Littelfuse Inc.: See the light

Jennifer Schonberger | Apr 11, 2008 4:23pm EDT | Comment

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Littelfuse Inc. (Nasdaq:LFUS)
Des Plaines, Ill.
http://www.littelfuse.com

52-week low / high: $26.90 / $44.99
Shares Outstanding: 22.67 million
Market Capitalization: $765 million

Littelfuse Inc.’s (Nasdaq:LFUS) fuse may have blown, but the lights that have been turned off are beginning to flicker as the company restructures to streamline fixed costs and take advantage of emerging end markets.

The manufacturer of circuit protection and electrical fuses for electronic, automotive and electrical markets in the Americas, Europe and Asia-Pacific is in the process of implementing major cost reductions. It will be shifting its manufacturing facilities to lower-cost regions such as China, Mexico and the Philippines from Europe and the United States. This bodes well for the company in that it will be better able to leverage fixed costs for its fuel plants located in lower-cost countries that are closer to customer facilities.

Although there is still maintenance on the cost side to be finished before this little company really radiates, Littelfuse is showing signs of growth on the revenues and earnings side of the equation as it targets emerging markets and benefits from currency repatriation from the Euro zone.

For the fourth quarter ended Dec. 29, 2007, which is typically a slower quarter seasonally, earnings clocked in above management’s guidance range of $0.33 to $0.37 per share. Earnings per share spiked 81% to $0.38 from $0.21 in the fourth quarter of 2006. Margins ticked up 30 basis points to 32.2% (excluding an impairment charge) compared with 31.9% in the fourth quarter last year.

Sales in each of Littelfuse’s segments increased across the board. The electrical segment led the way with a 14% sales increase, while automotive and electronics sales grew 9% and 3%, respectively.

The electronic segment saw inventory levels stabilize and return to normal levels in the fourth quarter, as growth in flat panel TV and notebook PC end markets helped buoy sales. The company also obtained design wins from Nokia Siemens and a China infrastructure company in the quarter. This segment should spur strong growth for the company going forward as it benefits from a growing position in Asia.

The company’s automotive business is also performing well, as it makes progress on its strategy to expand in Asia, ramp up new products and grow its off-road truck and bus segment, which achieved double-digit growth in 2007. The company also added several channels in Europe, America and Asia.

For the year, ended Dec. 29, 2007, earnings surged 54% to $1.64 per share from $1.06 per share in 2006. Regionally, sales in Europe and Asia increased 6% and 3%, respectively; however, sales in the Americas declined 5%.

Favorable currency repatriation from the Euro Zone also helped bolster the company’s results and should continue to going forward.

This year will be a transitional one as the company finishes its restructuring. But once Littelfuse wraps up its restructuring efforts, look for this little company to light up as permanently streamlined costs converge with growing sales and earnings to create major sparks.

Note: Littelfuse Inc. (Nasdaq:LFUS) is on the “Watch List” of Rising Star Stocks, a subscription investment newsletter from Business Financial Publishing, which also publishes SmallCapInvestor.com. As a Watch List company, Littelfuse displays many characteristics found in successful stock winners, and is being closely monitored for possible inclusion in the Rising Star Stocks portfolio at a later date.