Q4 2024 Littelfuse Inc Earnings Call
[inaudible]
Speaker Change: Good day, everyone, and welcome to the Little Pews fourth quarter 2024 earnings conference call. Today's call is being recorded. At this time, I will turn the call over to the head of investor relations, David Kelly. Please proceed.
Speaker Change: Good morning and welcome to the Little Feu's fourth quarter 2024 earnings conference call. With me today are Dave Heinzmann, President and CEO, Meenal Sethna, Executive Vice President and CFO.
Speaker Change: and Greg Henderson, Little Feud's board director and incoming CEO. Yesterday we reported results for our fourth quarter and a copy of our earnings release and slide presentation is available in the Investor Relations section of our website.
Speaker Change: A webcast of today's conference call will also be available on our website.
Please advance to slide 2 for our disclaimers.
Speaker Change: Our discussion today will include four looking statements. These four looking statements may involve significant risk and uncertainties.
Speaker Change: Please review yesterday's press release and our Forms 10-K and 10-Q for more details about important risks that could cause actual results to differ materially from our expectations.
Speaker Change: We assume no obligation to update any of this board-looking information.
Also, our remarks today revert to non-GAAP financial measures.
Speaker Change: A reconciliation of these non-GAAP financial measures to the most comparable GAAP measure is provided in our claims release available in the investor relations section of our website. I will now turn the call over to Dave.
Speaker Change: Thank you, David. Good morning and thanks for joining us today. Let's start with highlights on slide four. In the fourth quarter, our performance and results came in as we expected, as both sales and earnings were within our prior guided range.
Speaker Change: The consistency of our performance reflects our global team's strong operational execution and unwavering focus on our diverse and broad customer base, as we delivered solid quarterly results amid a mixed environment across our end markets.
Speaker Change: We believe our steadfast commitment to our customers positions us to deliver continued long-term, top-tier growth.
Speaker Change: We exited the year with the electronics deshocking cycle behind us and signs of distribution inventory replenishment emerging.
Speaker Change: Notably, our electronic segment Book to Build is at its highest level since the second quarter of 2022.
Speaker Change: Our passives business book-to-bill is above 1, and while power semiconductor remains below 1, we observed improved order rates in the quarter relative to levels seen earlier in the year.
Speaker Change: As order rates are gradually improving, we continue to see broader design and strength across our diverse technology offering and in-market exposures.
We remain confident in our content.
a key enabler of sustainability, connectivity, and safety megatrends.
Speaker Change: We also strove for improved operational performance in 2024 and delivered meaningful profitability enhancements across our businesses, driving solid second-half margin expansion.
Speaker Change: Into 2025, we continue to align our cost structure to reflect current business and market conditions.
Speaker Change: while positioning our company for a return to growth and further margin expansion.
Speaker Change: Finally, we generated strong free cash flow conversion in 2024, while our balance sheet exits the year well-positioned to support our long-term growth strategy.
Speaker Change: Taking a step back, we are confident our actions in 2024 will support growth and solid earnings expansion in 2025, as well as meaningful long-term momentum beyond the new year.
Speaker Change: I want to thank our global teams for their focused efforts and persistent hard work in the fourth quarter and throughout 2024.
Speaker Change: Electronics market trends were mixed but improved through the fourth quarter. Data center remained a strong growth driver in part driven by AI application.
Speaker Change: Medical demand was mixed, while demand for consumer products, appliances, and building technologies remained subdued. Yet as the quarter progressed, we observed some emerging signs of stabilization, particularly in North America and Asia regions.
Speaker Change: Broadly, electronics in-market design and activity remained healthy, and we delivered another strong win rate across a broad set of applications in the quarter. Of note, we saw strong taxes opportunities and conversion in China, driving meaningful order expansion in the region in the fourth quarter and full year 2024.
Speaker Change: In North America, we continue to observe some ongoing design wind order conversion delays, but a pickup in order trends late in the quarter was encouraging.
Speaker Change: Turning to our electronics in-market design wins in the quarter, we secured a meaningful data center win for a cooling application in North America and an infrastructure application in Japan.
Speaker Change: We secure datacom, server, and ComputeWinds in North America, China, and Taiwan.
Speaker Change: We also deliver global wins for appliance applications that utilize our broad technology capabilities.
Speaker Change: Similarly, we secure business for multiple building technology and automation applications in regions including North America, China, Taiwan, and India.
Speaker Change: Finally, we deliver meaningful wins for medical applications in North America and Europe in the quarter.
Speaker Change: Moving on to Transportation and Markets and Design, which is on slide 7.
Speaker Change: Starting with our passenger car exposure, we benefited from our global positioning and balanced technology offering, which helped to offset slightly lower global car bills in the quarter and ongoing pruning actions associated with our sensor product line.
Speaker Change: We delivered solid growth in China as we leveraged our technology expertise.
experienced local teams and strong partnerships with local OEMs.
Speaker Change: Outside of China, solid demand for our low-voltage products partially offset weaker North American and European production volumes in EV sales.
Speaker Change: In 2025, we believe our exposure to multiple secular growth drivers and ongoing innovations with our global customers position us to offset likely continued stocked global car bill trends.
Speaker Change: Regarding our commercial vehicle exposure, while SOF's underlying market continued in the fourth quarter, we delivered solid volume expansion and continue to drive favorable pricing.
Speaker Change: Given our strong content offering and continued interaction with customers, we remain confident in our commercial vehicle positioning and are excited about long-term opportunities across our broad exposures.
Speaker Change: In the quarter, we secured solid new transportation business across both passenger and commercial vehicle end markets.
Speaker Change: In passenger vehicles, we secured several meaningful high-voltage opportunities with customers in South Korea, China, and Europe.
Speaker Change: We also delivered multiple low-voltage fuse winds, including in North America, Europe, South Korea, and China, which demonstrates the global scale of our business.
Speaker Change: Finally, we secured ADOS application opportunities for customers in China and Europe.
Speaker Change: At Commercial Vehicle In-Markets, we secured several construction and agriculture equipment wins for customers in North America and Europe. We also delivered multiple recreational and specialty vehicle wins in the quarter.
Turning to slide eight, Industrial Markets and Design Activities.
Speaker Change: In the fourth quarter, we observe mixed in-demand trends across our broad industrial exposure.
Speaker Change: We benefited from continued strong HVAC and industrial safety application demand. However, we observed continued soft industrial equipment, factory automation, and charging infrastructure trends.
Speaker Change: We continue to see more pronounced softness across our industrial power semiconductor products, where we have more meaningful exposure to weaker European and Asian industrial markets.
Speaker Change: Broadly, we observed a solid order rate momentum late in the quarter and into 2025. We see an improving, albeit likely, gradual industrial recovery.
Speaker Change: Importantly, our industrial sector growth drivers remain intact. We see continued strong momentum headlined by renewables, automation, and industrial safety.
Speaker Change: Regarding our design wins in the fourth quarter, we secured meaningful renewable opportunities, including for a solar application in North America and for a solar and energy storage application in China.
Speaker Change: We also secured several commercial HVAC wins in the quarter, so our teams continue to leverage core residential HVAC technology expertise to drive new market expansion.
Speaker Change: In Japan, it's sure to win for a rail traction drive application that will utilize our semiconductor capability.
Speaker Change: Finally, we delivered a variety of wins across heavy industrial markets, including construction, mining, and oil and gas in the quarter.
Speaker Change: Across our businesses, we continue to partner with our broad customer base to drive innovative solutions for our diverse in-market exposures. We will remain focused on operational execution as we strive to deliver leading performance in 2025.
Meenal Sethna: I will now turn the call over to Meenal to provide additional color on our financial performance and outlook.
Meenal Sethna: Thanks Dave. Good morning everyone and thank you for joining us today.
Meenal Sethna: Please turn to slide 10 to start with details on our fourth quarter results.
Meenal Sethna: Revenue in the quarter was $530 million, down 1% versus last year in total, and flat organically. The product line pruning actions we've discussed reduced sales about 2% in line with our expectations in the prior quarter.
Meenal Sethna: GAAP operating margins were negative 6.9% and include $93 million of non-cash goodwill and intangible impairment charges. The charges are primarily related to the impairment of certain assets impacted by ongoing weak EV charging infrastructure trends.
Meenal Sethna: For the quarter, Adjusted Operating Margins finished at 12% and Adjusted EBITDA Margins were 18.1%.
Meenal Sethna: Fourth quarter GAAP diluted loss per share was $1.57 and adjusted diluted earnings was $2.04. Our fourth quarter GAAP effective tax rate was negative 30% and adjusted effective tax rate was 13%.
Let's turn to slide 11 for full year performance.
Meenal Sethna: We finished the year with sales of $2.2 billion, down 7% in total in organically versus last year.
Meenal Sethna: GAAP operating margins were 7.8%. Adjusted operating margins finished at 12.9% and adjusted EBITDA margins were 18.9%.
Meenal Sethna: Foreign exchange and commodities had a 30 basis point unfavorable impact to markets.
Meenal Sethna: We drove improvements in our cost structure in 2024 and are pleased with our resulting margin trajectory as our second half operating margins expanded 220 basis points from the first half of the year.
Meenal Sethna: Finally, full year of GAAP diluted EPS was $4.51 and adjusted diluted EPS finished at $8.48. Our full year of GAAP effective tax rate was 31% and adjusted effective rate was 21%.
Meenal Sethna: We delivered strong cash generation in 2024. In the quarter, operating cash flow was $161 million and we generated $135 million in free cash flow.
Meenal Sethna: For the full year, operating cash flow was $368 million, and we generated $292 million in free cash flow, driving cash conversion well over 100%.
Meenal Sethna: Our strong performance also reflects our ongoing focus on working capital management.
Meenal Sethna: In 2025, we continue to target 100% pre-cash flow conversion, aligned with our long-term goals.
Meenal Sethna: Our balance sheet remains strong and gives us continued flexibility on capital deployment. We'll continue to prioritize our free cash flow for thoughtful acquisitions, and we'll continue to return capital to our shareholders through our dividend and periodic share buyback.
Meenal Sethna: For the full year of 2024, we returned $108 million of capital to shareholders, including $67 million through our cash dividend and $41 million through opportunistic share repurchases.
Meenal Sethna: will remain disciplined in our capital allocation strategy as we strive to maximize long-term shareholder value.
Meenal Sethna: Please turn to slide 13 for our product segment highlights starting with the electronics product segment.
Meenal Sethna: Sales for this segment were down 4% organically and 12% for the quarter and year respectively.
Meenal Sethna: Versus prior year, sales across passive products were up 9% organically for the quarter and down 1% for the year, while semiconductor products declined 13% and 20% for the quarter and year.
Meenal Sethna: Our solid passive product sales growth in the quarter reflects stabilizing and demand trends and improved orders from channel partners.
Meenal Sethna: Within our semiconductor products exposure, we saw stabilizing demands for our protection products, but continued softness across power semiconductors.
Meenal Sethna: Operating margins in the quarter were 12.3%, while EBITDA margins finished above 19%, both in line with our expectations.
Meenal Sethna: We finished the year with segment operating margins of 14.2% and EBITDA margins of nearly 21%.
Meenal Sethna: Moving to our transportation product segment on slide 14, segment organic sales declined 1% for both the quarter and the year, amidst declines across global car bills and commercial vehicle and market.
Meenal Sethna: Segment sales were negatively impacted 6% versus last year for the quarter and 5% for the year from pruning actions we've been undertaking.
Meenal Sethna: In the passenger vehicle business, sales declined 4% organically in the quarter and came in flat for the year.
Meenal Sethna: Fourth quarter sales were negatively impacted by planned auto sensor product exits and ongoing global car bill declines, in part offset by growth in China.
Meenal Sethna: Within commercial vehicles, sales to the quarter were up 4% organically and down 1% for the year.
Meenal Sethna: In the fourth quarter, we delivered volume growth and favorable pricing despite continued end-market weakness.
It's more than off that impacts pruning action
Meenal Sethna: For the segment, operating margins were 9% and over 10% for the quarter and year respectively.
Meenal Sethna: while EBITDA margins finished at 14.5% in the quarter and 15.6% for the year.
Meenal Sethna: Foreign exchange and commodities were a headwind for the full year, unfavorably impacting margins 110 base points.
Meenal Sethna: We're pleased that our focus on cost action, pricing, and pruning initiatives drove 530 basis points of operating margin expansion for the year.
Meenal Sethna: We believe these actions position us well for continued large growth into 2025.
Meenal Sethna: On slide 15, industrial product segment sales increased 12% organically for the quarter and declined 1% for the year, navigating well through a number of weak industrial end markets.
Meenal Sethna: Fourth quarter sales benefited from strong HVAC growth, solid data center momentum, and continued industrial safety expansion.
Meenal Sethna: Segment operating margins finished at 17.1% in the quarter, expanding 440 basis points versus prior year level, while full year margins finished at 13.9%.
Meenal Sethna: Adjusted EBITDA margins were 20.8% in the quarter, while full-year margins finished over 18% for the year. We delivered strong margin expansion in the quarter, led by continued solid execution and strong conversion on volume growth.
Meenal Sethna: Our improved industrial segment margins throughout 2024 also reflect our operational execution and solid volume leverage. We expect continued growth and margin momentum into 2025.
Now please move to slide 16 for the forecast.
Meenal Sethna: As we start 2025, we continue to see a mixed macro environment.
Meenal Sethna: Within electronics, we expect passive products recovery, but ongoing soft semiconductor product sales in the first quarter. We expect ongoing industrial segment momentum, while we see a mixed underlying transportation backdrop starting the year.
Meenal Sethna: We expect a low single-digit global car bill decline with signs of modest commercial vehicle market recovery projected for later in the year.
Meenal Sethna: With these assumptions, we expect first quarter sales in the range of $520 to $550 million. This includes about a 2% headwind from FX versus the prior year.
Meenal Sethna: We're projecting first quarter EPS to be in the range of $1.70 to $1.90, which includes a tax rate of 26 percent.
Meenal Sethna: Sequentially, the higher tax rate represents a $0.32 headwind to earnings as we benefited from a retroactive tax holiday extension in the fourth quarter.
Meenal Sethna: At current FX and commodity rates, we are expecting an $0.11 benefit to EPS versus the prior year.
Meenal Sethna: Please turn to slide 17 for additional full year 2025 color.
Meenal Sethna: We expect solid earnings expansion, reflecting our growth positioning, recent cost scaling actions, and ongoing focus on operational execution.
Meenal Sethna: At current rates, we expect FX and Commodities will represent a 1% headwind to sales, but a $0.22 benefit to EPS.
a twenty-five percent
Meenal Sethna: As we turn the page to the new year, we believe our ongoing momentum with customers on design wins and product innovation positions us well for a return to growth.
Meenal Sethna: Our focused execution and cost scaling actions have enhanced our operating model, positioning us for solid earnings expansion in 2025 amidst a dynamic environment.
Meenal Sethna: Our strong cash generation focus and our well-positioned balance sheet also give us both flexibility and confidence as we aim to deliver long-term top-tier growth and earnings expansion.
Meenal Sethna: In closing, I'd like to recognize our employees and partners for their meaningful contributions and unwavering commitment to Little Keith.
Speaker Change: I would also like to thank Dave for his outstanding leadership of Little Feuds.
Speaker Change: It's been a pleasure working with him for the last decade, and I'm grateful for our strong partnership. I wish you well in retirement.
Speaker Change: I've gotten to know Greg over his nearly two years on our board and I look forward to partnering with him as we enter the next phase of the Little Feud's growth journey. I remain excited for the meaningful opportunities that lie ahead.
Dave Heinzmann: And with that, I'll turn it back to Dave for some final comments.
Dave Heinzmann: Thanks Meenal. In summary, while we navigated a difficult environment in 2024, our unwavering focus on our customers and our persistent push for operational enhancements have positioned us to deliver solid growth and earnings expansion in 2025.
Dave Heinzmann: With our diversified business model and broad technology offering, we are confident in our ability to drive long-term, top-tier value for our shareholders.
Speaker Change: Finally, I just want to say a few words as I will soon be wrapping up a 40-year career with Little Views.
Speaker Change: It's been an amazing journey with a truly exceptional company. I want to thank the board for their continuous support over the years. I also want to thank all of the Little Fuse employees who worked tirelessly to deliver on our long-term growth strategy.
Speaker Change: It has been an honor to lead you all, and I am confident that you are positioning the company for meaningful long-term success.
Speaker Change: I'm also grateful to be leaving the company in such great hands.
Speaker Change: Greg and I have worked closely together over the last couple years. It brings the ideal skill set and leadership track record to lead this company into the next stage of growth.
Speaker Change: And with that, I'm going to turn it over to Greg, who is going to say a few words.
Greg Henderson: Thank you, Dave. On behalf of Little Fuse, I want to thank you for your leadership and congratulate you on an impressive four-year career at the company.
Speaker Change: For the Little Hughes employees listening on the call, I look forward to working with you all as we begin the next chapter of the Little Hughes growth story. And for the analyst and investor community, I'm excited to meet many of you in the coming months. And with that, I'll turn the call back to Music.
Thanks, Craig. Operator, we are ready to begin the Q&A.
Speaker Change: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Speaker Change: If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue.
Speaker Change: And our first question comes from the line of Luke Chong with Baird. Your line is open.
Luke Chong: Good morning. Thanks for taking the questions. Dave, just to start with, congratulations on your 40-year career at Little Fuse and upcoming retirement. Absolutely well-deserved.
Thanks.
Speaker Change: In terms of the quarter itself to start with here it'd be a great if we could just put a finer point on book-to-bill and passive this quarter sounded pretty positive based on your comments Dave plus maybe just what you're hearing from distributors qualitatively as you begin to see some restocking in the passive channel as well.
Yeah, sure. Luke, I think...
Speaker Change: In general, let's take a step back and look at the overall electronics and what we would say is, fundamentally, the inventory correction is largely behind us at this point. We stated that in the prepared remarks.
Speaker Change: Book-to-bills for the first time since early 2022 are now above one in electronics as a whole. Passives and our protection book-to-bills are firmly above one.
Speaker Change: And while the power semiconductor portion of our business is a little more challenged with the kind of the heavy industrial focus, particularly in Europe and China,
Speaker Change: So, it's still below one, but it's improved nicely over the last quarter. And through the course of the quarter, while we saw, you know, end of the year above one, we also saw continued momentum improvement going in through January.
Speaker Change: So we remain pretty positive about kind of the general direction there and kind of getting some of the correction cycles behind us.
Speaker Change: Conversations with our distribution partners, you know, range all over the map from individual kind of market they're serving and things like that. I think what they're seeing generally is fairly stable book-to-bills and kind of stabilizing book-to-bills.
Speaker Change: with a bit more positivity coming in North America and in Asia, Europe continues to still be pretty sluggish, and we don't see Europe necessarily turning anytime soon, but pretty positive comments, North America and Asia momentum.
Dave Heinzmann: Okay, that's helpful. And then maybe just if we could double click on those early signs of select industrial recovery, you know, relative to Power Semi and, you know, what has been weakness. Is there any more texture in terms of market? Should we assume that it's from a geographic standpoint also weighted to North America and Asia, Dave?
Dave Heinzmann: Yeah, I think if you look at industrial more broadly, you've got the power semi, which we talked about being very industrial heavy. There where I'd say it's kind of stabilization coming there tends to be more than North America and Asia where we're seeing that kind of stabilize.
Dave Heinzmann: As I stated earlier, Europe continues to still be a bit tossed there.
Dave Heinzmann: Machine automation and things like that that are going on in Europe for global support, but you know that continues to be a bit sluggish there
on the other industrial portion in our industrial segment itself.
Dave Heinzmann: We had a very solid quarter there and it's kind of a niche business, right, where we serve individual areas. And so we continue to see strength.
Dave Heinzmann: and safety applications. That's been a really nice growth area for us. We've seen the HVAC space begin to show improvements there and we're making
Dave Heinzmann: Good progress and kind of moving from more residential focus to commercial focus. They're getting nice design wins and growth in that area
So, we're seeing those places, you know,
Dave Heinzmann: particular applications and markets and regions where we see kind of stronger momentum and you know that's starting to show up in our results.
Speaker Change: Got it. And then, Meenal, with trade rotation margins showing some really significant strength in the third quarter, stepping down sequentially here in the 4Q, but still finishing the year above the level you were expecting, can you just help us understand kind of what's...
Dave Heinzmann: In the margin profile in the back half of the year as we step into 2025, I guess I'm just trying to tease out what sort of base we should use to build our 25 margin assumption in the transportation segment.
Meenal Sethna: Sure. Thanks, Luke. So I'd say, you know, one, we're really pleased with the progress that we've made through transportation. You know, we started the year at mid-single-digit range and have worked our way up as we talked about a number of actions that we've been undertaking to really get to the point where we're at, finishing the double digits for the year. I would say going into 2025, we continue to feel very confident about the margin expansion. There's work that we've done.
Meenal Sethna: We've done in 24 and continue to do 2025 or pricing as we've been talking about for a while, you know, finishing off some footprint work, some other cost reductions that we're taking.
Meenal Sethna: So, you know, we feel good and we feel those actions.
Meenal Sethna: will mitigate some of the headwinds that you hear swirling around around, you know, the declining car bill that we're expecting for the year and, you know, a little bit of the volatility around foreign exchange and commodities, but.
Meenal Sethna: NetNet, we feel good for continued margin expansion going into 2025 and the actions we have been taking and are continuing to take.
Speaker Change: And then if I could just sneak in a last quick question, this is more just modeling, historically speaking, incentive comp has had a heavier impact just seasonally in the second quarter based on how you account for it. Should we expect that to be the case again this year, Meenal?
Um
Meenal Sethna: Great question. The incentive comp will be a little bit more of a run rate when we think about Q2 as opposed to that I'll call it the outside spike that we've had. As we get into a little bit more around the Q2 guide we'll give you a little bit more color on that but I would expect it would be a little bit more dampened than what you've seen in historic years.
Got it. I'll leave it there. Thank you.
Thanks for the questions, Luke.
Sari Boroditsky: And our next question comes from the line of Sari Boroditsky with Jeffries. Your line is open. Hi, good morning and congratulations Dave on your retirement and Greg in the new role. We look forward to working with you.
Speaker Change: I just wanted to kind of go through the guidance for 1Q. I think it implies margins are roughly flat sequentially. Could you just talk through the puts and takes on margin performance and how margins should progress through the year, especially if we do see some volume recovery?
Speaker Change: Sure, so you're thinking more from a sequential perspective, just a little more colors and things through the year. Yeah, you know, what I would say is that, you know, we've always talked about, um,
Speaker Change: For us, one of the biggest factors as we think about margin recovery has typically been around volumes and strong volumes, strong conversion rates on that.
Speaker Change: While we're not waiting for that, right? We're definitely working on continuing to drive growth We've done a lot of work in terms of as I mentioned in the earlier comments, but just around pricing
Speaker Change: cost adjustments and other cost reductions and some footprint work. So I would expect that we'll see as we work through 2025, we'll continue to see margin expansion going forward through the year.
Speaker Change: Appreciate the color. One of the markets you talked about seeing the benefit this quarter was HVAC. Do you expect, I think there's been some talk about some pre-build there, so do you expect that to lead to an air pocket and demand in the first quarter and how does that impact industrial growth in 1Q? Thank you.
Speaker Change: Sure, yeah, you know obviously with with the refrigerant change requirements coming and things like that. There's some concerns whether
Speaker Change: Is there a pre-bill going on in preparation for that? You kind of get mixed results when you read from the OEMs and the distributors serving that.
Speaker Change: We've seen good improvement there but I think I don't I don't believe we're going to have an air pocket for a couple reasons. One is we've also been pivoting a lot of energy towards taking the technologies that we're selling into the residential space.
into industrial space as well. So we're seeing nice shapes.
Speaker Change: design wins into the industrial HVAC space which we think if there is any kind of bubble or slowdown in the residential we hope we kind of backfill that with the industrial growth there so in general we feel continue to feel positive about it.
Perfect. Thanks for the questions.
Thank you, Sarah. I appreciate it.
Speaker Change: Next question from Christopher Glynn with Oppenheimer. Your line is open.
Christopher Glynn: Hey, thanks. Good morning, and David, wishing you the best for a great retirement.
I wanted to ask about, you talked about costs.
Speaker Change: Scaling action sounds like a little different characterization than, you know, straight cost restructuring. Does that refer to positioning the assets for very high conversion margins as growth returns? Is that what cost scaling actions refers to?
a lot of time around, you know, discretionary cost reduction.
Speaker Change: I've been talking about in definitely different parts of the business we've been doing a lot of what we call footprint work, whether that's relating to manufacturing and supply chains. So we've been trying to optimize that as we normally do. So it's really for us, it's a combination of all that, but my reference to...
Speaker Change: scaling is more aligning our cost structure to the current state of the business.
Speaker Change: Commercial vehicle, you've been growing the last couple of quarters now in down markets and, you know, I believe with some concentration of the overall pruning actions of the company.
Speaker Change: falling within the CV. I know you talked about price there. Is that really the full deltaverse market or does content have good momentum on CV even during this broad-based lull in global CV markets?
Speaker Change: Yeah, Chris, I think both have an impact. Clearly, we've been working.
to kind of look at
Speaker Change: all customers and product applications and products that we've done some pruning on and addressing that.
Speaker Change: Usually, if you take that approach, you'll do that with pricing actions to kind of drive those activities. So that certainly is a positive. Often you find when you're doing that, that
Speaker Change: Some customers stick around and are willing to pay the higher prices and that's certainly a benefit. We've also seen, we have a fairly niche-y business.
Speaker Change: with a commercial vehicle. So our ability to gain share in new applications.
Speaker Change: I feel have been a positive for us, will continue to be an opportunity for us.
particularly as we focus on
Speaker Change: kind of the high growth applications and margin profiles on technologies and products that we have that we think are most attractive. So I think it's actually both. You know, I think we've been outperforming the market because of our performance with customers and engaging with customers and supporting them, and also from the printing activities.
Speaker Change: Great, thanks. And then could we just get a little bit more detail on the impairment, what acquisition that might have been related to, or did it cut across a couple?
Yeah, Chris, it's Meenal again.
Speaker Change: The impairment that we took, and I think we noted in our prepared slides, it was a $93 million impairment covering both some goodwill and intangible assets. It's almost all related to certain assets within our industrial segment. And, you know, we've been talking about for a while that we've seen some downturns in a number of different industrial markets, but particularly, you know, we're seeing this in the EV infrastructure space, which falls into our industrial segment.
substantial year-term recovery coming.
Speaker Change: As part of the the normal accounting assessment you have to go through when you come to some of those conclusions, you know, we, we went through our forecasting and basically just took a non cash charge in the fourth quarter for the, you know, the accounting rules and how all the math works there.
Great, thank you Meenal.
Thanks for the questions, Chris.
Speaker Change: Our next question from David Williams with the Benchmark Company. Your line is open.
Speaker Change: Hey, good morning. Thanks for taking the question. And David, happy retirement to you.
Speaker Change: It's good after 40 years, you should take some time and really, really enjoy that. So, I guess with that, I wanted to ask, since it hasn't been already, but just the impact of potential tariffs to your business, just kind of given China and then of course the discussions around EV, anything with the new administration that gives you any concerns or thoughts around that, please?
Thank you
Speaker Change: Great question, David, and certainly the volatility that, you know, potential tariffs and geopolitical actions take place are certainly an area that gets our attention. You know, we spend a fair amount of time looking at scenario planning and things.
However, I would say, yeah, the tariffs...
Speaker Change: situation itself. First of all, we're kind of waiting to see how it plays out exactly.
but
That's who!
Speaker Change: where the primary source of our customers are, and so we try to align closer to customers over that time, so we've gotten better with that in the last few years. When tariffs do come, if they come,
Um
Speaker Change: We have a historical kind of experience on that where we engage with our customers.
Speaker Change: and try to work through solutions with a customer. It goes customer by customer, right? But sometimes supply chains can be a little complex and there's movements between the customer and ourselves that we can do to address those things and reduce the impacts of tariffs. And where we can do that, we absolutely do those things.
Speaker Change: By the way, that's all being done kind of at the business unit level, right, where they're dealing with their individual customers.
Speaker Change: Now, at the end of the day, if we get to the points where we can't solve those issues with customers, then we will pass those costs along to customers in a pricing action. So we, while it certainly has an impact to us.
Speaker Change: I think we're fairly confident in how we've worked through it in the past and minimized the impact on the business last time and we'll continue to do that.
Speaker Change: Okay, great. Thanks so much for the color there. And then maybe just on the five-year strategy update, I know you guys were going through that and was scheduled maybe to give some more color around the analyst day, but just curious how you're thinking about that having gone through the five-year strategy, how you're thinking about the business longer term, and maybe Greg, if you're able to chime in there, I would love to hear your comments, but any color just around that strategy going forward beyond maybe just 2025. Thank you.
Speaker Change: Yeah, no, I think it's a good question and obviously as we've postponed the Investor Day.
Speaker Change: We just felt it was best suited to give Greg the opportunity to get his feet on the ground, really understand the business significantly.
Speaker Change: Yeah, we didn't think it was best necessary to have it be come in and kind of share with you where we are at on our current five-year strategy and where we're headed.
Speaker Change: So we felt it was prudent to give a little bit of space to do that and give Greg some time to kind of learn a little bit more from the inside as opposed to the board level on that. So Greg, maybe you have a couple of comments. Yeah. Thanks.
Speaker Change: You know for me. I'm really very excited to be here, and I think as Dave mentioned I think it was a great way for me to enter the company
Speaker Change: coming from the board. I've been working with Dave and been able to meet the leadership team over the last year and a half. So from my perspective, you know, Little Fuse is a great franchise. We have a strong global market position. We have great technology and people and I'm excited to be part of that next phase. So we will be continuing to meet you, talk to you, roll out more about that as we go forward, but I'm excited about it.
Speaker Change: Well, congratulations on the move there and looking forward to working with you as well. Thank you all.
Thanks for the questions, David.
Speaker Change: And our next question comes from the line of William Kerwin with Morningstar. Your line is open.
William Kerwin: Hi, thanks everyone. And Dave, let me echo all the congratulations on a tremendous career and a warm welcome to Greg coming in very soon. If I could just add one more on margin, but specifically for the electronic segment, I think that came in a little bit below where the expectations were coming into the fourth quarter. So just curious what was going on there. Is that more of a semi-dynamic or a passive dynamic? And how you expect that segment specifically?
profit margin to evolve over 2025.
William Kerwin: Sure, thanks. It's a great question. So here's what I would say, you know, when we take a look at our electronic segments over the years, and that's the one we've always talked about that goes through these market cycles,
William Kerwin: that are further exacerbated by the distribution inventory cycles we go through. Those prior down cycles, you know, we've seen our margins drop into the mid-teens when you're down at the low points in terms of volumes.
William Kerwin: In this particular case, we've gone through this down cycle, which has gone a little longer than anyone was expecting.
William Kerwin: The excess inventory that we've seen, not just in distribution channels, but in EMSs and OEMs, and then just this elongation of timing has really, you know, had a bit of a further effect on margins for us.
William Kerwin: I'm confident as we look ahead to 2025 when we start to see recovery, you know, Dave talked about passes and our protection semiconductor book-to-bills now are trending well over one.
William Kerwin: that, you know, from a 2025 perspective, the volume for us really drives margin recovery. And we, you know, we've proven the incremental margins that come out of that. So I feel good about our trajectory, margin improvement across electronics. And, you know, we'll see some uplift as we go through the year.
Speaker Change: Okay, terrific. Thanks, Meenal. And maybe a longer-term one for me as a follow-up, just curious, in the electric vehicle space,
Speaker Change: how you're seeing the dynamics over the next five years as
OEMs move to higher voltage drivetrains and knowing that that
Speaker Change: provides a good amount of content uplift for you. And even if there are maybe some short-term fits and starts here with EV programs, are you seeing that momentum continue in terms of, you know, rising from, for example, 400 volts towards 800 volts, et cetera, and then maybe just a quick view on...
Speaker Change: have your vehicle electrification to whether that's AG equipment, semis, et cetera.
Speaker Change: Sure, you know, electrification of vehicles certainly has gotten a lot of attention, positive and negative, over the last couple of years.
Speaker Change: Yeah, I think our position is that electrification will happen, right? It's going to happen over time.
Speaker Change: perhaps at a slower rate than we had hoped maybe a couple years ago. We've always had a bit more conservative view at the adoption rate than maybe what the market has viewed. So we're in it for the long haul. We've been developing products for high voltage applications.
Speaker Change: we're in a good position there. For us, content, the higher the voltage, the higher the content for us. So voltages go from 400 to 800 to beyond. Those are all positive content opportunities for us.
Speaker Change: But, you know, in the fourth quarter, 94% of the EV growth took place in China.
Speaker Change: And the rest of the market was relatively flat. We're positioned well in China.
Speaker Change: We have strong relationships with OEMs, and while the high-voltage side, we have more competition there, we continue to win.
Speaker Change: the low voltage side and the electronics applications with Chinese OEMs.
Speaker Change: So, even if we don't get all the high voltage in China, which we do win, but not at the same rate we win in other parts of the world.
Speaker Change: the content, the growth, and EVs in China will continue to be a good story for us in the long term. So I think we're well positioned for that over time. And that's kind of, you know, we're committed to supporting that as it happens. You know, on the commercial side,
Speaker Change: It's a lot more variety of approaches that are taking place. And electrification and the commercial side can be everything from
electrifying hydraulic mechanisms
and certainly having trucked last mile applications.
Speaker Change: There's a great opportunity there. We're well-positioned there and are seeing nice opportunities in that space. So we're in it for the long haul. We think over the next five years, it will continue to be a content driver for us, predicting the exact pace of it.
Speaker Change: You know, I think we remain agile and we'll respond to that as the markets evolve.
Great. Thank you so much.
Thanks for the questions, Will.
Speaker Change: Again, if you would like to ask a question, press star then the number one on your telephone keypad.
Speaker Change: And we have a question from David Silver with CL King. Your line is open.
David Silver: Yeah, hi, thank you. First, let me add my, you know, congratulations to Dave on a long successful career and also to Greg.
Speaker Change: I just would have a big picture question. I'll call it kind of a look back or look forward type of question.
Speaker Change: But, you know, first, as a cell site analyst, I know we're often guilty of a very narrow or short-term focus.
Speaker Change: Dave, you've been with the company a very long time and, you know, grown up with it, I guess.
Speaker Change: I was just wondering if you could look back maybe three to five years, maybe to the beginning of the pandemic, just as a...
just as a point in time.
Speaker Change: I was wondering if you might be able to call out one or two of the longer-term or more structural commitments that you've made. Thank you. Thank you.
Speaker Change: changes that you have implemented that you would say, you know, really position your company well here and now looking ahead.
Speaker Change: that you think Little Fuse needs to adapt to or to succeed at in order for it to reach its long-term growth goals. Thank you.
Speaker Change: Thanks David. And yeah, I have kind of grown up in the business. I walked into the doors at Little Jews when I was 20 years old.
Speaker Change: So I have spent my career, you know, with the company and have learned from a very early stage in the different applications and products and markets we serve as those have evolved over the years. Certainly, if you look at the last three to five years, and it's been a pretty
The keys for us have been identifying.
Speaker Change: even prior to three to five years ago. What are the long-term positive megatrends?
that are going to drive opportunity for little pews.
Speaker Change: not in the next three years, but in the next 10-20 years.
and making sure we're aligning our strategy to
Speaker Change: Participate and play a role with our customers to support our customers as we go on that journey And so I think that has been really important for us our investments have been in those areas Our focus has been in those areas. I think they've served as well
Speaker Change: And I think looking forward, the reality is those trends, if anything, are stronger today than they were five years ago or ten years ago when we identified them. So I think we continue to be well positioned.
to participate in these long-term trends.
Speaker Change: Yeah, your question on what challenges or whatever? Certainly, I think geopolitical situations create more challenges.
Speaker Change: but we have a really strong team at Little Fuse with strong experience and we're not overly dependent on a singular application or a singular market. We've become more diversified over time and I think that will actually serve us well as we run a global business.
Speaker Change: that diversification and placement we have and the strength of our capabilities and our products and our team will will serve us well and our investors well for quite some time.
Okay, great. Congratulations again. That's all for me. Thank you.
Speaker Change: That concludes the question and answer session. I would like to turn the call back over to David Kelley for closing remarks.
Speaker Change: Yeah, thank you, and thanks everyone for your questions today. That does conclude the Q&A. We hope everyone has a great day. Thank you.