Littelfuse Inc (LFUS) 2014 Q4 法說會逐字稿

Good day, everyone, and welcome to the Littelfuse, Inc., fourth-quarter 2014 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. Welcome to the Littelfuse fourth-quarter 2014 conference call. As always, joining me today is Phil Franklin, our Senior Vice President and Chief Financial Officer.

As you saw in the news release, earnings for the fourth quarter were a disappointment, while sales met our expectations and cash flow continues to be outstanding. Notwithstanding the fourth-quarter earnings shortfall, 2014 overall was a solid year for Littelfuse, with double-digit sales growth, high single-digit earnings growth, and 30% growth in operating cash flow.

Now I'll turn the call over to Phil, who will give the Safe Harbor statement and discuss the fourth quarter in more detail.

Thanks, Gordon, and good morning, everyone. Before we proceed, let me remind everyone that comments made during this call include forward-looking statements based on the environment as we currently see it and, as such, do include various risks and uncertainties. Please refer to our press release and SEC filings for more information on the specific risk factors that may cause actual results to differ materially from those expressed in forward-looking statements.

Sales for the fourth quarter of 2014 were $207 million, which was up 4% year-over-year, up 7% excluding currency effects, and in the middle of our guidance range. GAAP earnings for the fourth quarter were $0.86 per diluted share. Excluding special items, earnings for the fourth quarter were $1.02 per diluted share, which was below our guidance, as Gordon said.

Even though sales and cash flow met our expectations for the fourth quarter, margins and earnings per share were below expectations. Currency, particularly the euro, was a significant factor, as was a range of other issues that all seemed to go the wrong direction.

These included year and true-up of certain reserves, timing of operating and overhead expenses, and performance issues at a few of our plants. Some of these were isolated to the fourth quarter. Others, such as plant performance, are being addressed; and Gordon will talk about specific actions we are taking, in a moment.

Currency, which only started to become an issue in the last few months, is looking like a headwind we will have to deal with for the foreseeable future.

Despite lower earnings in the fourth quarter, we continue to generate record levels of cash flow. Good working capital control, lower cash taxes, and solid full-year earnings resulted in 2014 cash flow of $153 million.

This beat our previous best result by over $30 million. I think this indicates that, in spite of the disappointing earnings result in the fourth quarter, we're doing a lot of the right things to manage the business.

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

Thanks, Phil. Let me start with some additional comments on the actions we are taking to improve performance.

I will begin with the sensor business. In November, we announced the consolidation of our Reed-based sensor manufacturing from existing plants in Lake Mills, Wisconsin, and Suzhou, China, into a new plant located on the campus of our existing operations in the Philippines. The new 100,000 square-foot facility should be completed by the end of the first quarter, and we will begin the transfer of manufacturing equipment during the second quarter.

We expect to begin seeing cost improvements in late 2015 and to complete the consolidation by mid 2016, at which point we will achieve the full run rate savings of $5 million. The two existing locations for the Reed-based sensors are capacity constrained. The new facility has room for future expansion, so after the move we will be able to work on getting this product line on a growth track.

With a strong focus on robust new product and process development for Automotive sensors, we've had success in winning multiple new projects with significantly improved margins. Through the manufacturing consolidation and the significant growth of higher-margin business in the Automotive sector, we are gaining confidence in our ability to improve the operating margin of the sensor business to the mid-teens by the end of 2016.

We are also on track with the consolidation of SymCom's relay and controls business in Baldwinsville, New York, into its facility in Rapid City, South Dakota, which we announced in the second quarter of last year. The transfer is expected to result in annual savings of about $2 million. Savings are expected to begin in mid 2015 and reach the $2 million run rate in the fourth quarter of this year when the project is completed.

We are also focused on improving the performance of our Electrical fuse manufacturing in Mexico. We've consolidated fuse manufacturing from a legacy standalone leased facility in Piedras Negras into a nearby shed facility on the campus where our Automotive operations are located. During the latter part of 2014 we upgraded the leadership team in Mexico, and we're beginning to see early improvements in execution.

In addition to these specific actions, we're implementing tighter expense controls and selective price increases across the Company.

Looking back at 2014, both the Electronics and Automotive businesses performed well. Together these businesses account for more than 85% of total sales. Our third segment, the Electrical business, suffered from the continued weakness in mining.

We are now two years into our five-year strategic plan, which targeted 15% annual sales growth: 10% through acquisition and 5% organic. Our actual performance for the years 2012 through 2014 was 13% annual sales growth: 8% through acquisition and 5% organic. So we're right on plan on the organic target, but behind on acquisitions.

Over the last six months we pursued several acquisition opportunities, but were not able to get to the finish line due to either valuation gaps or diligence findings. However, we are still committed to M&A as an important part of our growth strategy. And as a sign of this commitment, we've recently added a Vice President of Business Development who is working closely with the business units to bring more deals into the pipeline.

That said, we will continue to be disciplined around strategic fit and valuation, and remain focused on only those deals that we are confident would add shareholder value. Overall, we believe our strategy is sound, the fundamentals of our business have not changed, and our long-term goals are achievable.

With that background, let's move onto the segment reports, starting with Electronics. Fourth-quarter Electronics sale of $96.3 million were up 1% over the prior-year quarter. For the full year, sales increased 12% to $410 million; operating income increased 25% to $87 million; and the operating margin increased from 19% to over 21%.

As expected, fourth-quarter revenues were down sequentially from the third quarter, but were solid in all regions. We believe this is the result of a stable electronics market, combined with ongoing design wins and market share gains for Littelfuse.

Electronics channel inventories were flat from the end of the third quarter to the end of the fourth quarter. The level of channel inventory and our book-to-bill of 1.6 at the end of the fourth quarter are consistent with normal seasonality.

The Electronics business saw growth across all product lines, especially semiconductors. Our sales growth was particularly strong in the consumer, communication, and automotive markets.

The consumer segment, we had significant wins in the growing market for action cameras, gaming consoles, mobile electronics, and set-top boxes. I just mentioned the growing market for action cameras, which we haven't talked about before. This is a newer category that's also known as point-of-view cameras.

These small video camcorders are worn by outdoor sports enthusiasts or attached to their equipment to take live action footage of what the participant is seeing. Our diode arrays are used to protect the serial and parallel data buses in these cameras.

Another growth area is data centers, because of the need for highly reliable power distribution networks. We had several very good wins in this space in the fourth quarter.

One was for our traditional telecom and surface mount fuses, with one of the leading data center manufacturers. Another was for a unique, new, fast-acting series fuse that protects the power supplies of the servers. The new fuse provides significant customer value because it can isolate an individual server in the event of a fault, without tripping the upstream circuit breaker that shuts down all of the servers.

Together the two data center wins are expected to generate about $500,000 in additional revenue in 2015. Our total annual sales in the data center power network protection segment are growing at a high single digit rate and are expected to be about $8 million to $9 million in 2015.

2014 was also a good year in terms of new products. We launched our first TVS diodes that comply with the standards for automotive electronics applications. While design-in cycles are long for this market, we did ship over $1 million of these devices in 2014 and expect sales to grow significantly in the years ahead.

As part of our strategy to provide greater performance in smaller-size devices, we launched two new surface mount fuse families that are the smallest 125- and 250-volt fast-acting fuses in the market today. The new fuse products are targeted for fast-growing applications in LED lighting, LCD TVs, white goods, notebooks, power supply units, and fast chargers for mobile electronics. We expect the new fuses to generate about $1.5 million in revenue in 2015.

We've talked on prior calls about outdoor LED lighting for streetlights, parking lot lights, and other applications. Because LED lighting fixtures are more costly than standard lighting, one of the challenges is ensuring the reliability of the fixtures over a longer payback period.

We had our first major win in Europe in the fourth quarter for a new module that significantly increases the life expectancy of the customer's industrial lighting fixture. Annualized revenue for this new customer is about $100,000, and we are very well placed and quoting many new projects. As a result, we expect to substantially grow this business in coming quarters.

The high-wattage outdoor segment also needs high-surge overvoltage protection. The new metal oxide varistor we introduced last year was recently selected by a leading LED power supply manufacturer to provide protection for the LED power drivers in 100- and 150-watt fixtures. Revenues from this one design could exceed $1 million over the next two years.

Our total sales into the outdoor LED lighting segment are about $3 million today and are expected to double in the next one to two years. This is on top of the $8 million to $9 million of annual revenue we generate from the indoor LED segment.

Finally, during the fourth quarter we acquired the ultra-low capacitance diode array product line of TE Connectivity. This gives us a leading position in protecting high-speed USB and HDMI ports against damage from electrostatic discharge and is a foundation for further growth in this segment.

Moving on to the electronic sensor business we secured a nice win with a North America appliance manufacturer. This customer wanted to reduce both water usage and energy consumption in the spray arm of a dishwasher.

We partnered with their engineering team and provided a sensor that met their goals. This is the beginning of a relationship that we believe will lead to additional projects and increased revenues in the years ahead.

Today I highlighted just a few of the new products we've released to the market to support our organic growth strategies. New product releases increased 30% in 2014, and we expect another 30% increase in 2015.

As today's report indicates, our largest business had a very good year. It's performing well and the outlook is positive.

Next is our Automotive business which accounts for 38% of sales. Automotive sales of $80.3 million were up 10% from the fourth quarter of last year. For the full year, Automotive sales of $325.4 million increased 22% in total and 12% organically.

Our passenger car fuse sales continue to outperform global car production in the fourth quarter due to a number of highly successful products and our strategy to provide more content per vehicle. The commercial vehicle products business also had a very good quarter, with another double-digit increase in sales; and automotive sensor sales set a new record.

Global passenger car production picked up from the level of the third quarter, but was down by just under 1% from the fourth quarter of last year. Despite the lower car production, our fourth-quarter passenger car sales were up about 3%.

Geographically, our passenger car fuse sales in North America increased nearly 4%. We completed the first shipments of standard fuses for the highly anticipated Ford F-150 during the quarter.

Sales for GM's full-size truck platform that includes the Chevrolet Silverado and the GMC Sierra were also up. We had high content on all of these vehicles.

In Europe, fourth-quarter car production increased 1%, which was higher than anticipated. Our sales in Europe were up almost 7% in constant currency. This was driven in part by an early ramp-up of new programs for our master fuse and BF in-line fuses for the VW Polo and the Skoda Fabia small mini-car models.

The growth of car production in China was down significantly from previous years, with only 0.3% increase in the fourth quarter and a nearly 7% increase for the full year. In spite of that, our 12% growth for the fourth quarter set another record.

The increase was driven by the introduction of new models where we have higher content, including the Volkswagen Santana, the new Opel Corsa, and new models from Peugeot. Our master fuse continues to win new business because of its innovative technology that combines several different fuse types into one compact package and can be designed to meet specific customer requirements.

Recent wins are for the new Opel Corsa in Europe and the new Chrysler RU minivan platform and North America. We also won new business with a Korean fuse box manufacturer for the GM Omega full-size luxury vehicle program that will begin with the new Cadillac CT6 model.

Production for these three wins is expected to total 670,000 cars per year at its peak. We also won new business in Europe for our JCASE fuse for the new Alfa Romeo 952 sedan.

Looking ahead to the first quarter, there is an expectation that lower gas prices will drive consumers to buy more trucks and SUVs. As we saw in the January US auto industry sales numbers released today, January sales increased nearly 14% with over half of the sales comprised of high-priced pickups and sport utility vehicles. This could be a positive development for us as we have high content on these vehicles.

Europe is expected to start the year slow with the added headwinds of the weak euro. But the outlook for China and Southeast Asia in the first quarter is positive.

The commercial vehicle products group, or CVP, continued its momentum in the fourth quarter with a 23% increase in sales over the prior-year quarter. The strength of this business continues to be the growth of Class 5 through Class 8 heavy-duty trucks in North America, along with major new product introductions. The North American heavy truck market set new volume records in 2014, and this trend is expected to continue.

Leveraging this market strength in our range of products, the CVP group won new business in North America with a manufacturer that builds the crane bodies for utility service vehicles. This win is expected to generate about $300,000 in annual sales, and we expect additional new business as we work with the customer on the development of their new platforms.

In 2015 we expect the growth of the North American heavy truck market to slow, but remain healthy. We believe our new product development strategy will help to offset the soft global agricultural market as well as the sluggish commercial vehicle market in Europe.

This was a record quarter for our automotive sensing products, with a 13% increase in sales over the prior year. Sales of solar sensor and seatbelt sensing products were strong, and the ramp-up of new speed and position sensor products, particularly those used in a major Chinese transmission application, also contributed to the increase.

We had several new business wins in the quarter that are important not only because of the revenues they will generate, but also because they are a result of our strategy to extend our European business into other regions. One of these wins is to provide seatbelt buckle sensors to a global automotive restraint system supplier for a major Japanese OEM. Previously, this had been largely a European customer; but with our global expansion we now have a foothold in the hard-to-penetrate Japanese market.

We also won solar sensor business with a leading European sports car manufacturer. This is a new customer for us, and we're also now on the approved supplier list for this customer's parent.

We launched eight new sensing products during the quarter. Five of these are related to occupant safety and should add $2 million in annual revenues at peak. The other three are related to commercial vehicle applications. Together, all of the new sensing products launched in 2014 are expected to produce peak annual revenues of $30 million.

As part of our profit improvement strategies, many of the design wins for these products are at substantially higher margins than our existing sensor business. This will enable us to more effectively leverage the teams and production facilities we have in place and to help drive the profitability improvements we've targeted.

Sensing is one of our strategic growth areas, and we will continue to invest in new products and global expansion to further build this platform.

So in summary, sales increased in all three major areas of the Automotive business. And while we are currently experiencing headwinds from the weaker euro, we anticipate continued growth in the year ahead.

That brings us to the Electrical business unit, which accounts for about 13% of total Littelfuse sales. Total Electrical sales of $30 million for the fourth quarter were basically flat year-over-year. Excluding SymCom, Electrical sales declined 15%. For the full year, Electrical sales of $116.5 million were down 6%, or 22% without SymCom.

In the electrical fuse business, growth in the major solar markets in which we participate was much slower than we anticipated. Growth in North America was flat; Europe was down from the prior year; and there were increasing pricing pressures overall.

In addition, several distributor conversions were delayed. Two bright spots, however, were strong sales in the HVAC segment and some improvement in the construction market.

We had a nice win for a new project with one of the leading data center companies as part of the trend away from circuit breakers to electrical fuses. Fuses are proving to be much easier to coordinate with other circuit protection devices within the data center, providing good future growth opportunities for our electrical fuses. The recent win is expected to add about $500,000 in annualized revenues.

As we discussed last quarter, we are starting to see a recovery in the custom products business and, in fact, the fourth quarter was the strongest quarter of the year. The majority of the custom products business is focused in the potash mining market, where prices have stabilized now and are beginning to increase along with global demand.

The Canadian potash producers are once again operating some of their mines at full capacity. As a result, we recently received orders from several mines for additional power distribution centers that will be delivered in the first half of 2015.

We're also continuing with our strategy to diversify the custom products business beyond potash mining. Sales to a major Canadian coal mining operation for a portable outdoor power distribution center contributed to the higher fourth-quarter revenues, and there is potential for additional orders from this customer in the future.

Our pipeline of new business opportunities for custom products has grown significantly outside of our traditional customer base as a direct result of our efforts to diversify the business beyond potash mining. With these positive developments, we expect 2015 to be a better year than 2014.

The protection relay side of the business remained slow in the fourth quarter due to a seasonality and the continued softness in mining. Historically, mining has accounted for more than 40% of our relay business; and the continuing downturn has had a major impact on our results.

We did, however, have several good new business wins in the quarter. One is our first order with a major South American mine for our arc flash relays. The mine had an arc flash incident last year where a worker was seriously injured and is now installing arc flash relays in many areas of the mine. This opportunity is worth several hundred thousand dollars.

Another new customer is a very large mine in Chile that is installing our relays in one of its substations. The customer was so pleased with the added features and improved performance of our relays that over time they plan to replace all of the competitive products currently installed in the mine with ours.

In addition, a significant piece of new relay business for a large data center customer that we expected to pick up in the fourth quarter has now been delayed into 2015. We anticipate this opportunity will generate several million dollars in revenues over a number of years once we receive the order.

For the SymCom business, our focus is on growing sales, our established distribution channels, and improving margins through the plant consolidation I mentioned earlier. As a whole, the Electrical business suffered from the slowdown in the mining and solar markets, although the fuse business had some bright spots.

While we are seeing some welcome signs of recovery in potash mining, the segment remains very week and we are still in the early stages of diversifying both the custom products and protection relay businesses. We have work to do in this business, and we are focused on our improvement strategies.

That concludes the report on the business units. In summary, 2014 was a solid year for Littelfuse, and we expect to move the ball forward in 2015. We're implementing stricter expense controls and are taking corrective actions to improve the performance of our plants.

We believe our fundamentals remain strong. Our record of solid, long-term financial performance was recently recognized by Forbes Magazine, which named us one of the 2014 Best Small Companies in America. This is our second time on the list, and we are pleased to once again be among this select group of public companies.

With that I'll turn the call over to Phil, who will provide the first-quarter outlook, and then we will take your questions.

Thanks, Gordon. Sales for the first quarter of 2015 are expected to be in the range of $202 million to $212 million, which represents flat revenue at the midpoint and approximately 4% growth in constant currency. Earnings for the first quarter are expected to be in the range of $1.00 to $1.14 per share. This includes negative currency effects, which we estimate will be approximately $0.10 per share compared to the prior year.

For 2015, we expect to face substantial currency headwinds. At current exchange rates, sales would be negatively impacted by approximately $30 million and earnings by approximately $0.40 per share compared to 2014.

Nevertheless, with planned improvements in the Electrical, automotive sensor and commercial vehicle businesses and continued solid performance in the core Automotive and Electronics businesses, we believe we can achieve modest sales growth and earnings above $5.00 per share in 2015, excluding restructuring charges and other special items.

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

(Operator Instructions) Matt Sheerin, Stifel.

Yes, thank you and good morning, guys. A couple questions for me. First question, just regarding some of the performance issues in your plants in Q4, could you drill down a little bit there? What divisions was that, Automotive and/or Electronics?

And it sounds like those problems were contained and you're not going to see it this quarter. But was there any overflow in terms of issues this quarter?

Yes, Matt. There were a number of plant issues, and we've talked about some performance issues in the past, particularly in our Mexico plants. Gordon talked about some of the corrective actions that we've taken there, and we are expecting performance to improve going forward.

We also had, I think, some temporary fourth-quarter-only related issues in a couple of other plants as well, but we don't see those extending past the fourth quarter.

Okay. Did that impact margin then in both Automotive and Electronics?

It would be a little bit in the Automotive business, and some in the Electrical business, which are really the two divisions where the Mexican plants service. Not so much in Electronics, although we did have some temporary issues in a few areas in our Electronics business as well, which I indicated should not carry past Q4.

Got you. In terms of the guidance for a $5.00-plus number for the year, implies more back-end loaded and you should see some EPS growth in the back half of the year. Does that factor in some of the cost savings you've talked about and Gordon went over, some of the initiatives from integrating some of the acquisitions of the last year or two?

Is that part of it? Or do you expect volumes to improve through the year and get leverage off of that?

Yes, I think -- well, there is some expectation that volumes will pick up a little bit; and they typically do seasonally fourth quarter. First quarter is usually one of our weakest quarters, if not the weakest.

But it also does anticipate that we start to get some benefits later in the year from some of the improvement efforts that Gordon described. Both the sensor improvement effort as we start to bring in a little bit more of our higher-margin business that we've brought into the backlog more recently, as well as we'll start to see some of the savings from some of the consolidation initiatives late in the year.

We mentioned the SymCom plant consolidation, which should be approaching $2 million of savings as we exit the year. But that will be again mostly in the -- that improvement will show up mostly in the fourth quarter.

And then we may see a little bit of savings, although it won't be significant, from the consolidation into the Philippines. Almost all of that's going to be out in 2016.

So as we look out, as we get into 2016 a lot of these savings should be starting to have fairly significant impact. They're only going to have minor impact in the 2015 time frame.

Got you. Just lastly for me if I can, just regarding FX, you talked about a $0.40 impact to EPS and $30 million impact on the top line. Is that, the more pronounced EPS impact, because you've got more manufacturing outside of Europe versus sales, so you don't have that natural hedge?

Yes, that's the biggest issue, Matt. I think we have very little -- other than a plant in Lithuania, we don't have anything else in Europe. Most of the products we sell in Europe, most of the Electronics products and most of our Automotive products, are manufactured outside of Europe.

So the weaker euro, certainly it impacts sales. And while we have selling and administrative organizations in Europe, we still have a very significant long exposure to the euro.

Got you. Okay. Thanks for taking the questions.

Christopher Glynn, Oppenheimer.

Thank you; good morning. Hey, just had a question, Phil, about the accrual true-ups in the quarter. It sounds like it probably wasn't anticipated in the guide. So I'm just wondering if you need to take some corrective measures to how you accrue during the course of the year.

Yes, I mean some of it, Chris, were things that I think probably could have or should have been anticipated that were -- at some of our newer businesses as they came up on SAP we found some inventory that we needed to reserve for as we got better visibility to it, generally related to our newer businesses.

There were also some things that were difficult -- would have been difficult to anticipate, like pension and medical accruals that come in from our plan administrators late in the year. And I'm not sure we could have anticipated those.

So I think it's a mix. I would say that as we bring these newer businesses up on SAP, which we've said we have a policy to do within the first 18 months that they are in the business, once they're up on SAP there should be no excuses to have misses on accruals or true-ups at the end of the year.

Some of the other items that hit us would have been more difficult to anticipate. But certainly we will make every effort to do so.

Okay. No, that's helpful. It's integration-related, really.

Right.

Then on the acquisition pipeline, I think not long ago you were maybe saying some of the other areas more focus than sensors, given relatively recent activity there. Is that platform part of Littelfuse's DNA now enough to revisit that area of the pipeline?

Yes, I think that's a good characterization of it. I think we are fairly clear on our profit improvement plans, and we've got active plans in place. I mentioned we've got very solid top-line growth projections in the automotive sensor business with improved margins. So the new platforms that we're going to have will be getting this business to a healthy place, and it therefore is time to start looking in that area.

But we're also looking in other parts of the Company. I think we've talked about CVP, for example: a very fragmented market that we think there's a lot of interesting targets out there.

But our Electronics business, which is also very healthy, we think there is room for expansion, maybe consolidation of some of other products into our core circuit protection and power control business. So there's quite a few areas of the Company that we are looking at.

Thank you for that color.

Tim Wojs, Baird.

Yes, hi, guys; good morning. I guess just on cash flow, really good I guess 2014 in terms of just cash flow generation. I'm just curious: is there anything within 2014 that might be one-time or nonrepeatable going forward?

I'm just trying to figure out how we should think about free cash flow next year, either as a percentage of earnings or a percentage of revenue or something like that.

Yes, good question, Tim. I think I wouldn't say there is anything that was one-time. Although we did have a significant increase in our payables as we undertook some initiatives to negotiate new terms with some of our suppliers and we are putting a little more effort to that part of the working capital equation probably than we have in the past.

We were able to move those payables out significantly during the year, most -- a big chunk of that was in the fourth quarter. So I would not see a repeat of that happening.

We did get, I think, $15 million in cash or so out of payables this year. Probably not repeatable, although sustainable.

But on the other hand, we ended the year at a DSO that was probably a little bit higher than we've been at the last couple of quarters. We were about 60 days. We've had that as low as 56, 57 days in some recent quarters.

So I think there is some opportunity on the receivables side that would probably offset the payables. So net-net, we should see cash flow I think that looks pretty similar to the 2014 number in 2015.

We will have some restructuring charges related to some of these consolidations that will -- we will pull some of those charges out of the non-GAAP numbers, but they will still obviously come through from a cash flow standpoint. But I would say when you take that all into consideration, I think you ought to be looking for a cash flow number that looks pretty similar to the record cash flow number in 2014.

Okay. No, that's helpful. Thanks.

We will have a little bit higher CapEx, however, and again related to some of these consolidation projects. So CapEx will probably go from the lower $30 millions to the higher $30 millions. But again, not that significant a change from 2014.

Yes, okay. I mean, I think bottom-line, cash flow is still pretty good as we look forward.

Yes, I think -- I mean, if you look at what we've said our targets are for cash flow, we were significantly better than those targets in 2014. No reason to think that we wouldn't be in 2015 as well.

Okay. Then I guess -- I think last quarter you mentioned the repatriation of about $90 million of cash from offshore. I'm just -- did that happen this quarter?

I guess, looking at the $300 million or so that is in cash today, how much of that is in the US, and how much of that is offshore now?

Yes. We did bring back approximately $90 million of cash in the fourth quarter, as we indicated we would. We used to that primarily to pay down debt, so we still don't have a lot of cash sitting in the US. We have -- we just paid down the revolver with that.

So the majority, probably over 90% of our cash on our balance sheet is outside the US at this point.

Okay. I guess as you balance M&A and buybacks, is it possible that you'd actually put a little bit more on the revolver to buy back stock? Or how do you think about buybacks versus M&A as you get through 2015?

Good question. We indicated I think last quarter that we continue to underachieve on our M&A target. Gordon mentioned that we are at about an 8% growth through two years on our M&A target, versus a target of 10%.

We're working hard to improve that number. But if it looks like the number is going to be closer to 8% growth or so, that gives us a lot more room for stock buyback. And depending on where the stock price settles out, I think you could assume that we may be more inclined to be more aggressive on stock buyback than maybe we have been over the last couple of years.

Okay, okay. Then just the last one for me. It says in the press release that you are looking maybe to implement some select pricing increases. I guess, how much of that pricing realization is already in the $5.00-plus of earnings? And I guess, how confident are you that you'll be able to push that -- push those prices through competitively?

I think that -- I would say some of it is in there. But I mentioned, for example, our sensor business in Automotive, the business we acquired that had some very low-margin business when we acquired it that will eventually run its course to end-of-life. And the new business and the new products we are introducing there are significantly higher prices, much better products, and bringing more features to our customers. So that's one area that's active and I'd say that's really built-in.

We also had some price increases in our CVP, our commercial vehicle business, and we continue to look at more price increases potentially in that area.

And our Electronics business, I would say we haven't really built it in, but we are looking particularly in the European area, where I think probably a lot of electronic components companies are looking, that -- with a dramatic drop in the euro, that price increases across in Europe for our Electronics products is one possibility, where that has a much shorter design-in cycle than the long projects that we have in the Automotive business.

So, yes, I'd say some of it's built in, and some of it is to come.

Okay, great. Thanks for all the color.

Shawn Harrison, Longbow Research.

Hi, morning, everyone. I wanted to revisit, I guess both the margin profiles long-term of where you think the sensors business should be, as well as CVP. I think you said sensors should be mid-teens post the restructuring. I think CVP is maybe below that right now.

But where would you like those businesses to be within -- on a margin profile, let's say, exiting calendar 2016? And do you have to do any further restructuring to get there?

Yes, good question. The CVP commercial vehicle business, we had indicated that business was low double-digits prior to 2014; and we saw those margins start to come up through a whole range of actions. Some of them on the operations and integration side; some of them on the pricing side; some of them on the new products side.

Those margins today are up into the teens, probably mid-teens, 14%, 15%. We think over the next year to two years, that those can get closer to 20%. So we've still got some room and some positive momentum there.

The sensor business, because we've owned it less time we are further away, probably a little further away from seeing those margins really come up quickly. But as Gordon said, we have a relatively near-term target -- near-term being by end of 2016 -- to get those margins up to the mid-teens.

We think ultimately, just based on where we see sensor margins in other companies that they could potentially be higher than that. I think we've talked about potentially higher teens or high teens types of margins in that business.

Just to put it in perspective, today those margins are slightly below 10%, so we've got a lot of upward room to move there. It's going to take a little bit longer on the sensor side; but exiting 2016, we should see probably at least 500 basis points of margin improvement in that business.

Okay. It sounds like it's both restructuring and cost reduction and mix change actions and things of that nature.

Yes, mix change. Gordon mentioned that the newer platforms that we are winning there and with some of our newer products are at considerably higher margins than some of the products that we acquired in the backlog when we acquired the company a year and a half or so ago. We are continuing to change that mix over time.

With the lead time that it takes to win a platform and have it ramp-up, it takes a few years for that to happen. But I think you'll start to see some of that in 2015, and you'll see that accelerate in 2016 and beyond.

Okay. Then as a follow-up, the manufacturing issues -- I guess it was a second issue in 2014, which is -- at least in my tenure of coverage -- pretty much unlike Littelfuse. Are you sure that the changes in management you've put in place and whatever else you've done has permanently moved these issues behind you?

Yes, I think so. I think the one particularly in Mexico: we were going through a transition of a plant from a poorer-quality leased facility and moving that into our campus, which is much more of a state-of-the-art campus that we have for our Automotive manufacturing. So moving our Electrical business into there is clearly one of those things that we knew we would have to do at some stage, and upgrading the leadership there.

So I think we've really addressed that and we're starting to see improvements. I think there is a very big Company focus on that in Mexico right now.

As Phil mentioned, some of the other plant things were a few one-time things that were quite unusual for us. But we also have a couple of plant moves that we've announced: the New York to Rapid City, and the moving of Lake Mills to Philippines. I think there is always an expectation that there is a little bit of lumpiness as you're going through those transitions.

But I think we've got good plans in place now. It's getting a lot of focus from us. And I think we are confident that the challenges that we had in the fourth quarter are things that we've got corrective actions in place for all of those.

Okay. Last, a brief follow-up if I may. Phil, what is the tax rate you are forecasting for 2015? I don't know if you said that, but I missed it.

Then also, what are the revenues of the business that you guys bought from TE Connectivity?

Minimal revenues; basically bought a product line. I think it was less than $2 million in revenue. But it's something that -- the technology is something that fits much better with our portfolio than with theirs, and we believe we can grow that business significantly over time.

Okay, and then the tax rate? I'm sorry.

Yes, the tax rate. We've talked about programs and projects that we've done and are doing to bring the tax rate down. I think we had previously guided towards a 23% to 24% tax rate for 2015. I think it's possible that it could be a bit lower than that.

But we are very confident at the low end of that range. It could potentially even be a little bit lower than 23% for 2015; and going forward we could see it lower than that, we believe.

Okay, great. Very helpful. Thanks, Phil.

(Operator Instructions) Gary Prestopino, Barrington Research.

Hi, good morning. Most have been answered, but you mentioned on the currency impact it was $2.1 million to operating income this quarter. If I tax-effect that I get between $0.06 and $0.07.

And then for this year you're saying about $0.40. So does your guidance imply you are looking for a continuing worsening situation here with the dollar/euro, or am I missing something there?

No. So yes -- if you look at the fourth quarter, Gary, the big drop in the euro really didn't happen until December, so it was late in the quarter. So the average rate right now, or where the rate is right now of the euro, $1.12, $1.13, somewhere in that range is quite a bit below what the average rate was for Q4.

So the guidance we gave of a $0.40 impact is assuming that rates basically stay where they are today.

Okay, thank you.

Christopher Glynn, Oppenheimer.

Thanks. Just wanted to follow up on your comments about pricing pressures at Electrical. Is that something that's a little outside the ordinary course of business?

Yes, I think that's a good point, Chris. I think we've generally had a very healthy pricing environment, but clearly the solar market is just that one segment that I was referring to for our electrical fuses that have usually been among our higher-margin products. The solar market has become a very competitive market in the segments that we are in.

We had a very strong growth a couple of years ago in Europe when the solar market was very healthy, and as that market in Europe has declined we've seen much tougher pricing environment in the solar market. So yes, that's unusual.

Okay. That makes sense. Got it.

Garo Norian, Palisade Capital Management.

Hi, I just wanted to ask about the organic growth outlook for the year. I guess fourth quarter came in around 4%, and the first quarter guide is around 4%; and you've highlighted how you've been doing 5% the last couple years. I realize it's kind of splitting hairs, but any expectation that the organic growth improves as the year progresses?

You know, Garo, I think the plan we had for organic growth prior to the euro drop was a little north of 5%. But with the -- we are going to be hit by about -- if the euro stays where it is and currencies generally, we also get hit by the Canadian dollar as well. If currencies stay where they are today, it's about a 350 basis point headwind to our organic growth rate.

So I think it's going to be challenging to get to 5% even with the currency headwinds that we face. Excluding currency, we would expect to slightly better than 5%.

Okay. Then just related to the impact of the euro, is there any business logic to over time resetting some of the manufacturing locations?

I don't think so. I think we have -- one thing that we've talked about in the past that might make sense is we do have a pretty good relatively low-cost manufacturing facility in Lithuania, which is I think going to the euro; and their currency historically has been fairly closely linked to the euro. So their cost position has only gotten better there.

We make some of our sensor products there. And I think that would be a place as we grow our sensor business and maybe acquire more sensor companies that would be even more attractive with the euro where it is than maybe even it was historically.

So that would be an area. But I don't think there is anything else that we would necessarily look to bring into Europe.

Got it. Thank you.

At this time I'm showing no further questions. I would now like to turn the call back over to Mr. Hunter for closing remarks.

Thank you for joining us on today's call. We had three strong quarters in 2014; and although the year did not end the way we would've liked, overall 2014 was another year of continued growth for Littelfuse. We look forward to further progress in 2015.

Thank you and have a good day.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for your participation and you may now disconnect.