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Why Is Vishay (VSH) Up 11.4% 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 added about 11.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Vishay due for a pullback? 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 Beats Earnings Estimates in Q3

Vishay Intertechnology delivered third-quarter 2018 adjusted earnings of 60 cents per share, which surpassed the Zacks Consensus Estimate by 6 cents. The figure also surged 42.8% on a year-over-year basis and 11.1% sequentially.

Revenues increased 15.2% year over year and 2.6% on a sequential basis to $780.97 million. The figure also comfortably outpaced the Zacks Consensus Estimate of $777.65 million.

The company’s strong performance in automotive and industrial markets drove year-over-year growth. Moreover, strengthening demand conditions in Americas and Europe aided the top line  in the reported quarter.

Additionally, the book-to-bill ratio of the company was 0.95 at the end of the reported quarter. Further, expanding manufacturing capacities across all product segments contributed well to the company’s quarterly results.

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

Product Segments in Detail

Resistors & Inductors: This product segment generated $253 million revenues (32.4% of total revenues), up 17% year over year. The product’s robust performance across automotive, industrial, medical and military end markets contributed well to the acceleration of revenues from this product line. Moreover, positive contributions from the acquisition of UltraSource drove the sales of this product. The book-to-bill ratio for this product is pegged at 1.02 during the quarter.

MOSFET: This product line generated $144 million revenues (18.4% of total revenues) which grew 14% year over year. The book-to-bill ratio for this product stood at 0.88% at the end of the reported quarter. The company witnessed sustained performance of this product line in the automotive end market. Further, robust MOSFET transistors continued to aid its market position.

Capacitors: The company generated $116 million revenues (15% of total revenues) from the sale of this product line, up 22% year over year. Continued solid momentum with this product line across Asia, especially in China remained positive throughout the quarter under review. Further, strengthening demand for this product in America and Europe aided sales growth. The book-to-bill ratio for this product was pegged at 1.03 during the reported quarter.

Diodes: The company yielded $187 million revenues (24% of total revenues) from this product segment, surging 16% from the year-ago quarter. The strong momentum of this product in the automotive and industrial sector continued to accelerate its sales. The book-to-bill ratio for this product was pegged at 0.86% during the quarter under review.

Optoelectronics: This product line generated $76 million revenues (9.7% 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 was pegged at 0.88 during the third quarter. The company continued to benefit from the persistent strong performance of this product line in the automotive applications space.

Operating Details

In third-quarter 2018, gross margin came in at 30.3%, expanding 230 basis points (bps) on a year-over-year basis. This is attributable to rising selling prices during the reported quarter. Further, strong performance of resistors & inductors, diodes, capacitors and opto product lines led to margin expansion.

Selling, general and administrative expenses were $98.2 million, increasing 7.3% year over year. However, as a percentage of total revenues, the figure contracted 90 bps from the year-ago quarter.

Per the company, operating margin came in at 17.7%, expanding 360 bps from the year-ago quarter. Adjusted EBITDA margin was 22.4%, expanding 240 bps year over year.

Balance Sheet & Cash Flows

As of Sep 29, 2018, cash and cash equivalents were $928.1 million, declining from $1 billion as of Jun 30, 2018. Short-term investments were $135 million, down from $142.7 million in the previous quarter. Inventories were $500.3 million, up 4.2% sequentially.

In the third quarter, the company generated $70.7 million of cash from operations against $8.7 million of cash that was used in operations in the last reported quarter.

The company’s free cash flow in the third quarter came in $21.05 million.

Guidance

For fourth-quarter 2018, Vishay Intertechnology expects total revenues to be in the range of $745 to $785 million.

Further, the company anticipates gross margin to lie between the range of 28% and 29.5%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Vishay has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, 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 broadly trending downward for the stock, and the magnitude of this revision has been net zero. Notably, Vishay has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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