Littelfuse Inc (LFUS) 2013 Q4 法說會逐字稿

Good day everyone and welcome to the Littelfuse, Inc.

fourth-quarter fiscal 2013 conference call.

Today's call is being recorded.

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

Please go ahead sir.

Thank you and good morning.

And welcome to the Littelfuse fourth-quarter 2013 conference call.

And joining me today as always is Phil Franklin, our Senior Vice President and the Chief Financial officer.

As you saw in the news release we had a solid fourth quarter that helped to make 2013 the best year ever for Littelfuse.

Our automotive and electronics businesses performed well in both the fourth quarter and for the full year as did the electrical fuse business.

Our new sensing platform also contributed to our record 2013 results.

This broad diversity of products and end markets more than offset the continued downturn in global mining.

I'll discuss our fourth quarter and full-year performance 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.

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 risk 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 2013 were $198 million which was up 25% year-over-year and just above the high end of our guidance.

GAAP earnings for the fourth quarter in 2013 were $1.04 per diluted share.

This included foreign exchange gain, purchase accounting adjustments and special tax items.

Without these special items earnings were $1.08 per diluted share which was near the high end of our guidance.

The relatively strong profitability for what is typically a seasonally weak quarter was driven largely by our core businesses which continued to deliver excellent margins.

As previously noted our newer businesses such as sensors and commercial vehicle products are not yet at these same levels of profitability.

Plans are in place and being developed to achieve significant margin improvements in these newer businesses.

These plans include focusing on higher margin, more differentiated products, driving manufacturing and purchasing cost savings and leveraging operating expenses on higher sales.

Sales for the full year 2013 increased 13% over the prior year to a record $758 million.

GAAP earnings for 2013 increased 16% over prior year to a record $3.94 per diluted share.

As we stated in the press release at year end we booked a $6.1 million charge to income tax expense related to the write-off our investment in Shocking Technologies after it was determined that this was a capital loss instead of an ordinary loss.

Adjusted earnings for 2013 increased 70% year-over-year to $4.46.

The Company continues to generate solid cash flow as cash from operating activities was $117 million for 2013, up 1% compared to the prior year.

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

Thanks Phil.

I'll begin the segment reports with the electrical business unit.

Electrical sales account for about 15% of total Littelfuse sales.

Total electrical sales were $30.1 million for the fourth quarter, a 10% decrease from the fourth quarter of last year.

For the full year electrical sales of $123.6 million were down 7%.

The trends we saw throughout most of the year continued in the fourth quarter.

Sales of core electrical fuse products continued to increase but that wasn't enough to offset decreases in sales of custom products and protection relays in the mining segment.

Electrical fuse sales were up 9% in the fourth quarter year-over-year due to continued growth in our focus areas of solar and HVAC as well as incremental sales from distributor conversions during the year.

For the full year sales into the solar and HVAC markets increased more than $3 million over the prior year.

The non-residential construction market appears to be showing signs of improvement and industrial production activity remained solid.

So the market outlook for the electrical fuse business remains positive.

In contrast, and as we anticipated, the custom electrical products business continues to struggle.

Although fourth-quarter sales increased from what was a very weak third quarter, they were still down substantially year-over-year.

The primary market for these products is Canadian potash mining which has been severely impacted by declining margins and slower-than-expected demand growth.

Significant mine expansion projects that were expected to begin in 2013 and 2014 have been delayed.

However, we believe we are well positioned with Canadian potash producers for when mining investments rebound.

In the meantime we are continuing our strategies to diversify the custom products business into other types of mining and other geographic regions.

We're also focused on controlling cost wherever possible.

A positive development that has come out of the diversification strategy is our work with a number of customers in designing other types of equipment such as generator sets and pump panels that weren't part of our product offering before.

This strategy has helped us to expand our engineering capabilities and broaden our product and it lays the groundwork for additional future sales in these new product categories.

We're working very aggressively on quoting new business both within and outside of mining and in new geographic regions.

We're continually adding to the funnel but as we've discussed in prior calls the sales process is quite long and there is a considerable time between when the business is quoted and the product is actually shipped.

With mining expansion projects being pushed out further into 2014 and 2015, we're anticipating a soft first half of the year similar to our experience in the third and fourth quarters of 2013.

We expect we will begin to see some improvement in the second half of the year not only in the potash market but also as a result of our diversification efforts.

Moving on to protection relays, sales slowed during the fourth quarter due to declining demand from the global mining industry which has historically driven more than 65% of this business.

As with our custom products we're working to diversify the protection relay line.

We've had some good successes in the oil and gas and general industrial markets and in our geographic expansion.

Our Arc-Flash protection relay continued to gain momentum with several significant design wins with new customers in the US, Canada, Latin America and Asia.

The new businesses across a variety of industries including utility, steel production, data centers, mining and oil and gas; we expect these wins to generate over $1 million of sales this year.

Our success in Latin America was with a utility company where after 18 months of extensive testing and qualification we received local certifications in the fourth quarter.

A major step forward in our strategy to both diversify and grow the protection relay line was the acquisition of SymCom in early January.

SymCom provides overload relays and pump controllers primarily to the industrial market but also for oil and gas and irrigation.

These products provide protection, communications and control for most types and sizes of motors and pumps.

SymCom sales were about $23 million last year.

SymCom has a very strong brand name and is a good fit with the existing protection relay line we built through Startco and Selco acquisitions several years ago.

We plan to leverage the combined product line through our established distribution channels as well as cross selling to both Littelfuse and SymCom customers.

We have already received some inquiries on SymCom products from Littelfuse customers and are encouraged by this initial response from the market.

Our strategy to expand our presence in the industrial market also includes developing innovative new products that respond to customer needs.

As an early indicator of our success with this strategy we recently won major awards for two relay products designed specifically for industrial applications.

Our industrial Shock-Block which recently had a significant win with a major oil and gas customer was a winner of Processing Magazine's 2013 Breakthrough Product of the Year Awards.

In addition our ground-fault and phase voltage indicator won a Silver Award in Specifying Engineer Magazine's Product of the Year Competition.

Both products help to protect against dangerous electrical shocks that can harm employees and significantly damage equipment.

With the increasing global focus on workplace safety, these products meet a growing need in the market.

They're also a testament to the capabilities of our team in defining and developing unique products that strengthen our reputation and drive sales in this targeted growth area.

Next is our automotive business which was our strongest performing business segment in terms of sales growth in both the fourth quarter and for the full year.

It accounts for about one-third of total Littelfuse sales.

Fourth quarter automotive sales of $72.9 million were up 45% from the same quarter last year.

Excluding acquisitions, year-over-year fourth-quarter sales increased 21%.

For the full year automotive sales of $267.2 million increased 30% over the prior year and excluding acquisitions 2013 sales were up 9%.

Sales of passenger car fuses and ACCEL sensors have remained strong and we are well positioned with high content on some of the best-selling models in today's market.

Our fourth-quarter results also benefited from an increase in commercial vehicle product sales compared to last year's weak fourth quarter.

Fourth-quarter automotive sales increased in all three geographies -- Europe, Asia and the US.

Although car production in Europe was down slightly compared to last year, it was strong for our passenger car product line with fourth-quarter sales up 21% in constant currency.

Production of Jaguar Land Rover, Volkswagen and BMW models such as the new 3 and 4 Series continue to ramp up.

These models have significant content of our low- and high-current fuses and fuse holder products.

We expect these positive production numbers to continue in the first quarter.

In China car production was up 12% over the fourth quarter of last year.

However we more than doubled the market growth with a 29% increase in sales thanks to production volume increases on key car platforms including Volkswagen, Ford and the Chinese OEM GAIG.

In response to the higher volumes some distributors increase their inventory levels generating additional sales for Littelfuse.

After this extremely strong quarter we expect growth in the first quarter to be in the more moderate, high single-digit range.

The fourth quarter was the best quarter of the year for us in North America due to the ramp of the General Motors K2XX platform for pick-up trucks and full-size SUVs and also the Chrysler KL platform for the Jeep Cherokee.

Both of these platforms use customized master fuse products as well as our Micro and MCASE fuses.

The Chrysler KL platform is using our ZCASE master fuse, a very innovative design that saves space and allows for the integration of more components into the junction box.

The ZCASE is also easier to assemble into the car.

All these benefits to appeal to manufacturers and as a result we are seeing strong interest from other customers around the globe.

We also had a strong fourth quarter in terms of new business wins with one of the world's largest system suppliers selecting our Micro fuses for a new body control module.

This is an electronic control unit that monitors and controls various electronic accessories in the vehicle such as power windows, power mirrors, air conditioning and other systems.

The program will start in 2016 with a run rate of more than $600,000 per year at peak level.

Another win during the fourth quarter was a contract to supply our TVS diodes for headlamps produced by a well-known component manufacturer.

The run rate for this win is more than $500,000 per year at peak level.

This is a great example of cooperation and communication between our automotive and are electronics business units creating a nice cross-sell win.

As a number of high-current circuits in cars continue to grow, we have an expanding pipeline of opportunities to bring the best solutions to OEMs and Tier-1 suppliers worldwide.

We were very successful with this strategy in 2013 with significant wins for our master fuse and other high current fuses with new car programs for GM, Volkswagen, Ford, Chrysler and Volvo as well as several Chinese OEMs.

Many of these programs will launch in 2014 giving us a solid foundation for continued growth in the year ahead.

Moving onto commercial vehicle products, sales were up 23% over a week fourth quarter in 2012 with improvement across most of the broad market served.

Sales were down about 3% sequentially from the third quarter due to normal seasonality.

The mining segment continues to be slow but heavy truck, construction and agricultural equipment remain healthy.

In line with our strategy of partnering with our customers to address their electrical design needs, we continue to have success with new design wins for both our standard and customized product offerings.

We had a significant design win in the fourth quarter with a major global agricultural equipment supplier to develop a new standard sealed ignition switch to meet the customer's stringent operating environment.

We expect to begin shipping this new product in late 2014 with anticipated sales of over $500,000 per year.

We also had two key wins for customized power distribution modules with another major agriculture equipment supplier.

Production of these modules is set to begin in 2015 with sales potential approaching $2 million per year.

So looking ahead at 2014, we expect the mining segment will continue to lag while heavy truck, construction and agricultural equipment should continue to grow at about the same pace as in 2013.

Commercial vehicle products is a strategic growth area for Littelfuse.

We're confident that our continued focus on customer driven, new design wins along with a focus on strengthening our aftermarket business and distribution will drive CBP sales in excess of market growth.

The ACCEL sensor business continues to contribute to our overall results.

ACCEL sales were up about 35% over the fourth quarter of last year with strong sales to GM, Chrysler and Daimler.

I'll have more comments on ACCEL in a few minutes when I cover the performance of our new sensor platform.

So to summarize this is an exciting time for our automotive business.

At the recent Consumer Electronics Show in Las Vegas, automotive exhibits had a much bigger presence than in prior years.

The overriding theme of these exhibits was mobile technology platforms and smart car features.

BMW and Audi were both in the spotlight discussing innovations ranging from safety assistance and hybrid electric vehicles to self-driving cars and Internet connectivity.

These and other OEMs are already very good customers of ours.

So as technology dramatically changes the consumer automotive experience we have excellent growth potential for our broad automotive fuse line, our automotive sensor platform and our electronics components.

Now let me talk about are electronics business which accounts for about half of total Littelfuse sales.

Fourth-quarter sales of $95.2 million increased 27% over the prior-year quarter.

Full-year sales were $367 million, an 11% increase while operating profit grew by 35%.

Excluding acquisitions, fourth-quarter sales were down 7% sequentially but were up 13% year-over-year.

Full-year sales, excluding acquisitions increased 4%.

Our fourth-quarter sales are typically below third-quarter levels as the holiday season buildup slows down.

This year, however, the slowdown was a bit less than normal in addition to the relative stability in the market and other factor relates to the early Chinese New Year.

Chinese factories shut down towards the end of January for the holiday and in anticipation some factories placed orders earlier and took some shipments in December and January so they could in full production when the holiday season ends.

Channel inventories at the end of the fourth quarter were stable and in line with market conditions.

When our channel partners are concerned about end markets they reduce their inventory levels particularly toward the end the year.

The fact that levels are steady is a good indicator of their belief in a stable to growth mode in 2014.

Within the electronics business unit, our semiconductor products had a very successful year in 2013 with revenue up about 10% over 2012.

The growth was across most of our products and in multiple end markets.

Diode arrays sales were strong for products including LCD TVs, gaming consoles, multimedia gateways, tablets and e-readers.

Demand was also high for our small form factor devices and for our unique low capacity solutions for high-speed data interfaces.

Our TVS diode sales were also strong in end markets such as LCD TVs and aerospace as well as in our global distribution channels.

Kitchen appliances were a good growth area for our thyristor, TVS diode and diode array products during the year.

The designs for these appliances also use our fuses and metal oxide varistors as well as our reed switch sensing products creating a good cross-selling opportunity within our electronics segment.

Examples for sensing including water level sensing in coffee machines and a sensor that ensures covers are tightly secured in a blender.

During the year several electronic product lines became qualified for automotive applications which is a significant step.

This will allow us to expand our TVS diodes and metal oxide varistors to global automotive customers to protect the ever-expanding electronic content in their vehicles.

The growth strategy for electronics business targets the mega trends in the industry.

Two of these, wearable technology and the Internet of Things, received considerable attention at the recent Consumer Electronics Show.

One of the leading companies in the wearable electronic segment designs and produces a wristband-based fitness tracker that connects to the user's smart phone.

Our surface mount PTC device met the specific requirements for the charging cable for this device which is now in full production.

Now moving onto the Internet of Things, a recent win is with a US-based home products company that designs thermostats and smoke detectors that can communicate with users via the web.

These devices have the intelligence to predict user patterns and then make adjustments such as the temperature in the house.

Our surface mount PTC and UltraMov are both designed into this thermostat providing resettable functionality and a higher level of surge protection.

LED lighting continues to be a good growth area for us particularly for outdoor applications using our SPD modules.

We had a major win in the fourth quarter with a Florida-based outdoor luminaire maker.

There are two primary drivers behind this win.

One is our integrated technology that offers a higher level of surge protection and a lower maintenance cost.

The other is our extended SPD module line that has additional surge protection ratings and meets a variety of geographic requirements and standards.

The LED SPD module series will be officially released in the first quarter and we will be targeting markets outside of North America including Asia and Europe.

Our total component business in LED lighting grew from $8 million in 2012 to about $10.5 million in 2013 and is expected to reach about $12.5 million in 2014.

And as we discussed previously, these sockets use our fuses, MLVs, and TVS diodes.

On top of this we expect our module business in LED street lighting applications to reach about $2 million in 2014.

So as you can see this is a night growth market for us.

So to wrap up the section, our electronics business had a solid year.

We are participating in many of the major trends in the industry and anticipate continued progress in the first quarter.

That brings us to our sensing platform.

As I mentioned earlier I'm very pleased with the acquisitions of ACCEL and Hamlin and we are excited about the synergies and opportunities in both our electronic and automotive business.

In the electronics area we are seeing broader applications for Hamlin sensors even in our base markets such as consumer electronics, small appliances and white goods.

An example is a design win for a leading rice cooker produce in Asia.

We designed in a reed sensor to indicate the lid is closed before the rice cooker is turned on.

The reed sensor is an attractive solution because it requires no energy consumption and is magnetically operated with no contact.

This offers robust reliability and a long lifecycle.

Projected revenue is expected to reach $500,000 annually.

We also have the potential to duplicate this win in other similar consumer electronic applications.

On the automotive side, the automotive sensor product group introduced a new floatless fluid level sensor based on our PWG linear sensing technology.

Level sensors are used in tanks such as gas tanks and diesel exhaust fluid tanks.

Floatless sensors have fewer components than traditional fluid level sensors and eliminate performance issues such as friction and fluids that can stick to the float.

Our automotive sensors continue to win new business in the key areas of safety applications and applications related to fuel efficiency and emission reduction.

We won new seatbelt buckle sensor business in Europe and Asia in the fourth quarter, as well as gear shifter position sensors on two Chinese programs.

As these wins illustrate, we are beginning to see the benefits of globalization and focused product management for our sensor business.

We have been talking with some of our key customers about how our new sensor platform can support them on a global basis and are very encouraged by the response.

So to summarize today's report, our traditional businesses, electronics, automotive and electrical fuses, are performing well.

We are also very pleased with our acquired businesses, ACCEL and Hamlin, and the progress we are making in building into a new sensing platform.

We are participating in exciting broad industry trends such as increased automotive electronics and sensing, wearable electronics and the Internet of things.

Outside of the consumer electronics space, solar is rebounding and the companies that have survived are doing well.

2013 was the first year in our five-year growth strategy.

Our plan is to leverage our global leadership in circuit protection to double our business by 2017, and become a leader in power control and sensing.

We made very good progress in 2013.

We completed the acquisition of Hamlin in June, the largest acquisition in our history, and followed that with the smaller but strategically important acquisition of SymCom.

We had revenue growth of 13% despite the sharp downturn in the mining market.

All regions contributed to our sales growth, but particular strength in Europe.

We leveraged this strong topline performance into record profitability, achieving an 18.8% operating margin before amortization and special items.

This was all achieved in the year in which there were many challenges including an uneven global economy.

I believe this a good indication that our strategy is sound and our global teams are executing well.

Finally I would like to note that we recently strengthened our management team and positioned the Company for future growth with the promotion of Dave Heinzmann to Chief Operating Officer and the recent announcement that Mike Rutz will join Littelfuse in the newly created position of Vice President, Supply Chain and Operational Excellence.

Mike comes to us with 19 years of experience in the global electronics industry including 16 years with Motorola.

I know that Mike's extensive global electronics operations and supply chain experience will be an asset as we continue to execute on our strategic plan.

So we have an excellent team in place and we are all very optimistic about the future of Littelfuse and the growth opportunities we have in the years ahead.

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

Thanks Gordon.

So overall we expect the first quarter of 2014 to look similar to the fourth quarter of 2013.

SymCom Is expected to contribute about $5 million in sales in what for them is a seasonally weak quarter.

However we expect this to be partially offset by lower customs sales reflecting continued weakness in the mining sector.

Sales for the first quarter are expected to be in the range of $195 million to $205 million.

At the midpoint this represents 17% growth compared to the prior year.

Earnings for the first quarter of 2013 are expected to be in the range of $0.98 to $1.12.

At the midpoint this represents 11% year-over-year growth.

While typically our business model would enable earnings growth to exceed sales growth, our newly acquired businesses Hamlin and SymCom will operate below their margin potential for much of 2014.

We are making upfront investments to grow sales and to integrate these businesses which we believe will pay dividends in 2015 and beyond.

We are also actively working on margin improvement plans for both these businesses.

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

(Operator Instructions) Josh Chan, Baird.

Good morning Gordon and Phil.

First question on electronics.

I was wondering the strong year-over-year sales growth that you achieved, how much of that do think was within demand and how much do you think the restocking in Asia perhaps contributed to that?

I think it was a very solid year and we track very carefully the inventory levels at all of our distribution channels and the sell through, what's called the POS from them.

I am pretty confident that we ended the year in a solid position, not with a restopped channel.

So I would say that solid performance across the year was driven by end markets.

Okay, and then I guess a follow up to that is that the electronic business typically 1Q is slightly stronger than 4Q but you had a very strong fourth quarter so I'm wondering if you would expect this similar historical phenomenon to hold this year?

I think the last few years have been a little bit different than this year.

I think your point is correct, Josh, on the fourth quarter.

We had a specifically better fourth quarter relatively than compared to 2012 and 2011.

And therefore I wouldn't expect -- you know as I said in my remarks, I expect in most respects Q1 to look a lot like Q4 and I echo that specifically for the electronics business.

Okay, that makes sense.

And then just asking overall you achieved sales that were about the high end of your range but EPS was at the high end, near the high end but still within the range.

So I was wondering if there was some element of hope that perhaps margins could have been higher given such a strong sales level or are there any other dynamics that you would highlight there?

I referred a couple of times in my comments to where we have we think we have opportunities to improve margins.

That would be in mostly in some of our newer businesses, certainly commercial vehicle products which we have had for several years now, I referred to some opportunities there.

We think that business those margins can come up several hundred basis points.

The sensor business, we've talked about opportunities there although we have not been too specific because we are still working on some of those plans but we think those margins can come up significantly as we get out into 2015 and 2016 as we've said before.

And then SymCom obviously not in the Q4 numbers but they are going to start out at somewhat lower margins than where they are ultimately going to end up as well due to some of the investments that we are going to be making in that and some of the integration activities.

So I think the answer to your question is that there are definitely margin improvement opportunities but they are not going to be, these are not going to be short-term ones.

These are going to be ones that are going to happen over a longer period over the next couple of years as we further integrate and leverage the synergies in these new businesses that we have.

Okay, great.

Congrats on the whole quarter and thanks for your time.

Thanks Josh.

Shawn Harrison, Longbow Research.

Just to that last question.

If we look out say exiting 2015, what do you think the aggregate margin potential upside from -- if we look at CDP in sensors and SymCom in terms of what it could add to the overall Littelfuse portfolio?

You know it is hard to say on an aggregate basis because you have got other cross currents like what happens to our electrical business over the next year which has obviously come down quite a bit.

We have said that we are bullish about that business for the long term but the near term continues to look pretty challenging there.

What we have said is that we think that the commercial vehicle products business, the sensor business and the sensor business both can operate at margin levels that are similar to the corporate average.

And right now both those businesses even excluding amortization are down in the kind of the low double digits.

So there's several hundred basis points of margin improvement opportunities in those two areas.

And it's just going to take us a while to execute on those.

And it's a similar story, SymCom is a similar story.

SymCom is fundamentally a high-margin business as is our other relay business.

I mean those are much higher than normal gross margin, much higher than corporate average gross margins.

But initially because of, again, some of the integration activities that are going to be going on as well as some of the investments that we are making in sales and R&D in that business those margins are going to be below par.

So I think if you put all that together I think you can take from that there is pretty significant upside opportunity but probably not much of it is going to happen in 2014.

That's very helpful.

In terms of SymCom, I mean what is the aggregate I guess integration charges and maybe as well as kind of other investments you're making in that business in 2014 is there a number you could provide?

No, I can't really comment on those activities at any specificity right now.

But I think this is a business that certainly has the potential to achieve operating margins up in the 20%s and it is going to be probably closer to the very low double digits initially.

And then as I look at the great free cash flow you guys generated this year, what is kind of the minimum amount of cash you would like to keep on the balance sheet, Phil?

We don't need much cash on the balance sheet.

The issue we have is getting the cash in the right place.

As we've said on previous calls we have done some restructuring work, some tax planning work to try to make that cash a more available, more fungible but we still have some of the same issues that a lot of companies have where we have most of our cash overseas and that more than certainly way more than we need to run the business.

So we have some tax planning things that we're working on, we also have some overseas acquisitions that we're working on that we think will over the next several years utilize that cash.

But certainly we would be comfortable running the business if the cash was in the right place on probably $50 million in cash.

I would look at most of that cash that's sitting on the balance sheet that is ultimately going to be available for either to do acquisitions or in some way to return to shareholders at some point.

Got you.

And then post-SymCom, how much availability do you have on your credit facility?

Post-SymCom, we just did a -- we just extended that facility by $50 million.

So we have more than ample liquidity there.

Thanks so much and congrats on the great quarter guys.

Thanks Shawn.

Thanks Shawn.

Matt Sheerin, Stifel.

Good morning.

I did have some questions around the margins given the flattish guidance and the EPS backing into relatively weaker margins.

And I think Phil and Gordon you explained particularly with the acquisitions and then the cost and the plan to bring margins up as we get through the year but I guess the question is it looks like you're going to start off at a lower EBIT margin than where you ended last March.

And I know that was a really strong quarter for you.

So my question is as we get through the year do you expect to grow operating margin as a percentage year over year and would that be for the full year as well getting closer to 18% versus where you ended up in 2013?

Okay Matt.

The main reason for margins that we expect operating margins being or EBIT margins being less in the first quarter of 2014 than they were in 2013 is, and they're not going to be that significantly less but we do have two new acquisitions that I talked about that are operating at lower than the Company average at least initially.

So that is the main reason.

I think all the core businesses we expect to be at least at in the aggregate at the same level if not higher than they were a year ago at this time.

As far as your comment, your question about margins progressing during the year, yes I think our expectation is that the first quarter will be the low point from a margin standpoint.

As you know we normally have seasonal upticks in our business in Q2 and then typically again in Q3 which usually helps the margin as well.

So we'll see that natural seasonal progression in margins but I think by the fourth quarter we should start to see at least some benefit from some of our integration activities in this new businesses and some of the investments that we are making in these new businesses.

But for the full year of SymCom at levels, margin levels significantly below where they are ultimately going to be and with the sensor business that is going to take us a while as I said to get those margins up, with those two businesses diluting margins for the year, I think that the full-year margins could be slightly lower than they were in 2013 even though the core business margins probably are at the same level if not higher.

Got you.

Okay.

That is helpful.

And then on the M&A front, I know you've talked about your long-term strategy in sensors and its diversification in the electrical business, given that you are integrating two separate acquisitions are you going be a little bit more cautious in terms of what you see near-term or are just going, if an opportunity arises, are you going to be able to integrate it despite what is going on already?

I think they are kind of separate teams within the Company that are doing those integrations.

You know the SymCom one is really part of our electrical business where it's some years since we acquired the Startco business.

And so the team that we have doing that integration I think is very capable in the electrical segment.

And the Hamlin business is really split between our automotive and electronics businesses.

So I think we have the ability to move ahead with all of the things that we have done the past in terms of our core business going back to 2006 when we started the rationalization of a lot of our core businesses to increase profitability.

So I think we have the experience to be able to work on those two in parallel.

And Matt, I will just add another comment there.

I think that as we mentioned we were at a 13% growth rate last year.

I think our expectation would be that probably it would be likely that we'd find another acquisition at least some time before the end of 2014, in which case would put us right on track or probably even slightly above our 15% target.

So based on what we have in the funnel, based on the cash that we have in the balance sheet that we have we're pretty confident that we are on a track anyway to get up to those kind of 15% growth numbers that we referred to in our strategy.

Okay.

Sounds great.

Thanks a lot.

Gary Prestopino, Barrington Research.

Good morning all.

Phil you kind of answered the question with your last what you talked about but I wanted to talk about or get some more color on the pipeline of acquisitions.

And like I said I think you basically answered but you (multiple speakers) pipeline.

The pipeline as we have said before it is a very solid pipeline.

I think we've got quite a few potential targets in our key strategic target area, those being commercial vehicles, those being protection relays, and also being in the sensor area where we have multiple targets that are potential in all those spaces.

And we even have a few interesting ones in some of our core areas that could potentially become available.

So we are pretty optimistic based on that.

Our funnel continues to be I would say very solid and I think overall on track to achieve enough targets.

Okay, and as we are modeling what kind of tax rate should we be looking at for this year?

I think it is going to be, it's going to probably move around a little bit during the year based on where sales mix and where the earnings are being generated.

But I still think it is going to be somewhere probably in the 25% to 26% range.

I think if you wanted to be conservative, use 26%.

It could be closer to 25.5%.

Okay, thank you.

We have no further questions at this time.

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

Well thank you for joining us on today's call.

With a record year behind us we are focused on continuing our momentum in the year ahead.

We look forward to talking to you again next quarter.

Have a good day and thank you.

Thank you ladies and gentlemen, this concludes today's conference.

Thank you for participating, you may now disconnect.