Vishay (VSH) Down 8.6% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Vishay Intertechnology (VSH). Shares have lost about 8.6% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Vishay's Q4 Earnings Miss, Revenues Top Estimates

Vishay Intertechnology reported fourth-quarter 2019 adjusted earnings of 13 cents per share, which missed the Zacks Consensus Estimate by 31.6%. Further, the figure declined 77.6% year over year and 50% sequentially.

Revenues of $609.6 million surpassed the Zacks Consensus Estimate of $600 million. However, the figure was down 21.4% from the year-ago quarter and 3% from the prior quarter.

The company suffered from weakening demand from distributors thanks to high level of inventories in the supply chain. Further, this impacted the company’s performance in Europe negatively. Moreover, softness in American market remained a major headwind.

Additionally, weakening momentum across automotive and commercial aviation fields was a concern. Further, slowdown in the global auto production remained a woe.

Notably, Vishay’s book-to-bill ratio was 0.94 at the end of the fourth quarter.

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

Nevertheless, the company’s ongoing inventory correction remains positive. It expects inventory level to decline further in the ongoing quarter.

Additionally, its continued focus toward expanding manufacturing capacities, especially in power inductors product line, remains a tailwind. Moreover, growth opportunities for opto products in sensor field remain positives.

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

Product Segments in Detail

Vishay now generates revenues from six product segments after separating Resistors and Inductors.

Resistors: This product segment generated revenues of $146 million (24% of total revenues), down 20% year over year due to ongoing inventory correction in the supply chain which resulted in lower volumes. Further, declining average selling prices (ASP) were negative. Notably, the book-to-bill ratio for this product was 0.95 in the reported quarter.

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

Inductors: This product line generated $77 million revenues (13% of total revenues), which remained flat on a year-over year basis. The book-to-bill ratio for this product was 1.05 at the end of the reported quarter. The company’s well-performing magnetics aided growth in its specialty business. Further, its power inductor product lines benefited this product segment.

MOSFET: This product line generated revenues of $116 million (19% of total revenues), declining 16% year over year. The book-to-bill ratio for this product was 0.94 at the end of the reported quarter. The segment has been bearing the brunt of inventories destocking in the supply chain, which has affected 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 $95 million (16% of total revenues), down 27% year over year. The book-to-bill ratio for this product was 0.84 in the reported quarter. Lower volume production and unfavorable product mix remained a major headwind.

Nevertheless, this product line witnessed solid momentum across America and Europe. Further, growing opportunities for capacitors in the areas of power transmission and electro cars in Asia remained tailwinds.

Diodes: The segment generated revenues of $123 million (20% of total revenues), declining 30% from the year-ago quarter. This can primarily be attributed to manufacturing inefficiencies that resulted in lower volume production. Further, declining ASPs remained an overhang. Notably, the book-to-bill ratio for this product was 0.88 during the quarter under review.

Nevertheless, 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 21% from the year-ago quarter. The book-to-bill ratio for this product was 1.11 during the reported quarter. The segment’s top line was hurt by declining inventories in the supply chain.

Operating Details

In fourth-quarter 2019, gross margin came in at 22.2%, contracting 610 basis points (bps) on a year-over-year basis. This can be attributed to an unfavorable product mix and increasing variable costs.

Selling, general and administrative expenses were $94.3 million, declining 5.7% year over year. However, as a percentage of total revenues, the figure expanded 260 bps from the year-ago quarter.

Consequently, operating margin declined significantly to 4% compared with 15.4% in the year-ago quarter.

Balance Sheet & Cash Flows

As of Dec 31, 2019, cash and cash equivalents were $694.1 million, decreasing from $731.5 million as of Sep 28, 2019. Short-term investments were $108.8 million, up from $56 million in the previous quarter. Inventories were $431.7 million, down from $444.6 million in the previous quarter.

In the fourth quarter, the company generated $84.4 million of cash from operations, up from $76.2 million in the previous quarter.

The company’s free cash flow in the reported quarter came in $28.1 million, decreasing from $46.1 million in the prior quarter.

Guidance

For first-quarter 2020, Vishay expects total revenues in the range of $605 million to $645 million.

Further, the company projects the first-quarter gross margin at 24%.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months. The consensus estimate has shifted 26.67% 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 top 40% 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

Vishay has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.