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Why Is Vishay (VSH) Down 6% Since Last Earnings Report?

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It has been about a month since the last earnings report for Vishay Intertechnology (VSH - Free Report) . Shares have lost about 6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Vishay due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Vishay Intertechnology reported second-quarter 2018 adjusted earnings of 54 cents per share, which surpassed the Zacks Consensus Estimate by 6 cents. The figure also surged 50% on a year-over-year basis and 35% sequentially.

Revenues increased 18% year over year and 6.1% on a sequential basis to $761.03 million. The figure came slightly below the Zacks Consensus Estimate of $767.5 million.

Strong performance of the company in automotive and industrial markets drove year-over-year growth. Moreover, improving demand for Vishay’s products in all the regions — Americas, Europe and Asia — remained positive throughout the reported quarter.

Additionally, the book-to-bill ratio of the company was 1.17 at the end of the quarter. Further, improving backlog and expanding manufacturing capacities contributed well to the company’s quarterly results.

Further, the company continued to benefit from general electrification of the vehicles, emerging 5G technology, advancements in energy infrastructure, growing demand for automotive electronic equipment and robotics.

However, shortage of supply still remains a major concern in the healthy demand market.

Product Segments in Detail

Resistors & Inductors: This product segment generated $252 million revenues (33.1% of total revenues), up 16% year over year. The book-to-bill ratio for this product was pegged at 1.16 during the quarter. Positive contributions from the acquisition of UltraSource drove the sales of this product. Further, the product’s robust and steady performance across automotive, industrial, medical and military end markets contributed well to the acceleration of revenues from this product line.

MOSFET: This product line generated $137 million revenues (18% of total revenues), which grew 18% year over year. The book-to-bill ratio for this product stood at 0.96 at the end of the quarter. The company continued to witness strong performance of this product line in the automotive end market.

Diodes: The company yielded $183 million revenues (24% of total revenues) from this product segment, surging 15% from the year-ago quarter. Increasing need for diodes in power application drove the sales of this product line. Further, its strong momentum in the automotive and industrial sector continued to accelerate its sales. The book-to-bill ratio for this product was pegged at 1.08 during the quarter.

Optoelectronics: This product line generated $76 million revenues (9.9% of total revenues) during the reported quarter. The figure inched up 1% from the year-ago quarter. The book-to-bill ratio for this product stood at 1.2 during the quarter. The company continued to benefit from the strong position of this product in the automotive applications.

Capacitors: The company generated $112 million revenues (14.7% of total revenues) from the sale of this product line, up 17% year over year. Growing opportunities for this product in America, Europe and China aided sales. The book-to-bill ratio for this product was pegged at 1.59 during the quarter.

Operating Details

In second-quarter 2018, gross margin came in at 29.9%, expanding 290 basis points (bps) on a year-over-year basis. This is attributable to rising selling prices and increasing volumes. Further, strong performance of resistors & inductors, diodes and MOSFETs led to margin expansion.

Selling, general and administrative expenses were $103.9 million, which increased 17.7% year over year.

Per the company, operating margin came in at 16.2%, expanding 300 bps from the year-ago quarter. Adjusted EBITDA margin was 21.2%, rising 220 bps year over year.

Balance Sheet & Cash Flows

As of Jun 30, 2018, cash and cash equivalents were $1 billion, increasing from $839.6 million as of Mar 31, 2018. Short-term investments were $142.7 million, down from $501.2 million in the previous quarter. Inventories were $479.9 million, up 4.2% sequentially.

In the second quarter, the company repatriated $274 million of cash which was utilized for foreign and U.S. transition tax payment. Consequently, $8.7 million of cash was used in operations compared with $45.8 million of cash generated from operations in the last reported quarter.

Hence, the company’s free cash flow in the quarter came in ($48.9) million.

Guidance

For the third-quarter 2018, Vishay expects total revenues to be in the range of $755-$795 million. The Zacks Consensus Estimate for revenues is pegged at $767.5 million.

Further, the company anticipates gross margin to lie within the range of 29-30%.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 5.61% due to these changes.

VGM Scores

Currently, Vishay has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Vishay has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.




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