I think we talked about a price increase in the electrical fuse business.

That should help with improving margins there.

The relay business, we are expecting to see some sequential growth through the next couple of quarters there, which should create some operating leverage that should help margins there.

So, on balance, I think we should be able to offset most of the negative affects of the custom business, at least on the margin line.

Okay.

Thanks.

And congrats on a strong performance.

Thanks, Matt.

Thank you.

Our next question comes from Peter Lisnic from Robert W. Baird.

Please go ahead.

Good morning, gentlemen.

Hi, Pete.

First question on Hamlin, if I could?

Just on the automotive piece, can you give us a feel for, or a rule of thumb, as to what it does to content per vehicle, if there's any sort of metric that you might be able to identify for us?

Yes.

I wouldn't say there's really a rule of thumb.

It's from our experience already with Accel that I talked about last quarter, we're starting to see where we would have talked, sort of, an average of maybe $3 to $4 of content from circuit protection that we were trying to move up with high current circuit protection.

We're bringing, at least, as much from Accel, we were on the same platform, so we start getting from being in the [$3 to $5] range to going into the $10 to $15 range, and Hamlin is going to help us get in that direction, and some specific platforms, we see that we're going to be supplying low current fuses, high current fuses, and solar sensors, and seat buckle sensors, are going to be over $20 per car in some programs.

So, that's sort of a direction that we're getting to, and it's going to really depend platform by platform.

Okay.

Alright.

That's perfect.

Thank you on that front.

Then, as we kind of look forward balance sheet still looks -- I mean, obviously, it's still in pretty good shape, even with the acquisition, can you give us a feel for what capital allocation might look like from two different perspectives?

One, appetite for incremental deals, post Hamlin; but, two, kind of where you might go if there are deals in the pipeline.

Are we focusing more down that sensor path or are there other in some of other businesses to increase scale in those businesses?

Yes.

Absolutely.

The balance sheet, after spending $145 million for Hamlin, is still going to look very, very strong; very clean.

So we have plenty of appetite and plenty of capacity to do additional deals, and we fully intend to do that.

So, the areas that we're looking in, they really haven't changed.

We'll be looking in the sensor area, we would like to build on that very nice platform that we have now.

We feel pretty good about the organic growth there, but, certainly, we would be very interested in adding additional sensor companies to that and we're looking; we have some in our pipeline right now.

Commercial vehicles is another area we have talked about.

There are just a large number of relatively small companies, many of them private, that play in that space, that have products that would be very complementary to ours, and we have a fairly large number of those that we have in our funnel.

And, then, the other areas is our protection relay custom products area, building on the Startco acquisition, we followed that on, a few years ago with, [Sellco].

We would like to do another M&A in that space, as well.

We see that as a very attractive space, and a space that we would like to grow through acquisition, as well as organically.

So, those would be the three main focus areas.

As we talked about, we're always interested and open to any consolidation plays in circuit protection that may come our way.

Typically, those would be bigger deals because we're not really interested in consolidating [$10 million], [$20 million], $30 million companies.

It would be more of some of our major competitors there; if they were to become available, we would be very interested in that.

So, expect to see us not slow down on the acquisition front at all, post Hamlin.

We're still pushing hard in that area.

Okay.

That's perfect color there.

And, then, last question.

Gordon, if I could, just on the LED business, can you give us a sense as to what sort of pressures that you might be facing that would be comparable to, call it, the chip manufactures in that space, where you have significant price declines, or are you kind of subject to the same sorts of price pressures on some of your LED products?

Or are you a little bit more insulated, just given the niche component that you actually manufacture?

Yes.

I think we always think we're a little more protected, being a little more of a niche.

I, certainly, think that it will apply to what is the very exciting $10 light bulb.

I expect that anything that's going into the residential area, and to get the light bulb down in price, is going to be inevitable aggressive competition and price pressure in that one segment, but it's very high volume, as we start to see the converting over to LED bulbs.

LED street lighting, much less price pressure, where we've got several products built into our module.

These are more, really, robust modules that need to work maintenance-free for many years, commercial lighting, much less pressure.

So, it's across-the-board.

I would say that the more it's industrial and commercial, the less the price pressure; but, certainly, in consumer electronics, we always expect to see much more price pressure, but higher volumes.

Okay.

Alright.

That is very helpful.

Thank you for your time and the details.

Thank you, Peter.

Thank you.

Our next question comes from Shawn Harrison from Longbow Research.

Please go ahead.

Hi.

Good morning.

Hi, Shawn.

Hi, Shawn.

Clarification on Hamlin, in case I missed it, what is the split between auto and electronics right now in their business?

We haven't given that precise split.

We will as we get closer to close the deal, but what we have said is automotive is more than half of the business, but it does have a meaningful component that is kind of electronics and industrial applications, but it is more than half.

I think the automotive piece, we think, has very substantial growth potential.

The electronics piece may be a little less so, but, still, it will be a meaningful piece of business and very synergistic with some of our distribution channels and our electronics business overall.

Okay.

Then, on commercial vehicle products, getting some, I guess, mixed commentary on expectations for that market, going, I guess, into the second half of the year, what is your expectation in terms of when that business will begin to rebound on a year-over-year basis?

Well, we, obviously, have started to see some good sequential rebound, as Gordon mentioned, off a very, very week fourth quarter.

I mean, things really, for us, fell off in a pretty significant way in the back half of last year.

So, we had a reasonably good first half in 2012, and a very week back half, so we'll, even though things are improving sequentially, we will be at negative growth levels, certainly through the second quarter.

We could start to turn positive and would expect to turn positive sometime in the second half on a year-over-year basis.

Okay.

And, then, two more questions.

Just, I guess, within the electronics guidance, how much restocking activity, if at all, are you expecting out of the distribution channel for the second quarter?

And, then, just, I believe there was about a million dollars of other income in the results this quarter.

Does that repeat into the June quarter?

In Electronics, I think we said pretty clearly that we are very carefully tracking inventories.

It's been the challenge of this business, when we have inventory corrections and a sudden downturn, so we are much more diligent at tracking that.

What we feel is inventory levels are at the right level.

We have seen some uptick in the first quarter, but we expect it to be supporting the end market growth, that we get information from our distributors and, one of the earlier questions, electronics will have the strong growth in the second quarter, double-digit growth for sure, and that inventory increase, I think, is appropriate for the end market growth that we see and the double-digit growth we, certainly, expect in the second quarter.

Usually, our third quarter is an increase from the second quarter.

So, we l feel we're in pretty good shape in terms of the growth projections on electronics and the inventory in the channel.

On the other income comment, we did have a $900,000 of income on that line.

The biggest piece of that was foreign exchange balance sheet translation.

You know, it's hard to say whether that's going to continue.

I would expect -- generally, we expect that kind of the non-operating parts of our P&L to net out for the year, to be fairly close to zero.

So, we had some interest expense, we generally, a few other miscellaneous gains and losses and, then, we have balance sheet translation.

So, it really depends on the foreign exchange, but I would not expect it to continue at $900,000 of income.

I think that will probably start approach something more neutral over the next couple of quarters.

Okay.

Thanks so much, Phil.

Yes.

Thank you.

Our next question comes from John Franzreb from Sidoti & Company.

Please go ahead.

Good morning, guys.

Hi, John.

Could you just remind, the mix switch from PCs to the tablets and handhelds, what does that to do the margins in electronics?

I don't think margins really change much.

I mean, that's like one of the earlier questions about competitive segments.

The consumer electronics, it's all designed in Taiwan, made in Taiwan or China.

It's very price consecutive.

That's probably the most competitive part of our business, and, frankly, if it's going into a PC and ultra book, a tablet, a Smartphone, I don't think there's any real difference in the price pressure.

You know, sometimes if we're able to be the first to market with a new product, which sometimes a smaller form fact demands to be, especially sometimes in new chargers that require more power and yet a smaller size product into that, sometimes we can get a price premium for a certain period of time, so an evolving market is good for us, but, ultimately, that's a segment that will always be price competitive.

Okay.

Great.

Now, Gordon, did I hear correctly that you said that you would expect normal seasonal electronic order trends that would suggest the September quarter be stronger than the June quarter?

I think so.

I think we are sort of shaping up to what seems like a more normal electronics year.

You know, solid book-to-bill in the first quarter; steadily building throughout the quarter.

Good, solid first quarter, and a predictable, healthy second quarter, the end market information that's very diversify.

I mean, we pick out some such as tablets and Smartphones, but, remember, our products are going into multiple verticals of end markets.

Across the world, the geographies all seem to be doing fairly well.

So, I think it would be normal to expect sort of a normal year, which would see the third quarter and, then, it would be fine in the fourth quarter, would also be normal for us.

Yes.

So, sequential gain in electronics will help us offset whatever decline we end up seeing in the electrical business.

So, normally we would expect that a small uptick, sequentially, from Q2 to Q3, and I think we could still see a small one this year, but it will be muted by the decline in Q3 electrical sales.

Okay.

And in the automotive segment, could you give us a sense of what the sales by geographies, by major geographies?

In automotive?

Yes.

I don't have the calculations right in front of me, but rough order of magnitude, at one point, before the downturn, Europe was about 45% of our automotive business.

It's probably down to [40%], or maybe even a little below [40%] right now.

Asia is about 25% and that would leave the U.S. around 30%, 35%.

Okay.

And in the margin mix in automotive, is Accel a margin benefit?

Is that what you're seeing here?

Can you just talk a little about the mixed benefit for having the sensor business in there?

Well, I wouldn't say at this point, not really a benefit.

I mean, we have that business positioned for growth, basically.

We're working on and winning new platforms there.

So, we're spending on SG&A line for future growth there.

Right now, the operating margins there are going to be lower than the Littelfuse average.

Ultimately, we think those margins should be in the high teens, and as you can gather from some of the information we've given on Hamlin, that's kind of where the Hamlin business has typically run, kind of in the mid-to-high teens, kinds of operating margin.

So, that's a good place for, I think, a comfortable place for the sensor business to be.

Accel is just not there yet.

Got it.

Got it.

And one last question.

Did you mention what the price increase was in the electrical business?

No.

You know, it varied, but it isn't across-the-board on all of our business, like it didn't go through solar and some of our OEM business.

It was in our distribution business.

But we can't really tell, yet, because we don't know how much of it is going to stick, but it could be a couple of percent on, maybe, half of our business, something like that.

Okay.

Great.

Thanks a lot, Phil.

Yes.

Thank you.

(Operator Instructions).

Our next question comes from Gerry Heffernan from Lord Abbett & Company.

Please go ahead.

Good morning, guys.

Thank you very much for the call.

Hi, Gerry.

Just a couple things here.

As the sensor business goes, do you expect it to become it's own reporting segment?

I think that we wouldn't envision that in the near future, but certainly we've talked about a goal of having it be 15% of our total business or more.

With the Hamlin acquisition, we're not that far from that right now.

So, it's conceivable that we could envision that becoming its own segment, I wouldn't expect that to happen in the next couple years, though.

Okay.

Fair enough.

And with Mr. Franzreb, you were just talking about the margin profile for sensors.

Longer-term from this -- as you called it, a platform, or part of your business -- do you think the upper teens is the longer-term arena for the operating margins?

That's what we think right now based on what we have seen; what we can project out for the Accel business; and what we have seen in the Hamlin business.

I mean, the Hamlin business is already running in that kind of a range.

You know, it sort of depends, too, on how successful we are on the growth.

We talked about Hamlin where, I think, we're targeting double-digit growth out as far as we can see into the future in that business.

So, if we were successful with that, and we could double the business in five or six years, certainly, there would be, potentially, some opportunity to see that margin, that operating margin improve.

I mean, if you look at a company like [Sensata], they've got operating margins up into the [$20 millions].

So, it's not impossible that we could get there.

Mm-hmm.

Yes.

It can be, the sensor business can be a very profitable business.

Yes.

What's been the effect of the currency move on you guys?

Is there anything we should be looking to in the next couple of reporting periods in regards to the yen currency move?

Yes.

Certainly, the yen has been a modest negative to us.

Net-net, you know, currency year-over-year was really not very impactful at all on the P&L, other than a little bit of a balance sheet re-valuation that we talked about that shows up in other income; but, really, a weaker yen is a negative, but it's not -- we don't have a big exposure there.

Certainly, the biggest exposures on currency, or the biggest, is the Euro.

A strong Euro is good.

So, the Euro has been hanging in there.

That's good, if that gets stronger it will help us; if it gets weaker, it will be a drag on margins.

And, then, the other currencies to watch are some of the emerging market currencies where we have our manufacturing sites.

Those being, Mexico, China, and the Philippines.

We like those currencies to be as weak as possible, but so far, the last couple of quarters, they've been relatively neutral to P&L.

Okay.

Alright.

Great.

And last question.

The repurchase authorization has been re-upped.

Can you just review your plans for execution of this plan?

If you wouldn't mind, give us a review of what the previous plan was, how much was executed on that, et cetera?

Yes.

Sure.

Let me start with the previous plan.

We had a million share authorization for the last year, going back 12 months from April, and we didn't purchase anything on that authorization.

The prior year, I think we used most of the million-share authorization, and we used it all in like, you know, in like a one-quarter time frame, when the stock was at a low, it was in the $30, $40 range.

I think that's typical of what you will see from us.

You may see us go a year or more without doing any repurchase and, then, you may see us get pretty aggressive, if the stock drops and we think it's a value.

So, we will look at that opportunistically.

We will, also, look at it trading off that against use of cash for other things like M&A.

I think we have some pretty significant M&A imminent that would affect our decision, as well.

But, the main thing affecting our decision is just, we tend to buy we tend to buy when we think the stock is unusually well-valued on the low side; poorly valued, I guess, where it's an unusually good buy and it's 52 week low, we would be a buyer in those circumstances, but probably not in many others.

Okay.

Very good.

Those are my questions for today.

Thank you very much for all the good work you guys have done.

Thanks, Jerry.

Thank you.

Our next question comes from Jon Lopez from Vertical.

Please go ahead.

Thanks so much.

I just have two quick ones.

I'm probably covering grounds you covered, so I apologize if I am.

On the electronics side, did you guys quantify what the increase in distributor inventory was, or can you speak to that at all?

We didn't quantify.

We said we track it very carefully.

There was a modest increase, appropriate with what we would expect for the increased POS data that we have for the end-markets of our distribution channels, and the strong book-to-bill that we have going into the second quarter.

So, we clearly stated we think it's at appropriate levels.

Very good.

And just seasonally is that -- if you look back, say the last two, three years, is that, typically, what you see is an increase, commensurate with what you see in this quarter; in counter Q1 period?

Yes.

I think it's fair to say in an average year, a good year, sometimes the last few years, it has been a little unusual, but I would say in an average, predictable good year, we would expect to see solid growth throughout the first quarter, ending with a strong book-to-bill, going into good sequential growth for the second quarter, and a little pickup in distribution inventories to be ready for that.

Understood.

And, then, just segweying on that--I know you did some of this, so I apologize, but--the end markets that you deem as, sort of, the principle drivers of the activity into Q2, can just repeat those quickly?

What, sort of, the main end market consumption drivers are?

Well, I gave some examples.

I think it's fair to say that the good thing about our electronics business is there's so many end markets, multiple end markets, little things like test measurement, industrial controls, process control equipment, all of which -- they're not very fancy, but the ones we talked about, LED lighting, for example, is very significant for us now, and we think that's at the early stages of a long growth, both street lighting and commercial lighting, and now residential lighting happening.

Obviously, the movement in tablets and Smartphones, all of the battery protection, the chargers, the move to miniaturization in that area, that's an important segment for us.

Set-top boxes, we talked about as being important.

The whole cloud-computing and broadbands infrastructure, there's growths in those.

So, no one segment really dominates our business.

We just try to pick out a few and say where there's a trend that, maybe, lends itself to us developing a new product, such as higher energy density batteries, and higher power-consuming wall chargers that require better circuit protection in a smaller package, and we've been age to win some unique designs.

Understood.

And, sorry, just last one on electronics.

Have you quantified, or could you, just what your total PC market exposure is, relative to that segment?

PCs?

it's probably, in total consumer electronics, is only about 40% of the electronics segment.

PCs would probably be no more than 20%, 25% of that.

Perfect.

Understood.

So it's probably 10% of the last.

Yes.

10%.

10% of total or 10% --

10% of electronics.

Oh, it's PCs, specifically?

Yes.

Which would be 5% of our total business.

Sure.

Okay.

Great.

Sorry.

Last one.

On a year-on-year basis, the operating margin being down a bit, is that just mixed shift with the electrical segment likely to underperform a little bit, or is there something else driving that?

You're talking about 2013 versus 2012, or 2012 versus 2011, or just.

Sorry.

I'm looking, Q2 2013, your guidance implies about an 18% operating margin, if I looked Q2 2012, it was closer to 18.3%?

Yes.

Sales were higher, obviously, by about 4% between those two periods --

I think we're look at an operating margin very similar to, yes, to last year's operating margin.

I think the comment I made on 18% was that 18%, give or take, but with in rounding there, I think it's going to be very close to last year's operating margin.

Okay.

So, I'm sorry, I guess the rest of my question, was sales higher year-on-year?

What's preventing a little more leverage in the business?

Well, yes, but the main reason they're higher is because, partly, it's due to the full quarters of acquisitions, which brings SG&A and other costs along with it, so that's part of the reason.

I think, corrected for operating leverage, you're talking about tenths of a point, so it's hard to really pin that one down too precisely; but, I think the way we look at it, it's very similar to the last year, even corrected for the operating leverage and the acquisition that we did.

Understood.

Thanks very much for the help, guys.

I appreciate it.

Yes.

Take care.

Thank you.

We have a question from Shawn Harrison from Longbow Research.

Please go ahead.

Just a brief follow-up.

The kind of informal talking on the third quarter, with revenues potentially being stable, with electronics offsetting the decline in the custom products, does that also mean you think you could hold gross profit in EBIT stable, with the two offsetting each other?

Stable with Q2?

Yes.

Yes.

Yes.

I'm expecting Q3 to look a lot like Q2, actually.

I think that the margins will be -- the sales mix, as we said, we indicated that we think sales could be slightly better than Q2, but not significantly so, because of the offsetting things like margins -- you know, margin, typically in Q3 is little bit better, but that's usually because of operating leverage, so I would say similar to, maybe, slightly better margins as well, but it's not going to look a lot different than Q2, we don't think.

Okay.

Very helpful.

Thanks, Phil.

Okay.

Take care, Shawn.

Thank you.

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

Please go ahead.

Thank you for joining us on the call today.

So, 2013 is off to a very good start, and with our improved financial performance, and the Hamlin acquisition agreement, so we look forward to updating you on our progress again next quarter.

So have a great day.

Thank you.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.