Schneider, Encore & Littelfuse Share Performance, Outlook

Over the last few weeks there have been a number of end of year / quarterly reports released.  Last week we touched on national, publicly held distributors (Rexel, Grainger, WESCO) so this week we’re going to overview a number of manufacturer reports and highlight their performance and 2016 outlook. It’ll take a few postings but, here we go:

Schneider Electric (or more commonly known as Square D)

From the analyst call:

• US is 27% of sales, #2 to Asia Pacific which is 29% of sales
• “Buildings and partner”, fundamentally low voltage and building controls, is 45% of 2015 sales, which were 26.6 billion euros, overall an increase of 7% across all businesses and regions (with benefits from foreign currency exchange.)
• Overall organic “growth” was -1%, but without Invensys was flat. Q4 organic was -.6$
• Globally, emerging countries, which represent the greatest growth potential due to electrification, urbanization, industrialization and digitization, made the year “challenging”
• Oil and gas is “limited exposure”
• Made some changes in first half of the year to the overall business (non-US, non-low voltage) that helped with second half profitability.
• US construction markets are very strong, “which is good for us”.  Overall North America was -3%. Strong dollar and oil / gas is what made the number negative. (impact of foreign currency was 4.3%)
• Buildings & partner (low voltage) had improvement in growth and in margin grew in all regions except Asia (primarily China)
• US had softer second half than first half
• Many new products coming in 2016
• Increasing low voltage and medium voltage sales in data centers
• $700 million euro of cost-cutting worldwide
• Have a strategy to continually increase pricing, which has been successful, and low commodity pricing further contributed to improving margins.
• Seeing a decrease in project margin and will be increasing focus on “selectivity” (which projects to take at what margin)
• Continue M&A strategy of bolt-ons. Still plan to do some “pruning”
• Globally, for 2016, targeting flat to down low single digits.
• Much datacenter building in Europe as “justified for the residency of data on the territory.” Also much OEM machine manufacturers in Europe.
• Sees growth in “connected building” environment
• Many questions re China, little focus on US
• Click here for a copy of the Schneider financial information.

Encore Wire (from Streetinsider)

• Q4 revenue down somewhat versus estimate, but most likely due to copper price deflation.
• Unit sales down slightly for the year but weather provided much impact the first 5 months of 2015
• Last 7 months copper units were up 4.4% and aluminum units up 1% vs 2014 last 7 months. (Either Encore took some share or this is an indication of some strength in the construction market.)
• Average price of copper purchased decreased 19.3% last year whereas the average selling price of wire sold decreased only 12.5%, a 6.8% difference (benefit Encore?)
• Actively increasing margins … along with “industry”
• Touted fill rate as a competitive advantage and emphasized that distributors are “holding lean inventories in the field”

Littelfuse (from analyst call)

• Overall company sales were $868M
• Overall company up 10% in Q4 and 6% organically for 2015
  • Electrical sales strong in solar and customer products.
  • Indicates electrical growth coming in “niches” and perhaps not as affected by oil / gas as others.
• Electronics is 47% of sales
  • In Europe, involved in LED outdoor street lighting; globally this is a $15M market for Littelfuse.  Also involved in smart metering
  • Littelfuse products being designed in to next generation Chinese manufactured televisions.
• Automotive is 40% of sales
  • Fuse content grows as there become more sophisticated electronics in vehicles.
• Electrical is 14% of sales, about $122M (in the future being called “Industrial”, perhaps inferring diversification?)
  • Q4 up 17%, full year up 9% in constant currency
  • Growth in solar; some distributor “re-stocking”
  • Earned some distributor conversions (whom are they taking more share from – Mersen or Bussmann? Why?)
  • Solar was $16M of electrical
• 2016 Guidance
  • “Continued macro-economic challenges”
  • Currency volatility
  • Commodity volatility
  • Grow low to mid single digits, overall
  • Expect some margin improvement in the electrical space

Overall,

• construction market fared better than industrial, as many know
• outlook is essentially flat.  Somewhat negative if you are in the industrial space; low to mid single digits for construction (and this is a January outlook)

What are you seeing in the field regarding any of these companies?