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Why Is Vishay (VSH) Down 12.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Vishay Intertechnology (VSH - Free Report) . Shares have lost about 12.5% 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 the most recent earnings report in order to get a better handle on the important drivers.

Vishay's Q2 Earnings Beat, Revenues Miss Estimates

Vishay Intertechnology delivered second-quarter 2019 adjusted earnings of 36 cents per share, which surpassed the Zacks Consensus Estimate by 2 cents. However, the figure declined 33.3% year over year and 29.4% sequentially.

Revenues of $685.24 million missed the Zacks Consensus Estimate of $686 million. Further, the top line decreased 9.9% on a year-over-year basis and 8% from the previous quarter.

The company suffered from weakening demand from distributors owing to high level of inventories in the supply chain. This primarily led to sluggish performance during the reported quarter.

Further, imposition of U.S. tariffs remained a major headwind during the second quarter.

Vishay’s book-to-bill ratio was 0.69 at the end of the second quarter.

Nevertheless, the company’s ongoing inventory correction remains positive. Further, its continued focus toward expanding manufacturing capacities is a tailwind. Additionally, Vishay has initiated global cost reduction and management rejuvenation programs.

All these strong endeavors are likely to aid its financial performance in the near term which in turn will instill optimism in the stock.

Product Segments in Detail

Resistors & Inductors: This product segment generated revenues of $242 million (35.3% of total revenues), down 2% year over year. The book-to-bill ratio for this product is at 0.88 in the reported quarter. Vishay’s manufacturing inefficiencies owing to adaptation to lower outputs impacted the segment negatively. Further, high level of inventory at distributors also weighed on the results.

Nevertheless, the company continued to experience strong momentum across automotive, industrial, medical and military end markets with resistors and inductors.

MOSFET: This product line generated revenues of $129 million (18.8% of total revenues), declining 5% year over year. The book-to-bill ratio for this product stood at 2.54 at the end of the reported quarter. The segment bears the brunt of declining inventories in the supply chain, which is hurting the selling price of this product line.

However, the company’s strong momentum with this product line in the automotive end market remains a positive. Additionally, expanding internal and foundry capacities for MOSFETs are tailwinds.

Capacitors: This product line revenues of generated $111 million (16.2% of total revenues), up 2% year over year. The product line’s solid momentum across America and Europe remained positive throughout the quarter under review. Further, growing opportunities for capacitors in the areas of power transmission and electro cars were tailwinds. Additionally, the company’s solid momentum in the U.S. military market contributed well. Moreover, governmental programs in China continued to aid revenue generation in this product segment during the second quarter. The book-to-bill ratio for this product stood at 0.68 in the reported quarter.

Diodes: The segment generated revenues of $142 million (20.7% of total revenues), slumping 21% from the year-ago quarter. This was primarily due to the distributors holding high level of inventories. The book-to-bill ratio for this product stood at 0.52 during the quarter under review.

Nevertheless, the strong momentum of this product line in the automotive and industrial sector remained a major positive.

Optoelectronics: This product line generated revenues of $61 million (9% of total revenues) during the reported quarter. The figure was down 18% from the year-ago quarter. The book-to-bill ratio for this product stood at 0.8 during the reported quarter. The segment’s top line was hurt by unfavorable product mix and high inventories held by distributors.

Operating Details

In second-quarter 2019, gross margin came in at 25.5%, contracting 440 bps on a year-over-year basis.

Selling, general and administrative expenses were $95.11 million, decreasing 8.5% year over year. However, as a percentage of total revenues, the figure expanded 30 bps from the year-ago quarter.

Further, operating margin came in 11.6%, which contracted 460 bps on a year-over-year basis.

Balance Sheet & Cash Flows

As of Jun 29, 2019, cash and cash equivalents were $790.91 million, increasing from $749.43 million as of Mar 30, 2018. Short-term investments were $163,000, down from $8.4 million in the previous quarter. Inventories were $463.5 million, down from $480.2 million in the previous quarter.

In the second quarter, the company generated $56.3 million of cash from operations, down from $79.5 million in the previous quarter.

The company’s free cash flow in the reported quarter came in $22.6 million, declining from $43.5 million in the previous quarter.

Guidance

For third-quarter 2019, Vishay expects total revenues to be in the range of $600 million to $640 million.

Further, the company anticipates gross margin to lie between the range of 24% and 25%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -18.79% 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. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 indicates a downward shift. It's no surprise Vishay has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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