Sign in

You're signed outSign in or to get full access.

VP

Vishay Precision Group, Inc. (VPG)·Q1 2015 Earnings Summary

Executive Summary

  • Q1 2015 net revenue was $56.6M, down 7.3% year over year (vs. $61.0M) and down 7.5% sequentially (vs. $61.2M), primarily due to FX headwinds; adjusted diluted EPS was $0.05 vs. $0.14 prior year and $0.12 prior quarter .
  • Gross margin expanded to 36.7% (+50 bps YoY, +140 bps QoQ) on manufacturing efficiencies despite currency pressure; adjusted operating margin compressed to 3.6% (vs. 5.5% YoY, 4.2% QoQ) .
  • Management set Q2 revenue guidance at $56–$61M and reiterated a stable demand outlook with book-to-bill of 1.05; FX had a $4.4M YoY and $2.3M sequential revenue impact and ~$0.5M pre-tax income hit YoY .
  • The company completed buybacks of 156k shares for $2.4M in Q1 and later increased to 280k shares for $4.0M, signaling capital return while M&A remains a priority amid high sector valuation multiples .
  • Consensus estimates from S&P Global were unavailable; comparison to estimates cannot be made. Results were within revised pre-release guidance (~$57M) and below the initial Q1 range of $59–$64M, a guidance miss offset by proactive pre-announcement .

What Went Well and What Went Wrong

What Went Well

  • Manufacturing efficiencies lifted consolidated adjusted gross margin to 36.7% despite FX headwinds; FTP segment margin rose to 40.6% (vs. 37.9% YoY; 37.6% QoQ) on efficiencies and platform mix .
  • Advanced sensor platform revenue up ~70% YoY with higher contribution margins as customers transition from the old to the new platform; “the contribution margin this quarter is higher than last year’s quarter” .
  • Strong order metrics: consolidated book-to-bill improved to 1.05 and backlog ticked up sequentially; FTP book-to-bill 1.12 and backlog 3.4 months, positioning the business for Q2 stabilization .

What Went Wrong

  • FX pressure: $4.4M YoY and $2.3M sequential negative revenue impact, with ~$0.5M pre-tax income hit vs. Q1 2014; $1.0M FX losses recorded in OI&E .
  • Weighing & Control Systems (WCS) gross margin fell YoY to 44.3% (from 46.7%) on lower volume and ~$0.8M negative FX; segment orders decreased sequentially by $1.0M .
  • Cash from operations was -$3.4M (vs. +$2.0M prior year), driven by one-time payments ($1.5M Asia reorg), inventory build ($2.2M for ERP go-live), FX (~$0.9M), and investment in advanced sensors; free cash flow was negative .

Financial Results

MetricQ3 2014Q4 2014Q1 2015
Revenue ($USD Millions)$63.4 $61.2 $56.6
Adjusted Diluted EPS ($)$0.23 $0.12 $0.05
GAAP Diluted EPS ($)$0.22 -$0.18 $0.05
Adjusted Gross Margin %37.5% 35.3% 36.7%
Adjusted Operating Margin %6.5% 4.2% 3.6%
Book-to-Bill (Consolidated)0.95 1.00 1.05
Backlog (months, Consolidated)2.9 2.9 3.1

Segment gross margin progression:

Segment Gross Margin %Q3 2014Q4 2014Q1 2015
Foil Technology Products (FTP)41.1% 37.6% 40.6%
Force Sensors22.5% 22.8% 21.9%
Weighing & Control Systems (WCS)46.0% 44.3% 44.3%

Segment order KPIs:

Segment KPIQ3 2014Q4 2014Q1 2015
FTP Book-to-Bill0.94 1.02 1.12
FTP Backlog (months)2.9 3.0 3.4
Force Sensors Book-to-Bill1.02 0.97 0.98
Force Sensors Backlog (months)2.2 2.1 2.3
WCS Book-to-Bill0.89 1.01 1.00
WCS Backlog (months)3.4 3.5 3.5

Operating expense and balance sheet KPIs:

KPIQ3 2014Q4 2014Q1 2015
SG&A ($M)$19.7 $19.1 $18.7
SG&A (% of Revenue)31.0% 31.1% 33.0%
Cash from Operations ($M)$7.7 $11.4 -$3.4
Capital Expenditure ($M)$2.2 $4.1 $1.8
Long-term Debt ($M)$19.0 $17.7 $16.2
Share Repurchase (Shares / $M)N/AProgram announced; “few thousand shares” 156k / $2.4M

Q1 estimate comparison:

MetricConsensus (S&P Global)Actual Q1 2015
Revenue ($M)Unavailable (SPGI limit)$56.6
Primary EPS ($)Unavailable (SPGI limit)$0.05
Note: Consensus data from S&P Global was unavailable due to request limits; we are unable to compare results to Wall Street estimates.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)Q1 2015$59–$64 ~$57 Lowered
Revenue ($M)Q2 2015N/A$56–$61 New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2014)Previous Mentions (Q4 2014)Current Period (Q1 2015)Trend
FX impactMinimal P&L impact; naturally hedged in Europe Revenue pressure vs EUR/GBP/JPY; FX effect -$1.9M YoY FX reduced revenue by $4.4M YoY and $2.3M QoQ; $1.0M FX loss Worsening
Advanced Sensors platformRevenues +170% YoY; ramp underway Expansion costs impacting FTP margins; capex $12–$14M FY15, ~50% for sensors Revenues +70% YoY; higher contribution margins; equipment spend and opex support Improving structurally; near-term investment
Steel sector demandCustomers pushing deliveries; lower WCS margins Capacity utilization falling; impairment at KELK Global crude steel output down; WCS margin pressured by lower volume and FX Weak
Oil & gas exposureNot material; monitoring ~5% exposure; bookings ~10% down Macro oil/gas collapse cited; demand softness persists Weak
M&A pipeline/valuationsPricing improving slightly Deals possible but rich multiples Priority remains high; valuations still elevated; disciplined IRR mid-teens target Neutral
ERP implementation/inventoryERP issues in 2013 resolved Inventory/write-downs in FTP India ERP go-live in April; inventory built (+$2.2M) to support transition Executing; near-term working capital drag
Capital returnBuyback started (few thousand shares) Program ongoing 156k shares bought in Q1; raised to 280k by May 20 at $4.0M cost Increasing

Management Commentary

  • CFO: “First quarter revenues came in at $56.6 million… Revenues were negatively impacted by the strengthening of the U.S. dollar… $4.4 million effect compared to the first quarter last year, and… $2.3 million effect sequentially.”
  • CFO: “Adjusted diluted earnings per share were $0.05 versus $0.14 in the first quarter of fiscal 2014… the negative impact of foreign exchange rates to pre-tax income… was $500,000 or $0.03 per diluted share.”
  • CEO: “Our overall business climate is stable… Europe and Japan seem to be slowly recovering, while China’s economy continues to decline.”
  • CEO: “FTP gross margin was 40.6% for Q1… increase due primarily to $500,000 of volume, $400,000 of manufacturing efficiencies, offset by $500,000 due to exchange rate effect.”
  • CEO: “We were engaged with several companies and have found that valuations continue to be high… target IRR in mid-teens… accretive within a year.”

Q&A Highlights

  • Advanced sensors investment and margin: Management confirmed ~$1M equipment cash outflow and stronger contribution margins as customers transition; anticipated capacity expansion to double strain gage capacity for new business .
  • Currency headwinds in WCS: Significant euro and Canadian dollar exposure (~40–45% of WCS revenues), making FX a notable headwind; signs of recovery in process weighing projects in Europe, with India steel capacity expansion a potential demand driver .
  • Clarifications on near-term drivers: FTP margin strength from product/platform mix and discrete inventory builds for telecom undersea projects; Force Sensors margin sequentially pressured by volume and FX .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 2015 EPS and revenue was unavailable due to data access limits; as a result, we cannot assess beat/miss versus consensus. However, revenue was within revised guidance (~$57M), and below the initial $59–$64M range that was lowered on April 14, 2015 .
  • Implication: With FX driving the delta versus the original guide, estimate revisions are likely to reflect sustained currency pressure and modest margin compression near term; company guided Q2 revenues to $56–$61M .

Key Takeaways for Investors

  • FX was the primary driver of revenue and EPS compression; underlying manufacturing efficiencies supported margins, suggesting earnings leverage when FX stabilizes and volumes recover .
  • FTP margin resilience and advanced sensors ramp are structural positives; management expects continued transition benefits and customer conversion, supporting mix and profitability .
  • WCS remains the swing factor given steel exposure and FX; watch European process weighing recovery and India steel activity as potential offsetting catalysts .
  • Working capital and cash flow were pressured by one-time items and ERP transition; expect inventory normalization and improved operating cash flow in subsequent periods .
  • Share repurchases provide downside support while M&A discipline remains high; capital allocation balanced between organic growth, buybacks, and targeted acquisitions .
  • Near-term trading: Results were in-line with revised guidance; stock likely trades on Q2 order trends, FX trajectories, and visibility in WCS/steel. Medium-term thesis: margin expansion via mix/efficiency and advanced sensors, with cycle exposure in WCS and FX as key variables .