Apr 30, 2013
Executives
Gordon B. Hunter - Chairman, Chief Executive Officer, President and Chairman of Technology Committee Philip G.
Franklin - Chief Financial Officer, Vice President of Operations Support and Treasurer
Analysts
Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division Peter Lisnic - Robert W. Baird & Co.
Incorporated, Research Division Shawn M. Harrison - Longbow Research LLC John Franzreb - Sidoti & Company, LLC Gerry Heffernan
Operator
Good day, everyone, and welcome to the Littelfuse Inc. First Quarter 2013 Conference Call.
Today's call is being recorded. At this time, I would like to turn the call over to Chairman, President and Chief Executive Officer, Mr.
Gordon Hunter. Please go ahead, sir.
Gordon B. Hunter
Thank you, and good morning, and welcome to the Littelfuse First Quarter 2013 Conference Call. And joining me today is Phil Franklin, our Vice President of Operations Support and Chief Financial Officer.
As you saw in the news release, we have had a very good start to the year, with solid performance in all businesses and all geographies. Sales and earnings were consistent with the updated guidance we've provided on April 10.
I'll discuss our first quarter performance and provide more details on our recently announced agreement to acquire Hamlin Incorporated in a few minutes. But first, I'll turn the call over to Phil, who will give the Safe Harbor Statement and a brief summary of the news release.
Philip G. Franklin
Thanks, Gordon, and good morning. Before we proceed, let me remind everyone that comments made during this call include forward-looking statements based on the environment, as we currently see it.
And as such, do include various risks and uncertainties. Please refer to our press release and SEC filings for more information on the specific risk factors that may cause actual results to differ materially from those expressed in forward-looking statements.
Sales for the first quarter of 2013 were $170.9 million, which was up 6% year-over-year and consistent with our most recent guidance. GAAP earnings for the first quarter of 2013 were $0.66 per diluted share, which included a $0.29 charge related to the write-off of our remaining investment in Shocking Technologies.
Excluding this charge, earnings were $0.95 per share, which was at the high end of our most recent guidance and well above the $0.80 we earned in the prior year quarter, primarily reflecting increased sales across all businesses. Cash performance was very strong in what is normally our weakest cash flow quarter.
Cash from operating activities was $16.0 million for the quarter, compared to $7.9 million for the last year's first quarter, primarily reflecting excellent working capital performance. Receivables DSO dropped to 57 days from 61 in the prior year and inventory turns improved to 6.0, compared to 5.1 in the prior year.
Capital expenditures increased to $5.5 million in the first quarter of 2013 from $3.2 million in last year's first quarter as a result of spending on several capacity-related projects. Now I will turn it back to Gordon for some color on business performance and market trends.
Gordon B. Hunter
Thanks, Phil. I'll begin my remarks with a review of the 3 business units, starting with electrical.
Electrical sales account for about 19% of our total sales and sales of $32.1 million for the first quarter increased 4% compared to the first quarter of 2012. Electrical Fuse product sales increased 11%.
Sales of custom products and protection relays were down slightly due to the general slowdown in the global mining market. The increased sales in the Electrical Fuse business were driven by continued strength in the OEM segment and incremental sales from the multiple distributor conversions we have discussed in previous calls.
Many of these conversions have been driven by the added value of our protection relay offering, a competitive advantage that sets us apart. Key wins in the solar and HVAC markets continue to drive the OEM segment.
This was a record quarter for our solar business and the sixth consecutive quarter of strong quarter-over-quarter growth. The improvement was due in large part to the success of our new products designed specifically for solar applications.
To keep the momentum going, we're already working on our next-generation solar products that will further solidify our leadership position in the solar market. The solar business continues to shift from the traditional European market to North America and emerging markets, such as India and China.
With our global sales force and global product approvals, we've been able to successfully follow this business into the emerging markets. This new business more than offsets any decrease in the traditional markets.
During the first quarter, we won new business with a large white goods manufacturer that expanded our circuit protection product into additional platforms. We expect to realize more than $300,000 in additional revenues from this win this year.
The increased penetration into the electrical distribution channel is critical to the successful growth of the fuse business. We continue to convert key electrical distributors to Littelfuse and expect these conversion to contribute more than $500,000 of annualized revenues in 2013.
We are more bullish on the U.S. industrial and construction end market segments than we've been for some time.
The industrial segment appears to be holding up very well and we continue to have good opportunities in the solar and HVAC markets. In addition, the Architecture Billings Index recently showed a significant uptick, a leading indicator of more activity to come in commercial construction.
In addition to the positive market trends, we implemented a price increase in March that should help the revenue line and offset some of the margin pressure we experienced in 2012. In summary, our electrical fuse business is performing very well and we continue to be primarily driven by the industrial segment, with further growth in the solar, HVAC and lighting markets.
Looking at our Protection Relay business, although the market is softer than it was a year ago, we believe the fundamental long-term drivers remain positive. Our first quarter relay sales were impacted by the slower mining market globally.
U.S. coal demand is also being off its highs and we are continuing to see the temporary slowdown in our Potash business that we talked about last quarter.
Within this environment, we continue to win new business and execute on our growth strategies. These strategies include geographic expansion, developing new products, diversifying beyond potash mining and focusing on large OEMs.
Last quarter, we talked about our progress in adding new distribution outside of North America and expanding our relay sales into South and Central America, Europe and Asia with a number of new customers and projects. Last year, we also had good success with our new projects for OEMs in the Oil and Gas and Power Generation markets.
A new product that also ties into our geographic expansion is a recently developed ground-fault relay that is designed specifically for the Australian mining market. This is the only product of its type that meets the new Australian mining standard and we expect this relay to generate more than $250,000 in new revenues this year.
Another new product is our industrial Shock-Block, which was officially launched in the first quarter. The new Shock-Block protects against dangerous electrical shocks.
It will help us to expand beyond heavy industry into markets such as pulp and paper, oil and gas, water treatment facilities and amusement parks, to name just a few. We're seeing early signs of success that we expect will lead to large orders in the coming quarters.
The new line of Arc-Flash Relays that we introduced last year continues to gain traction in the market. We've sold multiple units to customers who wanted to sample the product and we already secured several orders.
Another area of focus is European switchgear manufacturers, where we are actively leveraging our well-established sales team in that region. We've had several orders already and anticipate substantial incremental revenue from this segment over the next year.
Moving on to our Custom Products business. After the incredible momentum we've had over the past few years, sales declined 2% in the first quarter.
As we've discussed, one of our potash mining customers will complete the next phase of its capacity expansion project this year. And while additional expansions are planned, we expect to experience a temporary slowdown in May ordering patterns until they move forward with developing more capacity.
That said, we have several projects that could materialize into shipments next quarter and we're actively pursuing new opportunities in both potash mining and other types of mining. One of these projects is the BHP Billiton Johnson potash project in Saskatchewan.
BHP has been actively developing this project for several years and recently started to award contracts to several suppliers for the first phase of the project. We believe there are good opportunities for us to participate and we hope to have some positive news to report in the future quarters.
We're also working to diversify our Custom Products business into other markets and geographic locations. We continue to look at several large opportunities in the Canadian Oil Sands market.
This is a market that requires long-term, complex planning and engineering work, so the decision-making process is quite lengthy. We've also been pursuing new mining opportunities in Canada and in Central and South America.
One significant project currently underway involves a multi-million dollar opportunity to produce portable dewatering substations for a Canadian mine. Engineers at this mine have been using Startco products for many years and our teams have been working with them to help them meet new equipment requirements.
If we are successful, we'd expect to see this project awarded for delivery in the third quarter. The uranium market in Canada has the potential to provide new opportunities for both our protection relays and custom electrical products.
A recently negotiated agreement between Canada and China will allow Canadian companies to increase their uranium exports to China as part of a broader joint trade initiative. The agreement is expected to be finalized over the next few months.
Major uranium production is located in Saskatchewan, where our custom products are produced. We've been working with the company's engineers to help assess their upcoming equipment needs.
A factor working in our favor across the entire mining industry is our focus on the safety and reliability of electrical systems. We're in the segment of the market where mining and industrial companies must continue to invest in equipment to meet government electrical standards to keep their people and equipment safe.
And as our first quarter results indicate, we're clearly not going to experience the growth rate in Custom Products that we had last year. We expect a modest decline in the second quarter compared to the first and then a large sequential step down in the third quarter of about $2 million to $3 million.
And as you've heard, there's been a lot of positive activity with a number of multi-million dollar opportunities in the pipeline for both our protection relays and custom electrical products. And while these opportunities have not yet been converted to new business, we believe we are in a strong position to win some of these significant contracts before the end of the year.
And as a result, we are becoming more confident in our belief that the weakness in our Potash business is only temporary. That brings us to our Automotive business, which generates about 35% of our total sales.
First quarter Automotive sales of $59.4 million were up 13% year-over-year. As mentioned in the news release, the increase includes the acquisitions of ACCEL and Terra Power from last year.
Excluding the 2 acquisitions, Automotive sales decreased 1% due to the weaker euro and the continued soft sales of commercial vehicle products. These factors were somewhat offset by increased passenger car sales in all regions, except Europe, where they were down.
The slowdown in Europe has continued throughout the region. According to LMC, European car production hit the bottom in the first quarter.
They expect the remaining quarters to be similar to last year, with a slight increase projected in the fourth quarter. As a result of the economic situation in Europe, we are seeing more alliances, like the one with PSE and General Motors we talked about in our previous calls and the announcement that Nissan and Renault will share platforms.
For us, sharing platforms achieves higher volumes on a single design win. Several positive contributors to our first quarter sales helped to offset the low production volumes in Europe.
We saw increased volumes due to the ramp up of new BMW and Jaguar platforms, where we have high content, and for a Chrysler platform, where there is a strong demand for our new ZKS high-current fuse. A very bright spot in the quarter was the car production in Asia, which set a new first quarter record.
Demand for cars produced in China increased by nearly 14% year-over-year, considerably above the 10% growth that is expected for all of 2013. This was also a record quarter for Littelfuse sales in Asia where we surpassed our previous record set in last year's third quarter by nearly 5%.
The long-term outlook for China remains very positive. With our strong position with localized Western OEMs and Tier 1 suppliers in China, we're on track to set a new record of $22 million in sales in 2013.
That will be an increase of over 15% compared to 2012. In India, car production has dropped significantly because of high interest rates and high fuel prices.
First quarter production was down 17% from last year and the forecast is that 2013 will be flat with 2012. As a result, the Western OEMs are holding back on adding more production capacity as they look for a more clear direction on the Indian economy.
Long-term however, the outlook is still positive, with output expected to double by 2020 to over 9 million cars. Fortunately, the market in the U.S.
is much more solid. On top of the positive market conditions, a number of new launches of our high current fuses for Chrysler and General Motors are expected to contribute to an overall sales increase in the U.S.
in 2013. A recent development in the hybrid electric vehicle segment is with one of our major Tier 1 customers in the U.S.
We're working closely with this customer in developing a fuse for a high-voltage application in plug-in hybrid cars. The test results have been very positive and we expect to launch this new product on several OEM platforms in 2014.
In Europe, we won additional business for another Volkswagen platform, the small car Apollo platform, where we were able to design on MQB MasterFuse. This production is expected to start with 1 car model in 2014 and peak at about 600,000 vehicles per year in 2016.
Looking ahead, we are expecting an increase in global passenger car production of about 2% for 2013, with Europe projected to be down about 5%. We expect that our Automotive business will continue to outperform the market as a result of the growing demand for our new products and significant new business wins over the past several years.
Now let's move on to commercial vehicle products. First quarter CVP sales were down 10% year-over-year, with the majority of the decline in the North American distribution channel.
Sequentially, however, our first quarter CVP sales were up 33% in the fourth quarter of 2012, a welcome sign of improvement. Sales increased in all 3 of our key markets.
Construction equipment, heavy truck and agricultural equipment. The increase was primarily driven by higher sales in the North American aftermarket and in Australia, which are typically stronger in the first half of the year.
Our commercial vehicle business had several solid wins in the first quarter. One was for heavy-duty relays for a North America truck manufacturer, where the quality of the seal on our product helped to solve a moisture problem.
Another win was for our flexible electronic module that will be installed in up to 1,000 trucks of a major North American fleet customer to correct potential battery drain issues. Our ability to quickly begin shipping was a strong advantage for us in winning this business.
We will start shipping a power relay module in the second half of the year as part of our first win with a major Korean construction equipment company. The volume of this program will eventually reach 30,000 to 50,000 units a year, and we plan to leverage this new relationship into other opportunities.
Our growth strategy for the CVP business is focused in the areas of power distribution modules, high current solenoid relays and electronic modules. The trend in the switching market is towards electronic controls that turns the switches on and off, as needed, instead of requiring an operator to activate the switch.
An example of this is the flexible electronic module being installed into 1,000-truck fleet, the fleet I mentioned earlier. In this application, our module will automatically turn the battery voltage on or off based on preset parameters, helping to reduce the drainage that leads to dead batteries.
We're also working to expand our CVP business beyond our strong North American base. The win with the Korean construction OEM, on top of previous wins in China, are helping us to establish a solid footing in Asia.
We've sold products in Asia for many years. But as Asia becomes more of a design center, there are opportunities to win new design in business and to partner more closely with our customers.
As part of our focus on Asia, we are holding a series of technical seminars in China or in May that will provide excellent opportunity for us to present our products and capabilities to the very large and diverse CVP marketplace in this region. With the improvement market and our new products and new customers, we expect to continue to grow our CVP business throughout the year.
Moving to the Automotive sensor business, although European sales remained weak overall, ACCEL'S first quarter performance was better than planned. The key driver was increased sales of solar sensors to Chrysler and Daimler.
It was also a good quarter for ACCEL in the area of new business wins. ACCEL's solar sensors were selected for several next-generation General Motors platforms launching in 2016.
ACCEL was also selected by Autoliv to supply seat buckle sensors for programs where the final customers are Ford and BMW. So in summary, our Automotive business continues to be challenged by the slowdown in Europe.
The ACCEL and Terra Power acquisitions are positive contributors to our overall performance. We're continuing to launch new products and win new programs in our core Automotive business, as well as in our targeted growth areas of commercial vehicle products and sensors.
And we believe these competitive advantages will enable us to continue to outperform in the market. So that brings us to our Electronics business, which accounts for about 46% of total Littelfuse sales.
First quarter electronics sales of $79.4 million were up 3% from the first quarter of last year and were up 6% sequentially from the fourth quarter. The increase was due to the seasonal pickup we typically have after a December with weak shipments.
We also saw a broad-based upturn across many vertical markets and customers in North America, Europe and China. This improvement, coupled with some nice design wins, has resulted in a strong backlog at the start of the second quarter, with a book-to-bill of about 1.1.
There's been a small increase in channel inventory levels in line with the anticipated market demand for the next 2 quarters. We believe our channel inventory is at the appropriate level for current business conditions.
Looking at some of the key electronics market segments, personal computer sales have continued to decline. The latest data from IDC showed a 14% decline in PC shipments in the first quarter of this year compared to a year ago.
Clearly, the cannibalization by the tablet market is a key driver behind this. So far, the launch of Windows 8 has not created increased demand for PCs.
The Ultrabook segment of the PC market continues to grow at the expense of traditional notebook PCs, but not enough to compensate for the overall decline. However, the tablet, eReader and smartphone markets will continue to grow and we are very focused in targeting these segments with new products.
The latest report from DisplaySearch estimated that tablet sales will reach 240 million units in 2013, exceeding notebook PCs, which were estimated to be less than 200 million units. A number of companies have introduced smaller, 7-inch-type tablets using Android, as well as Windows 8 platforms.
I'd like to highlight several good design wins we have in these fast-growing product categories. As I've mentioned on prior calls, our over-current and ESD products are used in a variety of tablet applications, protecting chargers, battery packs, inverter circuits and data lines.
Our revenues from this segment were about $6 million last year and we're expected to grow by more than 15% in 2013. Last quarter, we mentioned the successful design win of our Multi-Layer Varistor with the manufacturer of a the new Windows 8 tablet.
Revenues from this win are expected to be about $300,000 in 2013. We've now expanded our position with a fuse and a TVS diode designed into the charger for a new 7-inch tablet from the same company, and this will add another $200,000 in revenues this year.
There's a trend in the market for larger-sized smartphones. Many of you may already be using these phones.
These smartphones have larger battery packs that look more like those for a tablet than for a traditional smartphone. The chargers are 10 to 12 watts and dissipate more heat than the 5-watt chargers used on the smaller phones.
In turn, this requires more precise protection, creating a nice opportunity for Littelfuse. The continued growth of tablets and smartphones is driving demand for faster broadband delivery.
This, in turn, requires more infrastructure products, such as data centers and data switches, Ethernet connections and femto and pico cells. Many in the industry referred to this overall space as cloud computing and broadband access.
All of the infrastructure products I mentioned require protection from ESD and higher-power surges to extend their operating life. And we are in good position to provide this with enhanced versions of our high-amperage DC fuses, diode arrays and SIDACtor products.
We're estimating revenues from the broadband infrastructure segment of about $3 million to $4 million in 2013. Last quarter, we talked about the technical collaboration between Littelfuse and Huawei, a leading Chinese telecom equipment manufacturer and the launch of a new 6x25 fuse into their surge protection system.
This fuse meets the high surge requirements in a smaller form factor. We had sales of $200,000 for this product in the first quarter and we expect total sales to be about $1 million for the full year.
We've also been working with a leading European telecom company that is using our TMOV devices. Sales are projected to be about $700,000 in 2013, a 50% increase over last year.
This market share gain was influenced by our superior team of design and our strong global technical support. Our revenue from the LED lighting market continues to grow through new design wins.
A recent report from DisplaySearch indicates that the LED lighting market opportunity will double in 2013 from 2012. We are benefiting from the growth of this segment, as well as new design wins into the sockets that are used for both LED bulbs and outdoor luminaires.
Our most recent design win is for a 60-watt branded LED bulb that was launched in the first quarter. Each bulb includes a NANO Fuse and a metal oxide varistor and production is expected to ramp up to $700,000 in revenue on an annual basis.
The company is aggressively marketing the 60-watt bulb at an attractive $10 price point. This is lower than other competitor of LED bulbs and helps to close the gap between LED and traditional incandescent bulbs.
As part of our continued expansion into the LED segment, we recently launched an LED surge production module that protects outdoor street lighting from high-level lightning surges. This integrated module combines our industry-leading team of technology with our proprietary thermal disconnect feature to provide a high level of protection, along with the easy assembly and maintenance that appeals to customers.
Our modules are U.S. certified, which will facilitate customer adoption.
Our sales into the LED lighting market were about $7 million in 2012, up from $4 million in 2011, and we expect continued solid growth again this year. Another growth area is the Multimedia segment.
We recently designed our SG series gas discharge tube into a set-top box manufactured by a leading Korean OEM. Our SG series offers the combined technical of surge protection and low capacitance in a small surface mount footprint.
We're seeing the same success with North American set-top box manufacturers, where revenues could be up 20% this year. Annual revenue for the SG series GDP is expected to reach $800,000 in 2013.
So as you can see, we won significant new business in the first quarter with more in the pipeline. We also recently introduced 3 very unique new products.
First, is a new low-voltage, high-surge metal oxide varistor. This patented formulation gives our products the surge capability as much as 4x greater than the competition.
The market opportunity is about $18 million. Our sales in this area are currently only around $1 million, and we expect to gain significant share with this new product.
The second unique new product is a pico fuse that meets the UL 913 certification for use in hazardous environments. Our fuse is the first in the market that meets this specification with a very small form factor.
The market opportunity for this new product is about $3.5 million in North America. We were also first to market with a diode array used to protect the latest generation of high-speed USB ports used in computing devices and game consoles.
It's unique feature is that it protects all 6 USB lines with a single device. This new innovation is expected to generate more than $1.5 million in revenues in 2013.
So to summarize, electronic inventories are stable. We are winning new business and introducing innovative new products.
We are encouraged by the recent increase in electronic sales. And if this positive trend continues, we should see improved performance in the second quarter and for the rest of the year.
So that completes my review of the 3 business units. Next, I'd like to give you a few more details on the proposed Hamlin acquisition and why we believe this will be an excellent addition to our new sensor platform.
As you know, we established the platform with the acquisition of ACCEL last June. The announcement 2 weeks ago of our agreement to acquire Hamlin from Key Safety Systems for $145 million is a major step forward in building out this platform.
Hamlin is the leader in sensor technology, with products for the automotive, electronics and industrial markets. Sales were $76 million in 2012.
Now, plan is to divide the Hamlin product line between our automotive and electronics business used -- business units based on end market applications. On the Automotive side, Hamlin is an excellent fit with ACCEL.
Both ACCEL and Hamlin participate in the safety market. In addition, Hamlin also gives us access to the speed, position and direction sensing market.
Hamlin and ACCEL both provide seatbelt sensors that detect whether a driver or passenger is buckled up. ACCEL offers whole-effect techonolgy and Hamlin brings 2 additional technologies to the portfolio, reed and mechanical switching.
All of these technologies provide information that is used to correctly deploy the airbag when needed. The sensors trigger the beeping reminder you get when your seatbelt isn't buckled.
The same information is used for the airbag controller. And if your car has an indicator showing whether the rear seatbelt passengers are buckled up, that comes from the rear seat buckle sensors.
Seat belt sensors are also used in the rear seat inflatable seatbelt that Ford produced 2 years ago. Hamlin will expand our portfolio with the line of seatbelt tension sensors.
These device passenger is buckled up and let the airbag controller know if there is a person sitting in the passenger seat or if there's a child seat buckled into that seat. This information determines whether the airbag will be deployed and to what extent.
Hamlin also offers fluid-level sensors and not only to tell us how much fuel we have, but the water level for our window washers and the level of brake and cooling fluid. In trucks, they sense the level of AdBlue, a diesel exhaust fluid that sprayed into the exhaust to reduce nitrogen oxide pollution.
Hamlin will also expand our portfolio into the speed position and direction-sensing segment. These sensors enable the gear lever to talk to the electronic control unit in the transmission box that lets you put your car into park, drive, reverse or neutral.
The sensors are also used in vehicles that have a start/stop system to reduce gas consumption. Beyond these 2 examples, there are numerous other applications for these sensors within a vehicle.
In electronics area, Hamlin and Littelfuse products have several markets in comment, such as home appliances, white goods, industrial products and smart metering. Here, we have excellent opportunities to cross-sell the products of both companies to our vast customer base.
We can also leverage our position as the leader in circuit protection to sell the Hamlin products to our extensive network of global distribution partners. As an example of the synergies, Hamlin reed switches are used in millions of single-part copying machine to detect water level and whether a copy pod is in the unit.
Littelfuse triax and TVS diodes are used for the switching, as well as surge protection on these same machines. Another example is smart meters.
Littelfuse supplies fuses for over-current protection and varistors and TVS diodes for surge suppression, while Hamlin reed switches are used as counters and tamper switches in those same meters. Both companies also have strong positions in the securities segment, which uses a large volume of Hamlin reed switches and relays, as well as Littelfuse fuses and varistors.
So I hope you can see why we are so excited about the fit between the 2 companies and the opportunities we have to leverage each company's established market position into additional growth for Littelfuse. The acquisition is expected to be completed by the end of May.
The transition team is already in place, and we look forward to executing on our growth strategies for this business. So on that positive note, I'll turn the call over to Phil, who will provide the outlook for the second quarter and then we'll open the call for questions.
Philip G. Franklin
Thanks, Gordon. Our guidance for the second quarter of 2013 is as follows.
Sales are expected to be in the range of $177 million to $187 million. At the middle of the range, this represents 3.5% growth over 2012.
Earnings for the second quarter are expected to be in the range of $1.03 to $1.18 per diluted share. This implies an operating margin in the 18% range and a tax rate of approximately 26%.
The above guidance excludes Hamlin. If Hamlin closes on schedule at the end of May, it is expected to add approximately $7 million to sales and be slightly accretive to earnings, excluding acquisition-related costs.
This concludes our prepared remarks. Now we'd like to open it up for questions.
Operator
[Operator Instructions] Our first question comes from Matt Sheerin from Stifel, Nicolaus.
Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division
First, on your guidance, your outlook, 1% to 6%, sequentially. As we look at each of the 3 core segments, are you...
Philip G. Franklin
Wait, wait, Matt, excuse me, that was 1% to 6% year-over-year.
Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division
I'm sorry. That's right.
So sequentially, it's a higher number. And yes, that's right.
So are you expecting the electronics business to be up stronger than the other businesses on a sequential basis? or you're expecting to see growth in all those segments?
Philip G. Franklin
Yes, the electronic business will be the main driver of the sequential increase. The -- typically, the automotive business is pretty strong in the first quarter.
Usually, Q1 and Q2 are about similar. And the electrical business generally is a little bit more positive, at least the fuse business is more positive in Q2, usually exhibiting some sequential growth, but -- then there's going to be some offset to that, as we mentioned, the custom products business is starting to show sequential decline, so that will be an offset.
So the main driver of the Q1 to Q2 growth, sequential growth is going to be electronics.
Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division
Okay, so that -- it looks like then -- and looking at the seasonality in past quarters or past years, you could be up in high single-digits to low double-digits, is that fair?
Philip G. Franklin
Yes, that's fair.
Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division
Okay. And then the other question, just regarding the electrical business and the commentary about some of that mining business rolling off in Q3.
And I'm also noticing that your operating margin in that business was down sequentially. Is that mix going to work against you through the year in terms of operating margin in the electrical business?
Or are there other things you can do to offset that? Well, I mean, other things being equal, it will..
we'll lose some operating leverage there because we're still going to be investing in sales in that business and -- because we have -- I mean, we think we have a lot of long-term opportunities there. So you're going to have pretty flat SG&A on lower sales in the custom business.
However, we also talked about some things we're doing to improve margins in some of the other areas. I think we talked about a price increase in the electrical fuse business.
That should help with improving margins there. The relay business, we're expecting to see some sequential growth through the next couple of quarters there, which should create some operating leverage that should help margins there.
So on balance, I think we should be able to offset most of the negative effects of the custom business on, at least, on the margin line.
Operator
Your next question comes from Peter Lisnic from Robert W. Baird.
Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division
First question on Hamlin, if I could. The -- just on the automotive piece.
Can you give us a feel for or a rule of thumb as to what it does to content-per-vehicle, if there's any sort of metric that you might be able to identify for us?
Gordon B. Hunter
Yes. I wouldn't say there's a rule of thumb.
It's -- From our experience already with ACCEL that I talked about last quarter, where we're starting to see where we would have talked sort of an average of maybe $3 to $4 of content from circuit protection that we were trying to move with high-current circuit protection. We were bringing at least as much from ACCEL.
We're on the same platform. So we start getting from being in the $3 to $5 range to going into the $10 to $15 range.
And Hamlin is going to help us to get in that direction and some specific platforms we see that we are going to be supplying low-current fuses, high-current fuses and solar sensors and seat buckle sensors. We're going to be over $20 per car in some programs.
So that's sort of a direction that we're getting to and it's going to really depend platform-by-platform.
Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division
Okay. All right, That's perfect, on that front.
And then, as we kind of look forward, balance sheet still looks -- I mean, obviously, it's still in pretty good shape even with acquisition. Can you give us a feel for what capital allocation might look like from 2 different perspectives, one, appetite for incremental deals post-Hamlin, but, two, kind of where you might go if there are deals in the pipeline?
Is it -- are we focusing more down that sensor path? Or are there other opportunities in some of the other businesses to kind of increase scale in those businesses?
Philip G. Franklin
Yes, absolutely. I mean, we're -- on the balance sheet, even after spending $145 million for Hamlin, is still going to look very strong, very clean.
So we have plenty of appetite and plenty of capacity to do additional deals and we fully intend to do that. So the areas that we're looking in, they really haven't changed.
We will be looking in the sensor area. We like to build on that very nice platform that we have now.
We feel pretty good about the organic growth there. But certainly, we'd be very interested in adding additional sensor companies to that, and we're looking.
We have some in our pipeline right now. Commercial vehicles is another area we've talked about.
There are just a large number of relatively small companies, many of them private, that play in that space that have products that would be very complementary to ours, and we're -- we have a fairly large number of those that we have in our funnel. And then, the other areas are -- is our Protection Relays, Custom Products area, building on the Startco acquisition.
We followed that on a few years ago with Selco, and we'd like to do other M&A in that space as well. We see that as a very attractive space and space that we'd like to grow through acquisition, as well as organically.
So those are the 3 main focus areas. And as we've talked about, we're always interested and open to any consolidation plays in circuit protection that may come our way.
Typically, those would be bigger deals because we're not really interested in consolidating $10 million-, $20 million-, $30 million-companies. It will be more some of our major competitors there, unless they were to come available, we'd be very interested in that.
So expect to see us not slow down on the acquisition front at all. Post-Hamlin, we're still pushing hard in that area.
Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division
Okay. That's perfect color there.
And then, last question, Gordon, if I could, just on the LED business, can you give us a sense as to what sorts of pressures that you might be facing that would be comparable to call the chip manufacturers in that space where you got significant price declines? Are you kind of subject to the same sorts of price pressures on some of your LED products?
Or are you a little bit more insulated, just given the niche component that you actually manufacture?
Gordon B. Hunter
Yes, I think that -- well, I think we always are a little more protected, being a little more of a niche. I certainly think that it will apply to what is the very exciting $10 lightbulb.
I expected anything that's become -- going into the residential area and to get the lightbulb down in price, there's going to be inevitable, aggressive competition in price pressure in that one segment, but it's very high volume as we start to see the converting over to LED bulbs. LED street lighting, much less price pressure, where we've got several products and build into our module.
These are more really robust modules that the need to work maintenance-free for many years. Commercial lighting, much less pressure.
So it's across-the-board. I would say that the more it's industrial and commercial, the less the price pressure.
But certainly, in consumer electronics, we always expect to see much more price pressure, but higher volumes.
Operator
Our next question comes from Shawn Harrison from Longbow Research.
Shawn M. Harrison - Longbow Research LLC
A clarification on Hamlin, if in case I missed it. What is the split between auto and electronics right now in their business?
Philip G. Franklin
We haven't given that precise split. We will as we get closer and close the deal.
But what we have said is that, automotive is more than half the business. And then -- but they it does have a meaningful component that is kind of electronics and industrial applications.
But -- so it's more than half and I think the automotive piece, we think has very substantial growth potential. The electronics piece, maybe a little less do, but still, it's a -- it'll be a meaningful piece of business and very synergistic with some of our distribution channels and our electronics business overall.
Shawn M. Harrison - Longbow Research LLC
Okay. Then on commercial vehicle products, getting some, I guess, mixed commentary on expectations for that market going, I guess, into the second half of the year.
What is your expectation in terms of when that business will begin to rebound on a year-over-year basis?
Philip G. Franklin
Well, we obviously started to see some good, sequential rebound, as Gordon mentioned, off a very, very weak fourth quarter. I mean, things really -- for us, things really fell off in a pretty significant way in the back half of last year.
So we're still -- we had a reasonably good first half in 2012 and a very weak back half. So we'll -- even though things are improving sequentially, we're going to -- we'll be at negative growth levels.
Certainly through the second quarter, we could start to turn positive and would expect to turn positive sometime in the second half on a year-over-year basis.
Shawn M. Harrison - Longbow Research LLC
Okay. And then 2 more questions.
Just, I guess, within the electronics guidance, how much, I guess, restocking activity, if at all, are you expecting out of the distribution channel for the second quarter? And then just -- I believe, there was about $1 million of other income in the results this quarter.
Does that repeat into the June quarter?
Gordon B. Hunter
Electronics, I think, we said pretty clearly that we are very carefully tracking inventories. It's been the challenge of this business when we have inventory corrections and a sudden downturn.
So we're much more diligent at tracking that. And what we feel is inventory levels are at the right level.
We've seen some uptick in the first quarter, but we expect it to be supporting the end market growth that we get information from our distributors. And as one of the earlier questions, electronics will have the strong growth in the second quarter, double-digit growth for sure.
And that inventory increase, I think, is appropriate for the end market growth that we see, and the double-digit growth we certainly expect in the second quarter. And usually, our third quarter is an increase from the second quarter.
So we feel we're in pretty good shape in terms of the growth projections on electronics and the inventory in the channel.
Philip G. Franklin
On the other income comment, yes, we did -- other income, we did have a $900,000 of income on that line. The biggest piece to that was foreign exchange balance sheet translation.
Hard to say whether that's going to continue. I would expect.
Generally, we expect that kind of the non-operating part of our P&L to be pretty -- to net out for the year to be fairly close to 0. So we have some interest expense.
We generally have some -- a few other miscellaneous gains and losses and then we have balance sheet translation. So it really depends on the foreign exchange, but I would not expect it to continue at $900,000 of income.
I think that's -- that will probably be start to approach something more neutral over the next couple of quarters.
Operator
Our next question comes from John Franzreb from Sidoti & Company.
John Franzreb - Sidoti & Company, LLC
Could you just remind me the mix switch from PCs to the tablets and handhelds? What does that do to do margins in electronics?
Gordon B. Hunter
I don't think margins really change much. I mean, that's a very -- like one of the earlier questions about competitive segments, the consumer electronics.
It's all designed in Taiwan, made in Taiwan, or China. It's a very price-competitive.
That's probably the most competitive part of our business. And frankly, if it's going into a PC, an ultrabook, a tablet, a smartphone, I don't think there's any real difference in the price pressure.
Sometimes, if we're able to be the first to market with a new product, which sometimes the smaller form factor demands us to be, especially sometimes in new chargers that require more power and yet a smaller size product into that, sometimes we can get a price premium for a certain period of time. So an evolving market is good for us, but ultimately, that's a segment that will always be price-competitive.
John Franzreb - Sidoti & Company, LLC
Okay, great. Gordon, do I hear you correctly that you said that you would expect normal seasonal electronic order trends that would suggest the September quarter would be stronger than the June quarter?
Gordon B. Hunter
I think so. I think we're sort of shaping up to what seems like a more normal electronics year.
Solid book-to-bill in the first quarter, steadily building throughout the quarter, good sell at the first quarter and a predictable, healthy second quarter. And the end market information, that's very diverse.
I mean, we pick out some, such as tablet and smartphones, but remember, our products are going into multiple verticals of end markets. And across the world, the geographies all seem to be doing fairly well.
So I think it would be normal to expect sort of a normal year, which we'd see in the third quarter. And then, a decline in the fourth quarter would also be normal for us.
Philip G. Franklin
Yes. So before that, sequential gain in electronics will help us offset whatever decline we end up seeing in the electrical business.
So normally, we would expect a small uptick sequentially from Q2 to Q3, and I think we could still see a small one this year, but it will be muted by the decline in Q3 electrical sales.
John Franzreb - Sidoti & Company, LLC
Okay. And in the automotive segment, can you give us a sense of what the sales were up by geographies, by major geographies?
You're down, obviously, in Europe, but yes.
Philip G. Franklin
In automotive, yes, I mean, I don't have the calculations right in front of me, but rough order of magnitude, it's probably -- at one point, in kind of in -- before the downturn, Europe was about 45% of our automotive business. It's probably down to 40%, or maybe in a little below 40% right now.
Asia is about 25%, and that would leave the U.S. around 30%, 35%.
John Franzreb - Sidoti & Company, LLC
Okay. And in the margin mix in automotive, is ACCEL a margin benefit?
Is that what you're saying here? Can you just talk a little bit about the mix benefit by having the sensor business in there?
Philip G. Franklin
Well, yes, not -- I wouldn't say at this point, not really a benefit. I mean, we're -- we have that business position for growth.
Basically, we're winning -- we're working and winning new platforms there. So we're spending on the SG&A line for future growth there.
We also -- so we're -- right now, the operating margins there are going to be lower than the Littelfuse average. Ultimately, we think those margin should be in the high-teens.
And as you can gather from some of the information we've given on Hamlin, that's kind of where the Hamlin business has typically run, in the kind of in the mid- to high-teens kind of operating margin. So that's a good place for -- I think a comfortable place for the sensor business to be.
ACCEL is just not there yet.
John Franzreb - Sidoti & Company, LLC
Got it, got it. And one last question.
Did you mention what your price increase was in the electrical business?
Philip G. Franklin
No. It varied.
But it was -- and it wasn't -- it isn't across-the-board on all of our business. Like, it didn't go through solar and some of our OEM business.
It was in our distribution business. But it -- and we can't really tell you that because we don't know how much of it is going to stick, but it could be a couple of percent on maybe half of our business, something like that.
Operator
[Operator Instructions] Our next question comes from Gerry Heffernan from Lord, Abett & Co.
Gerry Heffernan
Just a couple of things here. As the sensor business grows, do expect this to become it's own reporting segment?
Philip G. Franklin
I think that we wouldn't envision that in the near future. But certainly, we've talked about a goal of having it be 15 percent of our total business or more.
And with the Hamlin, we're not that far from that right now. So it's conceivable, but we could envision that becoming its own segment.
I wouldn't expect that to happen in the next couple of years though.
Gerry Heffernan
Okay, fair enough. And with Mr.
Franzreb there, you were just talking about the margin profile for sensors. Longer-term, from this -- as you call it a platform or part of your business, do you think the upper teens is the longer-term arena for the operating margins?
Philip G. Franklin
That's what we think right now based on what we've seen, what we can project out for the ACCEL business and what we've seen in the Hamlin business -- I mean, the Hamlin business is already running in that kind of a range. It sort of depends, too, on how successful we are on the growth.
We talked about Hamlin, we're targeting double-digit growth out, as far as we can see into the future in that business. So if we were successful with that, we could double the business in 5 or 6 years, certainly, there'd be potentially some opportunity to see that margin, that operating margin improve.
I mean, if you look at a company like Sensata, they've got operating margins up into the 20s. So it's not impossible that we could get there.
Gerry Heffernan
Yes. It can be this can be a very -- the sensor business can be a very profitable business.
What's been the effect of the yen currency move on you guys? And is there anything we should be looking to in the next couple of reporting periods in regards to the yen currency move?
Philip G. Franklin
Yes. Certainly, the net -- the yen, it's been a modest negative to us.
Net-net, currency year-over-year was really not very impactful at all on the P&L other than a little bit of the balance sheet revaluation that we talked that shows up in other income. But really, I think -- I mean, the yen, a stronger yen or a weaker yen is a negative, but it's not -- we don't have a big exposure there.
Certainly, the biggest exposure is on currency or the biggest is the euro. A strong euro is good.
So the euro has been hanging in there. That's good.
If that gets stronger, it will help us. If it gets weaker, it'll be a drag on margins.
And then the other currencies to watch are some of the emerging market currencies, where we have our manufacturing sites, those being Mexico, China and the Philippines. We like those currencies to be as weak as possible, but -- and so far, in the last couple of quarters, they've been relatively neutral to the P&L.
Gerry Heffernan
Okay. All right, great.
And last question, if I could. The repurchase authorization is -- has been re-upped.
Can you just review your plans for execution of this plan and if you wouldn't mind, give us a review of what the original -- what previous plan was? How much was executed on that, et cetera?
Philip G. Franklin
Yes, sure. The -- so the -- on the -- let me start with the previous plan.
We had 1 million share authorization in -- for the last year, going back 12 months from April and we didn't purchase anything on that authorization. The prior year, I think we used most of the million share authorization.
We used it all in like just a -- in a 1 quarter time frame when the stock was at a low $30, $40 range. And I think that's typical of what you'll see from us.
You may see us go a year or more without doing any repurchase, then you may see us get pretty aggressive. If the stock drops, and we think it's -- then we think it's a value, so we'll look at that opportunistically.
We'll also look at it, trading off that against use of cash for other things like M&A, if we have -- we think we've got some pretty significant M&A, and then that would affect our decision as well. But the major thing affecting our decision is just, we tend not to buy as a regular course to be repurchasing.
We tend to buy when we think the stock is unusually well-valued, on the low side, poorly valued, I guess, in where it's an unusually good buy and it's near -- it's 52-week low, we would be a buyer on those circumstances, but probably not in many others.
Operator
Our next question comes from John Lopez from Vertical.
Unknown Analyst
I just have 2 quick ones. I'm probably covering ground you've covered, so I apologize if I am.
But on the electronic side, did you guys quantify what the increase in distributor inventory was? Or can you speak to that at all?
Gordon B. Hunter
We did in quantify. We said we'd track it very carefully.
There was a modest increase appropriate with what we would what expect for the increased POS data that we have for the end markets of our distribution channels and the strong book-to-bill that we have going into the second quarter. So we clearly stated that we think it's at appropriate levels.
Unknown Analyst
Very good. And just seasonally, is that -- if you look back, say, the last 2, 3 years, is that typically what you see is an increase commensurate of what you've seen this quarter in the calendar Q1 period?
Gordon B. Hunter
Yes. I think it's fair to say, in an average year, a good year, sometimes the last few years had been a little unusual.
But I would say in an average, predictable good year, we would expect to see solid growth throughout the first quarter, ending with a strong book-to-bill going into good sequential growth for the second quarter and a little pickup in distribution inventories to be ready for that.
Unknown Analyst
Understood. And then -- sorry, just segueing on that.
Can you just -- and I know you did some of these, so I apologize, but the end market that you deem as sort of the principal drivers of the activity into Q2, can you just repeat those quickly, just what sort of the main end market consumption drivers are?
Gordon B. Hunter
Well, I gave some examples. I think it's fair to say the good thing about our electronics business is there's so many end markets, multiple end markets, the little things like test and measurement, industrial controls, process control, equipment, all of which -- they're not that very fancy, but the ones we talked about, LED lighting, for example, is very significant for us now and we think that's at the early stages of a long growth, both street light, commercial lighting and now, residential lighting happening.
Obviously, the movement in tablets and smartphones, all of the battery protection, the chargers, the move to miniaturization in that area, that's an important segment for us. Set-top boxes, we talked about as being important.
The whole cloud computing and broadband infrastructure, there's growth in those segments. So no one segment really dominates our business.
We just try to pick out a few and see where there's a trend that maybe lends itself to us, developing a new product, such as higher-energy density batteries and higher-power consuming wall chargers that require better circuit protection in a smaller package, and we've been able to win some unique designs.
Unknown Analyst
Understood. And sorry, just a last one on electronics.
Have you quantified or could you -- just what your total PC market exposure is relative to that segment?
Philip G. Franklin
PC is probably -- I think, total consumer electronics is only about 40% of the electronics segment. PCs would probably be no more than 20%, 25% of that.
So it's probably 10% or less.
Gordon B. Hunter
Yes, 10%.
Unknown Analyst
10% of total or...
Philip G. Franklin
10% of electronics.
Unknown Analyst
It's PC, specifically?
Philip G. Franklin
Yes, which is 5% of our total business.
Unknown Analyst
Sure. Okay, great.
Sorry, last one. On a year-on-basis, the operating margin being down a bit, is just that mix shift with the electrical segment likely to underperform a little bit?
Or is there something else driving that?
Philip G. Franklin
Are you talking about '13 versus '12? Or '12 versus '11?
Or just quarter-over-over?
Unknown Analyst
No, sorry. I'm looking Q2 '13, your guidance implies about an 18% operating margin.
If I look Q2 '12, it was closer to 18.3%. Sales are higher obviously in aggregate by about 4% between those 2 periods.
Philip G. Franklin
I wouldn't -- I think we're looking at a an operating margin very similar to last year's operating margin. I think the comment I made on 18%, it was 18%, give or take.
But without rounding error, I think it's going to be very close to last year's operating margin.
Unknown Analyst
Okay. So I'm sorry, I guess, the thrust of my question was sales higher year-on-year, what's preventing a little more leverage in the business?
Philip G. Franklin
Well, yes. But the main reason there -- the main reason they're higher is because we have a full quarter of -- partly it's due to the full quarter of acquisitions, which brings SG&A and other costs along with it.
So that's part of the reason. It's only I think corrected for operating leverage.
You're talking about tenths of a point. So it's hard to really pin that one down too precisely.
But I think the way we look at it, it's a very similar to last year, even corrected for the operating leverage and the acquisition that we did.
Operator
We have a question from Shawn Harrison from Longbow Research.
Shawn M. Harrison - Longbow Research LLC
Just a brief follow-up. The kind of informal talking on the third quarter, with the revenues potentially being stable, with electronics offsetting the decline in the custom products.
Does that also mean you think you could hold gross profit and EBIT stable, with the 2 offsetting each other?
Philip G. Franklin
Stable with Q2?
Shawn M. Harrison - Longbow Research LLC
Yes, yes.
Philip G. Franklin
Yes, I would -- I'm expecting Q3 to look a lot like Q2, actually. I think that the margins will be -- the sales -- you said, we indicated -- we think sales could be slightly better than Q2, but not significantly so because of the offsetting things, like margin typically in Q3 is a little bit better, but that's usually because of operating leverage.
So I would say similar to maybe slightly better margins as well. But it's not going to look a lot different than Q2, we don't think.
Operator
I would now like to turn the call over to Gordon Hunter. Please go ahead.
Gordon B. Hunter
Well, thank you for joining us on the call today. So 2013 is off to a very good start, and with our improved financial performance and the Hamlin acquisition agreement.
So we look forward to updating on our progress again next quarter. So have a great day.
Thank you.
Operator
Thank you, ladies and gentlemen. This concludes today's conference.
Thank you for participating. You may now disconnect.