Bel Fuse (BELFB)2019-11-02 20:49Financial Data and Key Metrics Changes - Third quarter sales were $124.5 million, with North American sales at $65.8 million (down 7%), European sales at $18.7 million (down 16%), and Asian sales at $40 million (down 25%) compared to the same quarter last year [9] - Gross profit margin declined to 18% in Q3 2019 from 19.9% in Q3 2018 due to lower sales and higher material costs [11] - Earnings per share for Class A common shares was a loss of $0.51 in Q3 2019 compared to earnings of $0.89 in Q3 2018 [17] - Non-GAAP EPS for Class A shares was $0.19 in Q3 2019 compared to $0.70 in Q3 2018 [18] Business Line Data and Key Metrics Changes - Power Solutions and Protection sales were $40.3 million (down 10%), Connectivity Solutions sales were $44.5 million (down 8%), and Magnetic Solutions sales were $39.7 million (down 25%) compared to the same quarter last year [10] - The decline in Magnetic Solutions was attributed to a key customer building excess inventory prior to a product launch, leading to a slowdown in sales [27] Market Data and Key Metrics Changes - The company experienced softness in demand from customers and channel partners as they worked through high inventory levels [6] - Bookings improved slightly from Q2 2019, but fourth quarter sales are anticipated to decline from Q3 levels [8] Company Strategy and Development Direction - The company is focusing on streamlining operations to create efficiency and improve profitability across U.S., Europe, and Asia throughout 2020 [7] - There is an ongoing review of operations in Asia to yield additional cost savings, with a focus on potential relocations to countries like Vietnam and Malaysia [38] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the second half of 2020, anticipating that inventory levels will normalize [25] - The company is facing challenges due to tariffs and geopolitical uncertainties, which are impacting customer purchasing behavior [48] Other Important Information - The company recorded a goodwill impairment charge of $8.9 million in Q3 2019 due to a review of its North America segment [14] - Cash and cash equivalents increased to $64.8 million as of September 30, 2019, up $10.9 million from December 31, 2018 [19] Q&A Session Summary Question: What do you hear on the channel regarding inventory? - Management indicated that distributors predict inventory will be flushed out by the second half of 2020, but if it extends beyond that, a substantial market downturn may occur [25] Question: Is the decline in Magnetic Solutions tied to a customer or product transition? - The decline was linked to a key customer who built up excess inventory before a product launch, which is expected to normalize by the end of Q1 2020 [27] Question: What is happening in the Power Solutions business? - A significant decline was noted due to a key customer, Facebook, reducing orders because of tariffs and competitive pricing pressures [29] Question: How should gross margins be viewed in the current environment? - Management expects to maintain gross margins in Q4 2019 at similar levels to Q3, aided by favorable foreign exchange conditions [33] Question: Are there any signs of improvement in the business? - A slight uptick in the magnetic side was noted, but overall visibility remains limited due to inventory overstock issues [37] Question: Is there any activity in the M&A pipeline? - Management noted that private equity is driving high valuations, making acquisitions challenging, but they are still exploring opportunities [40] Question: What new products can be expected in military and aerospace? - The company is working on active optical transceiver projects and has secured agreements with Boeing for aerospace connectors [44]