Q1 2025 Littelfuse Inc Earnings Call
Good day and welcome everyone to the first quarter 'twenty 'twenty five little fused earnings call.
Please note this call is being recorded.
Speaker Change: It is now my pleasure to turn it over to the head of Investor Relations, David Kelly you may begin.
Speaker Change: Good morning, welcome to <unk> first quarter 2025 earnings Conference call with me today are Greg Henderson, President and CEO.
Don: Thank you, Don Vice President and CFO.
Don: Yesterday, we reported results for our first quarter and a copy of our earnings release and slide presentation is available on the Investor Relations section of our website.
Don: Webcast of today's conference call will also be available on our website. Please advance to slide two or our disclaimers.
Don: Our discussions today will include forward looking statements. These forward looking statements may involve significant risks and uncertainties. Please.
Don: Please review Yesterdays press release, and our Form 10-K, and 10-Q for more detail about important risks that could cause actual results to differ materially from our expectations. We assume no obligation to update any of this forward looking information.
Don: Also our remarks today refer to non-GAAP financial measures a reconciliation of these non-GAAP financial measures.
Don: The most comparable GAAP measure is provided in our earnings release available on the Investor Relations section of our website.
Brett: I will now turn the call over to Brett.
Brett: Thank you David and thank you to everyone for joining us. This morning, it's a pleasure to speak with all of you today My first earnings call as CEO of royalties for those of you who are new to little juice I joined our board two years ago, and previously spent 10 years with analog devices, where I have the responsibility for the automotive and energy communications and aerospace businesses.
Brett: So it's taking all my current role in February I've been getting to know our global teams on a deeper level.
Brett: I also spent time connecting with and listening to many of our customers suppliers and partners.
Brett: I joined a little if you are excited about our capabilities from three months into the role I have deeply energized by the opportunity.
Brett: With that I wanted to start by sharing with three key observations. One we are leaders in developing smart solutions that enables safe and efficient electrical energy transfer.
Brett: Our customers deeply value our capabilities and our market leadership is a significant asset.
Brett: Because of this we have built great brand equity across our products offering broad multi technology capabilities for our customers.
Brett: As our end markets are moving to higher power higher energy density our customers are facing increasingly complex safety and efficiency challenges as a result of this trend are trusted in our central technologies are more frequently part of our customers' architectures.
Brett: Let me provide you two examples of the role we play in our customer solutions.
Brett: First is a rapidly growing grid storage market.
Brett: We are a key supplier from a rapid container levels. So the power conversion systems for the grid.
Brett: With increasing power demands and the simultaneous push to lower operating costs.
Brett: <unk> storage systems required increasingly sophisticated thoughtful circuit protection strategy.
Brett: We are a leader and I speak to users that are essential to enabling hardware to trade it.
Brett: Were also a key provider of arc flash and ground fault protection within the cabinets and power conversion systems that reduce the risk of catastrophic failure.
Brett: Finally, our sensor and switch technologies are essential to temperature sensing and the safeguarding of short circuits.
Brett: A second example is our key role in data center of excellence, where we are benefiting from our leading position as a passive electronics that protection supplier.
Brett: With high value at power semiconductor and switching capabilities.
Brett: Our hyperscale infrastructure customers already bought into higher power and current density solution.
Brett: And we are helping them develop safer and more efficient systems we.
Brett: We are innovating with our customers for multiple data center applications.
Brett: Including on the rack and power supply as well as at the power distribution level and for data center cooling.
Brett: Across these applications, we leverage our leading fuse switching.
Brett: In power semiconductor capabilities to provide integrated solutions.
Brett: Importantly in the quarter, we delivered key data center design wins for circuit protection and power distribution solutions and for megawatt capable power semiconductor devices for use in grid transfer switches.
Brett: Now my second key observation is that we have a highly talented and motivated team and are well positioned and flexible global operating model both of which are essential to winning with customers from my conversations may have found our teams have a passion to win and then are invested in our technologies our company.
Brett: Our teams are often embedded with our customers partnering on the design of next generation solutions. We also have strong manufacturing and operating capabilities across our global footprint we have.
Brett: Are often located in region with our customers and our supply chain.
Brett: And we are well positioned to execute through a complex and evolving tariff in economic environment.
Brett: Our global teams and operating models are competitive advantages.
Brett: <unk> has the opportunity to strengthen our long term positioning with customers.
Brett: Finally, my third observation, a strong profitability and cash generation provide a solid foundation for long term success.
Brett: We have a history of resilience and strong profitability.
Brett: Which request a unique value proposition of our trusted in the central products.
Brett: We also benefit from the diverse nature of our end market exposure.
Brett: Importantly, we are a strong cash generator, while our balance sheet provides us significant flexibility.
Brett: Our financial strength positions us to continue capitalizing on our leading organic inorganic growth opportunities.
Brett: Going forward with our customers requiring hydropower and energy density solutions, we can further leverage our expanding content opportunities to drive long term profitability.
Brett: Yes.
Brett: Now I wanted to spend a few minutes highlighting our first quarter results and provide some insights into what we are seeing into the second quarter amid an uncertain environment first.
Brett: First I am proud of our global teams, who work hard to deliver strong results that exceeded our expectations.
Brett: In the quarter, we delivered solid sequential growth in our passive electronics on protection business, while our industrial segment continues to drive strong results in.
Brett: In our transportation segment, our teams worked hard to deliver solid margin expansion. Despite soft end market conditions in.
Brett: In the quarter, we observed improved book to bill across all our businesses with total fused book to bill tracking above one, reflecting our technology capabilities and our customer positions.
Brett: Our teams executed well through the first quarter and we entered the second quarter with momentum and a strong backlog.
Brett: Given growing trade and market uncertainty, we are working closely with our customers and partners to monitor potential demand risk in the second half.
Brett: We have a history of navigating through challenging and fluid backdrops, such as the supply chain shortages that emerged following COVID-19.
Brett: We have a flexible operating model and we have invested to align our footprint closer to our customers and their supply chain.
Brett: We have built a strong tariff playbook that will help us navigate an uncertain environment.
Brett: Taking a step back while we are focused on executing through the current environment I am excited about our long term opportunities.
Brett: I am also confident that we are positioning ourselves to deliver best in class shareholder value.
Brett: Before turning the call over to Gino to provide additional color on our financial performance and outlook.
Brett: Wanted to address our recent CFO transition plan announcement.
Brett: On behalf of every one of those views we want to thank Neal for her many contributions over our 10 years of leadership at the company.
Brett: Meanwhile, there has been a key driver of <unk> growth and profitability expansion and.
Brett: Thanks to her guidance, we enter our next phase of growth with the financial strength and flexibility to capitalize on numerous opportunities.
Speaker Change: I look forward to partnering with Nino through the transition phase as our search process for our next CFO is underway.
Brett: With that I will hand, the call over to me.
Nino: Thank you Brian I appreciate your kind words, and good morning, everyone and thanks for joining us today.
Speaker Change: Please turn to slide six let's start with details on our first quarter results.
Speaker Change: Revenue in the quarter with $554 million.
Speaker Change: Up 4% versus last year in total and up 3% organically.
Speaker Change: Exceeding the high end of our guidance range.
Speaker Change: Sales to semiconductor part of our Dorfman capacity sharing agreement contributed 2% to sales kind of foreign exchange was a 1% headwind.
Speaker Change: GAAP operating margins were 12, 7%.
Speaker Change: Adjusted operating margin finished at 14, 2% and adjusted EBITDA margins were 21%.
Speaker Change: Adjusted operating margins expanded 320 basis points versus the prior year period, reflecting the strong operational performance and conversion on scrap.
Speaker Change: First quarter GAAP diluted earnings with $1 75, and adjusted diluted earnings of $2 19 up.
Speaker Change: Up 24% versus the prior year period, and exceeding the high end of our guidance range.
Speaker Change: Our first quarter GAAP effective tax rate was 27% and adjusted effective tax rate of 26% in line with our expectation.
Speaker Change: Please turn to slide seven for updates on capital allocation.
Speaker Change: We delivered strong cash generation in the first quarter and our balance sheet positions us well.
Speaker Change: Dynamic environment.
Speaker Change: Operating cash flow was $66 million in the quarter, and we generated $43 million and free cash flow driving free cash conversion of 98%.
Speaker Change: We ended the quarter with $619 million of cash on hand, and net debt to EBITDA ratio of one three times.
Speaker Change: Our balance sheet and history of strong cash generation provides significant flexibility positioning us well to effectively navigate through economic uncertainty.
Speaker Change: This was the case during the Covid and subsequent supply chain disruption and we're confident we remain well situated in the current dynamic environment.
Speaker Change: In the first quarter, we returned $45 million to shareholders $17 million via our cash dividend and $27 million via share repurchases.
Speaker Change: We will continue to prioritize our free cash flow for strategic acquisition, and we will continue to return capital to our shareholders about our dividend and share buyback.
Speaker Change: Please turn to slide eight product segment highlights starting with the electronics product segment.
Speaker Change: Sales for this segment were up 6% versus last year and up 3% organically.
Speaker Change: Sales from the Jordan capacity sharing agreement contributed 4% to correct.
Speaker Change: Sales across passive products were up 13% organically, while semiconductor products declined 5% in the quarter.
Speaker Change: Our strong passive product sales growth in the quarter by select pockets the end demand recovery and improved order from China.
Speaker Change: Okay.
Speaker Change: Within our semiconductor product exposure, we observed continued softness across power semiconductors, and more than offset improved demand for our protection product.
Speaker Change: Operating margins in the quarter.
Speaker Change: <unk>, 2% up 220 basis points versus the prior year period, while adjusted EBITDA margins finished at 22, 1%.
Speaker Change: Our teams executed well in the quarter has become a very strong volume conversion on both our passage and protection products.
Speaker Change: Moving to our transportation products segment on slide nine segment organic sales declined 4% for the quarter.
Speaker Change: In the passenger car business sales declined 6% organically.
Speaker Change: Passenger car sales were negatively impacted by global cargo declines and a 78 regional mix with particular softness in Europe, and North America as well as planned on our sensor pruning.
Speaker Change: We offset these declines in part with growth in China.
Speaker Change: Commercial vehicle sales for the quarter were down 2% organically you were negatively impacted by continued end market softness.
Speaker Change: For the segment operating margins were 11, 7% for the quarter up 220 basis points versus the prior year period, while adjusted EBITDA margins finished at 17, 1%.
Speaker Change: In this quarter, our focus on profitability initiatives again drove solid margin expansion despite soft demand conditions.
Speaker Change: We are continuing to drive initiatives, including leveraging best practices throughout the company as we continue our margin expansion progress.
Speaker Change: On slide 10, industrial product segment sales grew 16% organically for the quarter.
Speaker Change: First quarter sales benefited from strong renewable data center, and HBA secretly as well as favorable pricing.
Speaker Change: Segment operating margin finished at 15, 3% in the quarter.
Speaker Change: Adding 880 basis points versus prior year levels.
Speaker Change: Adjusted EBITDA margins were 18, 5% in the quarter, we again delivered solid margin performance driven by execution and strong conversion on volume.
Speaker Change: Please move to slide 12 for the forecast during the first quarter book to Bill improved across all of our businesses and we entered the second quarter with its strong backlog.
Speaker Change: We continue to work closely with our customers and partners to monitor ongoing trade dynamics and potential second half demand shifts.
Speaker Change: We have a strong tariff mitigation playbook that we've been deploying over the past several weeks, we continue to work closely with our customers on various solutions to mitigate tariff impacts by flexing, our global footprint evaluating sourcing and logistics options and implementing pricing actions as necessary.
Speaker Change: Based on interactions and current policies enacted we do not expect tariffs to have a material impact to our second quarter earnings.
Speaker Change: With that in mind, our second quarter guidance incorporates current market condition trade policy and foreign exchange rates as of today.
Speaker Change: We expect second quarter sales in the range of $565 million to $595 million.
Speaker Change: We are projecting second quarter EPS to be in the range of $2 10 to $2 42, which assumes a tax rate of between 23% and 25%.
Speaker Change: At current FX and commodity rates, we are expecting a <unk> 10 benefit to EPS versus the prior year.
Speaker Change: Our second quarter has historically included higher stock compensation expense due to certain retirement permission.
Speaker Change: With some changes in our program the impact will now be spread evenly across the second and third quarter.
Speaker Change: In the second quarter. These provisions had an unfavorable 10 cents EPS impact sequentially to Q1 and negative 60 basis point effect on margins.
Moving to slide 13, let me add some additional detail on our full year 2025.
Speaker Change: We continue to expect about a 2% total sales growth stemming from our Dortmund multiyear capacity sharing arrangement.
Speaker Change: We also continue to expect a neutral impact to EPS.
Speaker Change: As a reminder, we acquired the dorfman bathroom amongst semiconductor in late December.
Speaker Change: At current rates, we expect foreign exchange and commodities will represent a 1% tailwind to sales and a <unk> benefit to earnings per share.
Other modeling items, we earned <unk> $58 million in amortization expense and $35 million in interest expense about two thirds of which we expect to offset through interest income from our cash investment strategy.
Speaker Change: We're estimating a full year tax rate of between 23 and 25%.
Speaker Change: We also expect to invest $90 million to $95 million in capital expenditures.
Speaker Change: I wanted to reinforce that we've navigated complex landscape over the past several years.
Speaker Change: Benefiting from the work we've done over the years to diversify our end market broaden our customer mix and align our supply chain closer to our customer.
Speaker Change: We are well prepared to navigate through uncertain times, but our experienced team and a strong balance sheet.
In closing, it's been an honor to serve as CFO of Philippines over these last 10 years I would like to thank our talented global team for their passion and achievements.
Speaker Change: Got it.
Speaker Change: I look forward to working with Greg and the leadership team over the next several months to ensure a smooth transition.
Speaker Change: And with that I'll turn it back to Greg.
Greg Henderson: Thanks Pete.
Greg Henderson: Our team is working hard with a goal to further leverage our strengths and sharpen our strategic playbook we.
Greg Henderson: We are focused on executing through a dynamic environment, but we're not losing sight of our strategic priorities.
Greg Henderson: Before opening the call up for questions I want to briefly previewed our go forward strategic programs.
Greg Henderson: One we will enhance our focus to better capitalize on future growth opportunities, we will develop a more structured approach to evaluating the secular opportunities across our evolving end markets. We will also better leverage our strong global teams and their insights into the meaningful technology evolutions that are in front of us.
Greg Henderson: Strategic acquisitions will remain an important pillar of our growth strategy.
Greg Henderson: And we will further align our growth goals with opportunities that enhance our long term technology.
Greg Henderson: Two we will provide more complete solutions for a broader set of our customers.
Greg Henderson: While we are doing this in areas today couple of which I highlighted earlier.
Greg Henderson: To further leverage our diverse capabilities across more of our customers to accomplish this we are taking a more collaborative approach across our businesses. We are viewed as market leaders, but we can further harvest our unique product portfolio positioned to help.
Greg Henderson: More of our customers solve complex challenges around safe and efficient power transfer.
Greg Henderson: And three we see an opportunity to continue driving operational excellence and enhance long term profitability as we grow.
Greg Henderson: While we have a history of resilient profitability through cycles, we can better leverage areas of best in class practices and apply those across our businesses.
Greg Henderson: We will further optimize our operating structure to support our long term growth priorities.
Greg Henderson: We will look forward to sharing more about our strategic purposes in coming quarters.
Greg Henderson: In closing.
Speaker Change: Want to again, thank our global teams for their hard work and unwavering commitment to little views of our customers.
Greg Henderson: Later, we are ready to begin the Q&A.
Speaker Change: Thank you the floor is now open for questions. If you have dialed in and would like to ask a question. Please press star followed by the number one on your telephone keypad to raise your hand and joined the queue.
Speaker Change: If you would like to withdraw your question simply press star and the number one again.
Luke Junk: Your first question comes from the line of Luke junk with Baird. Your line is now open.
Luke Junk: Good morning, and thanks for taking the questions.
Speaker Change: Great to talk to you on your first call here.
Speaker Change: Hoping we could start with the topic of the day in terms of tariffs and specifically if we can impact the assumption that's embedded into guidance for the second quarter, hoping specifically parsed out the geographic impact in terms of the price recovery that you are anticipating and then also maybe some of the more durable ways.
Speaker Change: You're avoiding or working around tariff impacts all together relative to the tariff playbook that you mentioned as well. Thank you.
Speaker Change: Yes. Thank you Luke good morning.
Speaker Change: Maybe I'll start by just saying.
Speaker Change: Little appears over the last years has been focusing on building a flexible asset light operating model and we've had a strategy of moving our manufacturing and our supply chain is closer to our customers and we continue to do that so we have been diversifying our footprint.
Speaker Change: Doing more local for local manufacturing and Thats about a trend that we've been on that.
Speaker Change: We'll continue.
Speaker Change: In addition, I would say we've been working with our customers to mitigate tariffs as much as possible manner.
Speaker Change: Managing ship to locations, managing where we supply things from them. So this is a trend that we will we will continue with we expect to continue this trend.
Speaker Change: Of diversification and adding resiliency to our supply chain and then with that I hand over to mingle and she can give a little bit more detailed context on.
Speaker Change: On the details of how it is affecting our business and our outlook sure. Thanks. Thanks go ahead, Hey look.
Speaker Change: So maybe just to add on to what Greg was talking about but our first focus is really working closely with our customers Greg talked about anything we can do around.
Speaker Change: Sourcing and product changes anything we can do around logistics shifts that we're making.
Speaker Change: And over time, we've also been focused on adjustments and the manufacturing footprint because that that all health. We also have a team across the company multiple functions multiple businesses that are meeting regularly. The chance you can imagine are willing to review the latest in taking actions based on tariff announcements customer requests.
Speaker Change: Things like that.
Speaker Change: In general without the work that we've done we don't expect tariffs to have a material impact to earnings in the second quarter with that all that work that we've done and then when necessary. We are leveraging pricing. So we don't know.
Speaker Change: We don't anticipate any effect to earnings there.
Speaker Change: The last thing I'll, just leave you with I know there've been some questions about hardware sales shake out in the U S and a little bit.
Where our sales coming from.
Speaker Change: Referring back to last year.
Speaker Change: Information about $800 million of our sales are in the United States, There's really two big countries, where we're sourcing the product from 15% of our sales are coming out of China.
Speaker Change: The biggest impact for us is really across our electronics segment, we're working through all the mitigation actions that I mentioned first and then we're leveraging pricing where necessary to offset the tariff cost.
Another 60% of our products are sourced from Mexico, that's real.
Speaker Change: Part of our regional alignment with our customers.
Speaker Change: For us to over 90% of the product coming out of Mexico is covered either under U S MCA or some other mechanisms et cetera, and so we really have minimal tariffs coming through and again leveraging pricing if necessary there.
Speaker Change: Got it.
Speaker Change: And then I appreciate all that detail, maybe looking near term in terms of what happened in the first quarter.
Speaker Change: Question could be for both of you, but just hoping to bridge the operating margin sequentially in electronics, specifically, if we look on an underlying basis, excluding the Dortmund facility interim our incrementals very strong sequentially.
Speaker Change: Just how should we think about that in terms of maybe there is something in the <unk> com.
Speaker Change: Strength in the first quarter for cost actions that may be more permanent above and beyond just the benefit of volume leverage. Thank you.
Luke Junk: Sure. Thanks Luke.
Luke Junk: In general when we look at the sequential versus the fourth quarter for electronics I wouldn't say there was anything out of the ordinary coming through there.
Speaker Change: <unk> always talked about the fact that for the electronics segment that return to growth is really important for us we get very very strong operating leverage when we do have a return to growth and we saw.
Speaker Change: As you saw in the prepared remarks, both in our passive electronics business as well as the protection side of our semiconductor business. We saw some nice sequential growth Q4 to Q1.
Speaker Change: And really that's I'd say, that's the biggest driver in terms of other areas around whether it's manufacturing supply chain, we've been doing well around managing all of this the tariff noise that's going on.
Speaker Change: <unk> has had in general across the company and looking at cost structures, and we had done some work around taking out cost as well, but I would say the big part of it is related that seeing that sequential growth.
Speaker Change: Got it and then last question for me maybe.
Speaker Change: Slightly bigger picture grades that may be on the data center piece and some of the incremental opportunities, especially tied to AI related awards, maybe if you could just update us on some idea of.
Speaker Change: Materiality in terms of data center exposure across the business you mentioned in the you mentioned in industrial but I suspect there is some meaningful.
Speaker Change: Exposure within electronics as well and then in terms of the AI related engagements right now just.
Speaker Change: Materiality and.
Speaker Change: Who you're working with should we assume youre working with.
Speaker Change: Bigger hyperscale or something like that thank you.
Speaker Change: Yes.
Speaker Change: Thanks.
Speaker Change: One of the key focuses I've had as I mentioned was over the last 12 months was to get out and visit customers and try to understand how they see us and how we're positioned.
Speaker Change: And this data center is one that I have learned is we have a really strong position with our customers and I think the trend I talked about.
Speaker Change: The big picture trends that I talked about where architectures are moving to higher voltage a higher current is happening in the data center space and I think the challenge is when you go to this higher rents at Hartford architectures.
Speaker Change: Protection.
Speaker Change: Not so much quicker.
It's a much more challenging problem to protective equipment to protect people. If you go above 48 volt architectures in the data Center. For example, you can have arc Sinsemilla fire and I think one of the interesting thing that's happening in datacenter is that we've been participating in this electrification trend that we are participating in this trend to go to higher voltage O'hara.
Speaker Change: The first place we really did was it the automotive market, which all went to 400 800 volt architectures now we're working with.
Speaker Change: Leaders in the data center space that are looking at taking these automotive architecture into the data center and so that's a significant change and it provides a big content opportunity for us. So that's in the core site protection, but we also participate in other parts of the business. You mentioned, it's good to see for example are deducted our industrial business H C. <unk>.
Speaker Change: Those have been strong and actually a big driver for that has been in data center. So it's an important part of our business. It's growing it will continue to focus on it more and as these megatrends go live and play more towards our sticks.
Speaker Change: Got it I appreciate all the color I'll leave it there for now thank you.
Luc: Thanks for your questions Luc.
Speaker Change: Your next question comes from the line of Christopher Glynn with Oppenheimer. Your line is now open.
Christopher Glynn: Thanks, Good morning, everyone.
Luc: Nino.
Luc: Great working with you.
Speaker Change: Starting next week at our conference and Greg looking forward to working with you.
Luc: Just a quick one on the <unk>.
Speaker Change: Sure issue or is pricing.
Luc: And our list price approach or a surcharge approach.
Luc: It varies actually we're doing both depending on the customers what we typically do but that the answer is it depends on the customers.
Luc: Okay.
Luc: And then on the power semi are you seeing any raise in Hawaii or is it pretty static or is it actually weakening a bit more than masked by protection recovery.
Speaker Change: Yes, Thanks, Chris maybe I'll, just take a kind of a.
Luc: And I'm sorry, the on the power semiconductor business.
Luc: And one of the things that again I was very focused on as I've come here is trying to better understand the value proposition in our in our semiconductor business or what our position is our value proposition and where we play.
Luc: And so I've been out meeting with our customers and I think one of the things that I have learned that I think is really important that we talk about this a little fuse capability on.
Luc: Safe and efficient energy transfer our semiconductor business fits right, there and actually for semiconductors, especially as you go to higher voltage high current fuses more differentiated so four very important.
Luc: Applications, which are doing high energy transfer we have a good position and for example.
Luc: In our medical business.
Luc: We are the market leader in the power stages that transfer of LNG in the defibrillator and so this is transfer of LNG from the storage to your art basically of whether that could be the defibrillator thats in your carloads, Jim or the defibrillator that in the us.
Luc: The operating or what are the market leader in that.
Luc: Our customers value us there because this is a very high energy density application that needs to be done in a very safe and precise way. So I would say our power semiconductor business has a important place in the market and the trends moving to higher orders out of our current are our important that said I think we look at our market position and I think those areas of opportunity for us both on.
Luc: Strategy and execution that we're focused on that from our overall strategy process. So we will be talking more over coming months about how we see the semiconductor and where we're going to drive growth and opportunity in that business.
Luc: Okay and in terms of the thank you for that in terms of the macro backdrop, you're seeing right now would you describe it is static.
Luc: Yeah.
Luc: Are you asking the macrobiotic specific to semiconductors.
Luc: Yes, the power semiconductors.
Luc: Yes look I think in our comments semiconductor businesses like our other businesses.
Luc: And actually.
Luc: There are pockets.
Luc: We're doing well. So for example, we talked about in the script, we talked about doing news power transfer switches for data center. So there's pockets that are doing well like data center and some other pockets like industrial automation that has been a little softer. So I would say that's the outside of the current macro a larger question about.
Luc: The overall macro outlook, that's what we've been seeing itself.
Luc: Okay, Great and then.
Luc: On the.
Luc: Capital allocation I'm curious, how Europe acquisition pipelines looking now and in the current environment does that give you view personally any.
Luc: I was on.
Luc: Capital allocation decisions for deals.
Luc: I think Chris I think first just starting right. We have a very strong balance sheet, which gives us a lot of flexibility. So that's really a good thing and that's the strength that we havent. So we have a strong balance sheet, we continue to evaluate opportunities overtime.
Luc: But as I mentioned in the script I think one of the key focuses we have is to work on our strategy and so we're trying to sharpen our strategic focus on why little shoes, where we play and they have a very market driven strategy working with our customers understanding the market understanding where the megatrends are going where we want to go so our focus right now is on building.
Luc: Our strategy.
Luc: Then as we develop that strategy hasn't really focus on where we want to go where we wanted to invest and how we want to drive growth that will have both organic and inorganic into element. So we anticipate that M&A is going to be continue to be an important part of our strategy.
Luc: As you will hear more about that because we have all the strategy.
Luc:
Luc: That's great color. Thank you and last one from me just wanted to ask about transfer transportation margin sustainability here in the low doubles, it's been a little bit lumpy fourth quarter was a little lighter and then boom went back up in the first quarter and I think a good chunk of the 40 <unk>.
Luc: Some commodities tailwind for this year does reside in transportation.
Luc: That may come to bear on your your answer.
Luc: Yeah.
Luc: So just stepping back, but we're really pleased with the progressive improvements we've made.
Luc: Might some of the challenges from a growth perspective with some of the markets we've made.
Luc: Really good strides in profitability a lot of work down there.
Luc: Talk about over the past several calls.
Luc: Focus areas and then pricing focus a lot on pricing a lot of footprint a rooftop reduction that we were focused on especially in the CV part of the business and even just some of the benefits that we're seeing from the pruning and other cost reduction activity that we've had.
Luc: Think going forward that remains the focus for us for 2025 is the continued margin expansion I think some of that one we think as we look further out sales growth opportunities in what we can do to better leverage our combined.
Luc: On the CD side, our legacy portfolio and the carlin portfolio across customers and the additional content growth on <unk>. So that's one.
Luc: Just a number of operational I'll call. It operational excellence opportunities we've done some work there, but one of the things that we're focused on even more now.
Luc: As we see best practices across the company, how do we leverage the best practices that we see say in a couple of factories in Asia and think about the North America or something in Europe that we did there. So we're spending more time on that and we think there is another round of improvements that are coming through there as well. So those are those are some of the biggest.
Luc: Biggest areas. We're looking at yes, there are some benefits from FX, but I would say there.
Luc: Counter to that right now it's off a commodity prices are spiking up a bit so it's a balance and we continue to monitor that.
Luc: Great. Thank you.
Luc: Yeah.
Speaker Change: Your next question comes from the line of David Williams with Benchmark. Your line is now open.
David Williams: Hey, good morning, Thanks for taking my questions and great great to hear from you here on your first call.
Speaker Change: Mena will bowl will Miss hearing from you each quarter, but it takes some time.
Speaker Change: Thank you.
Speaker Change: Greg maybe first for your business that you've had over the last month or so just curious if you have any color on what youre hearing from your customers in terms of their thoughts on the tariffs and their demand outlook and maybe how they're positioned and just how theyre seeing the environment maybe.
Speaker Change: Yeah. Thank you David.
Thank you.
Speaker Change: Obviously, it's a very dynamic time right. So and we're one of our key focuses is try to have as much conversations with our customers that's what Kim.
Speaker Change: Just a little bit of context to kind of our business and our customers just a little bit of context, we had a very strong book to bill in the first quarter.
Speaker Change: So we have across all of our businesses, we had positive book to Bill in the first quarter and we ended the second quarter with very strong backlog.
Speaker Change: That said you know talking to our customers. There's a lot of I would call it anxiety, especially as it relates to the second half demand risk and some sub markets like automotive and personal electronics, probably maybe have a little more anxiety and others.
Speaker Change: So that said I think we're confident in our Q2 guide.
Speaker Change: We continue to talk to our customers and.
Speaker Change: Lino mentioned there was a lot of things, we can do to mitigate the impacts and we're focused on those.
Speaker Change: The bigger question goes to kind of second half macro issues that we're all facing together and our focus is just managing stay close to our customers understand what they mean and focusing on what we control, which is our execution and being flexible in Missouri.
Speaker Change: Okay, great color there. Thank you and then maybe just on the complete solution side that you'd mentioned in the script. There. We know that's a big value add but as you kind of think about the opportunity. There is this something you think you can kind of do deploy across the business are there specific areas, maybe that you're looking towards maybe first almost complete solutions and then what.
Speaker Change: Or you think that benefit to be once you get through that strategy really in place.
Speaker Change: Yes, Thanks I think.
Speaker Change: Again based on my observations and meeting with our teams and our customers I mean, I didn't really understand that.
One of the things I wanted to understand was as it came in off the board was really understand how our customers see us in the value proposition we provide.
Speaker Change: And the exciting thing for me is that I have learned that we our customers see us add more critical to their solution than I expected and that we're really a partner in the next generation of architecture. So that's really powerful and I gave a couple of examples of that in the script in terms of the grid storage in the data center.
Speaker Change: So we have areas, where we're really doing that while we're very partner with our customers had actually in those cases, where we're doing it best we're able to also bring a breadth of technologies from across our company to those customers, but I would say I see that.
Speaker Change: There is opportunity to scale that so I gave two examples in the data center and then the grid storage, but I think we have opportunity to scale that broader and do a better job of bringing our breadth of our capability more deeply and closer to our customers.
Speaker Change: And as I mentioned I think our business units are going to work too.
Speaker Change: Operate a little bit more collaboratively across to make sure. We do that so that's something that we're focused on strategically we see the opportunity my leadership team and I see that opportunity and so this is something that we will be talking about more over the coming months as we rollout our strategy.
Speaker Change: Okay and just one quick last one if I may on the pass throughs are you seeing.
Speaker Change: Any constraints, there or lead times, expanding just curious how does the past. This business is our position in terms of inventory and that the demand trends there.
Speaker Change: Yeah. So maybe I'll start and then Neill can kind of give a little bit more color like I said, we had very we have very strong <unk> had very strong book to Bill we entered the across all the segments, including the electronics segments on the patent business. We ended Q2 with strong backlog.
Speaker Change: So I think from that perspective, we feel good about though you have some other color.
Speaker Change: And I'll add on it as we look ahead to Q2, we put up.
Speaker Change: Really good second quarter guidance, we feel very very confident in achieving that.
Speaker Change: Good part of that will be the continuation on an electronics return to growth.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thanks for your questions.
Speaker Change: Thank you again, if you would like to ask a question. Please press star.
Speaker Change: Followed by the number one on your telephone keypad. The next question comes from the line of David Silver with C. L. King Your line is now open.
David Silver: Yes, hi, thank you.
Speaker Change: Greg.
Speaker Change: I noted in your comments early on you did mention you were speaking to customers.
And then at the end of your comments you talked about.
Collaboration.
Speaker Change: And this question kind of touches on that but.
Speaker Change: This is more of a I.
Speaker Change: I guess a longer term question, but.
Speaker Change: Your your business wins come from like maybe a multi year or longer term collaboration with key customers.
Speaker Change: And I'm just wondering in the current environment.
Speaker Change: Sure.
Speaker Change: Beyond the immediate tactical issues with tariffs, but there is in my opinion, an extra layer of uncertainty now.
Speaker Change: And I'm, just wondering with your longer term projects that where you're collaborating most intensely with key customers has there been any change in your customers' attitudes in other words are they pausing certain programs are they.
Speaker Change: Thinking them at all in the current tariff and maybe trade policy environment might they be.
Speaker Change: Mirroring I think what you said which is.
Speaker Change: Spending your their footprint and kind of developing resilience and who they source or their supply chains.
So from a collaborative R&D and product development perspective.
Speaker Change: Has there been any change that you are hearing about from your customers.
Speaker Change: Yes, Thanks, David.
Speaker Change: I think when we talk to our customers about the kind of I call. It current environment and tariffs in the.
Speaker Change: Macro uncertainty I think their focus is to work with us on kind of what I would call short term management of that how do we how do we navigate the tariff environment and so that's a lot more short term if we talk about the longer term strategic investments and R&D priorities, we really haven't seen significant changes to that and we're not seeing cigna.
Speaker Change: Difficult changes to that and I think.
Speaker Change: The Mega trends that we talk about as growth drivers on electrification and on the market is transitioning to higher voltage higher power had parent are continuing and we're continuing to focus on that architected with our customers I think it helps as well that we are a global company with a global footprint. So we can do those development and support those customers globally that really helps.
Speaker Change: And I guess finally in this kind of thing what I've seen in the past as well is that in these difficult times.
Speaker Change: How you execute the difficult times is often based on <unk> strategy or investment. So right now we see our coast customers continuing to focus on their strategic goals for their long term growth drivers and so we haven't really seen.
Speaker Change: Any significant changes in that.
Speaker Change: Yeah.
Speaker Change: Okay. Thank you and then I do have a question about your repurchase activity share repurchase activity this quarter.
Speaker Change: So $27 million mean, all I think that is the largest one quarter buyback spend in several years.
Speaker Change: And I'm just wondering how you might characterize that in other words I know, it's always an option, but would you say the first quarter level of activity is a reflection of.
Speaker Change: I dunno offsetting share dilution or something like that sorry, offsetting the dilutive impact of share issuance or is it more.
Speaker Change: Or to mystic.
Speaker Change: From the perspective of the level of your share price.
Speaker Change: So just characterizing the first quarter share buyback activity.
Speaker Change: What what we might take.
Speaker Change: Takeaway from that given your meaningful cash balance thank you.
Speaker Change: Sure. Thanks, David why don't I I'll take a step back and just talk a little bit more about capital allocation. Greg answered. The question on you know a lot of questions on are we continuing on M&A and what you heard Gregg talk about first of all it was our priority is correct.
Speaker Change: We are continuing to invest for organic growth.
Speaker Change: Looking at M&A, we're going to sharpen that our funnel on M&A as we work through the strategy over the next few months and that's that's pretty consistent with how we've talked about capital allocation for four years now.
Speaker Change: Look at and return of capital to shareholders through our dividend is the next priority that we go through we expect to continue that we've got in our dividend update coming up in the second quarter ethylene hear more from us on that and then lastly, as you are clustered around share buybacks, that's always been for us periodically.
Speaker Change: It's always been I'll call. It the third part of our capital allocation strategy I would say in addition to the first quarter. We did also buyback some shares in the fourth quarter and are in general our philosophy has always been periodic and varies on.
Speaker Change: Are there other things that we're doing with our cash what does the market look like right now heavily bought back largely from dilution and we did buy back a pretty good chunk in the past six months. So that's something we're continuing to evaluate no change at this time that the capital allocation strategy.
Speaker Change: Okay.
Speaker Change: Okay. Thank you very much.
Speaker Change: Thanks for your questions David.
Okay.
Speaker Change: There is a follow up question from the line of Christopher Glynn with Oppenheimer. Your line is now open.
Christopher Glynn: Hey, Thanks for having me back.
Christopher Glynn: Just wanted to follow up on the topic of book to Bill.
Speaker Change: Yeah. It's a couple of times is very strong.
Christopher Glynn: Pause I think for all three segments.
Speaker Change: Curious if April showed continuity there.
Speaker Change: Or any falloff in if it Didnt show Paula.
Speaker Change: Why do you think that is.
Eight of the.
Speaker Change: Obviously kind of <unk>.
Speaker Change: Gating items.
Speaker Change: That might face your customer base at least in some areas.
Christopher Glynn: So Chris maybe I'll, just take a step back and we've had a lot of comments on and book to Bill Q1 going into Q2, and then we also added in some comments about we're keeping an eye out on the second half we feel good about our momentum from the first quarter. Good book to Bill really.
Christopher Glynn: Good momentum going into the second quarter, and I think I said it sounds like you've got strong confidence in our ability to deliver on our second quarter, we even put in a little moderation in there just for some of the unknowns that are out there which is another reason we feel really good.
Christopher Glynn: We have work ahead, Greg you've been mentioned that we're working closely with our customers there is a little bit.
Christopher Glynn: But noise going on everywhere you read all the same headlines that we're reading and so we're keeping an eye on things both ourselves, but then talking to customers every day and areas like automotive a little bit of unknown there they're out there on a daily basis on the personal electronics side et cetera. So.
Christopher Glynn: Our focus is going to be we're going to continue monitoring we're going to work closely with our customers we're going to focus on what we can control.
Christopher Glynn: You asked me earlier about our margin expansion and how things are going in transportation. We're focused on margin expansion across all of our segments and those are the things that we can focus on we can control, we can adjust cost necessary, we'll pivot as necessary on that.
Christopher Glynn: Yeah.
Amit: Thanks, Amit.
Christopher Glynn: Thanks for the follow up Chris.
Speaker Change: Thank you at this time there are no further questions. Mr. Kelly I'll turn the call back over to you.
Speaker Change: Thanks to everyone that does conclude our Q&A session today for reference we wont be attending the Oppenheimer industrial growth conference on May 5th as well as Baird's Global consumer technology and services conference on June 3rd we look forward to seeing many of you at those events have a great day to Brian.
Speaker Change: Yes.
Speaker Change: Today's call you may now disconnect.
Speaker Change: