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Vishay (VSH) Down 0.8% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Vishay Intertechnology (VSH - Free Report) . Shares have lost about 0.8% 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 catalysts.

Vishay's Q3 Earnings & Revenues Beat Estimates

Vishay Intertechnology reported third-quarter 2019 adjusted earnings of 26 cents per share, which surpassed the Zacks Consensus Estimate by 4 cents. However, the figure declined 56.7% year over year and 27.8% sequentially.

Revenues of $628.33 million were down 19.5% from the year-ago quarter and 8.3% from the prior quarter. However, the figure beat the Zacks Consensus Estimate of $619.38 million.

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

Further, reducing manufacturing capacities hurt certain product segments, which led to decline in the top line. Moreover, imposition of U.S. tariffs continued to be a headwind during the third quarter.

Vishay’s book-to-bill ratio was 0.72 at the end of the third quarter.

The company anticipates high level of inventories in the supply chain act as a headwind in the days ahead.

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

All these strong endeavors are likely to aid 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 $227 million (36% of total revenues), down 9% year over year. The book-to-bill ratio for this product is at 0.86 in the reported quarter. Vishay’s declining manufacturing capacities in MELFs and thin film resistor chips led to fall in revenues within this segment. Further, high level of inventory at distributors also weighed on the reported results.

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

MOSFET: This product line generated revenues of $127 million (20% of total revenues), declining 12% year over year. The book-to-bill ratio for this product stood at 0.54 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, strong momentum of this product line in the automotive end market remains a positive. Additionally, expanding internal and foundry capacities for MOSFETs remain tailwinds.

Capacitors: This product line generated revenues of $98 million (16% of total revenues), up 14% year over year. The book-to-bill ratio for this product was pegged at 0.76 in the reported quarter. Lower volume production remains a major headwind.

However, this product line enjoyed solid momentum across America and Europe. 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 to the results. Moreover, governmental programs in China continued to benefit this product segment.

Diodes: The segment generated revenues of $124 million (20% of total revenues), slumping 33% from the year-ago quarter. This was primarily owing to the distributors holding high level of inventories. The book-to-bill ratio for this product stood at 0.57 during the quarter under review.

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

Optoelectronics: This product line generated revenues of $51 million (8% of total revenues) during the reported quarter. The figure was down 33% from the year-ago quarter. The book-to-bill ratio for this product stood at 0.86 during the reported quarter. The segment’s top line was hurt by unfavorable product mix and high inventories held by distributors.

Operating Details

In third-quarter 2019, gross margin came in at 23.9%, contracting 640 bps on a year-over-year basis.

Selling, general and administrative expenses were $91.8 million, declining 6.5% year over year. However, as a percentage of total revenues, the figure expanded 200 bps from the year-ago quarter.

Further, operating margin came in 8.1%, which significantly contracted 960 bps on a year-over-year basis.

 

Balance Sheet & Cash Flows

As of Sep 28, 2019, cash and cash equivalents were $731.5 million, decreasing from $790.9 million as of Jun 29, 2019. Short-term investments were $56 million, up from $163,000 in the previous quarter. Inventories were $444.6 million, down from $463.5 million in the previous quarter.

In the third quarter, the company generated $76.2 million of cash from operations, up from $56.3 million in the previous quarter.

The company’s free cash flow in the reported quarter came in $46.1 million, increasing from $22.6 million in the previous quarter.

Guidance

For fourth-quarter 2019, Vishay expects total revenues to be in the range of $580 million to $620 million.

Further, the company anticipates gross margin to lie between the range of 23% and 24%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

Currently, Vishay has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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. Notably, Vishay has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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