Littelfuse (LFUS) Q2 2026 earnings call transcript

Good morning, and welcome to the Little Fuse Second Quarter 2026 Earnings Conference Call. With me today are Greg Henderson, President and CEO, and I'll be Candelol, Executive Vice President and CFO. This morning, we report a result for our second quarter, and a copy of our earnings release, and slide presentation is available in the Investor Relations section of our website.

A webcast of today's conference call will also be available on our website. Please advance to slide two for our disclaimers. Our discussions today will include forward-looking statements. These forward-looking statements may involve significant risks and uncertainties. Please review today's press release, and our forms 10K and 10K for more detail about important risks that could cause actual results to differ materially from our expectations.

We assume no obligation to update any of this forward-looking information. Also, our remarks today refer to non-gap financial measures. A reconciliation of these non-gap financial measures to the most comparable gap measure is provided in our earnings release available in the Investor Relations section of our website. I will now turn the call over to Greg.

Thank you, David, and thank you to everyone for joining us today. This morning, I will provide details on our second quarter results, including an update on performance across our end markets. I'll then discuss progress against our strategic priorities before turning it over to a B to review our financial results by segment. But before discussing the quarter in greater detail, I think it's important to step back and view our performance through the lens of the gross strategy we outlined at Investor Day in May. Our results reflect continued progress against the priorities we share with investors.

Across our markets, we're partnering with our customers to enable the adoption of higher power and more advanced electrical architectures.

Our second quarter performance and the momentum we see into the second half of 2026 reinforce our confidence in our long-term growth and profitability framework. Now, turning to the quarter, we delivered sales and adjusted earnings above our expectations with net sales of 739 million, up 20% year over year and 14% organically. We also delivered meaningful earnings growth as our teams executed well while leveraging continued demand momentum across several of our key growth markets.

Looking at our end market exposures across the little fuse portfolio, we delivered strong second quarter growth across computing, communications, and diversified industrial markets or CCDI. Within the market, data center remained a leading contributor to growth as we continued to leverage our unparalleled grid to chip capabilities across our businesses. Diversified industrial channels were also a key contributor to CCDI growth while we benefited from improving demand across medical and aerospace and defense applications.

Finally, within CCDI, consumer electronic sales declined in the quarter. Consumer electronic represents less than 10% of company sales and has a limited impact on our long-term growth trajectory as we prioritize strategic industrial and data center opportunities.

Turning to energy and industrial infrastructure and markets or EII, we benefited from both broad-based demand strength and the contribution from bachelor in the second quarter. Across our industrial infrastructure verticals, growth was led by industrial automation and construction while we benefited from faster than expected HVAC recovery.

In energy infrastructure, we continued to benefit from demand tied to grid modernization, utility investment, and renewable energy deployment. Notably, bachelor continues to drive significant momentum in grid and utility infrastructure, a key strategic growth market for little fuse.

Finally, revenue across transportation and logistics and markets increased moderately year over year. In passenger vehicles, we delivered growth despite lower global production volumes, driven by content expansion and share gains. In commercial vehicles, revenue growth benefited from improving demand in truck, construction, and agricultural equipment markets. We're seeing continued traction from our more focused and proactive go-to-market approach, particularly with leading OEM customers where we can bring system level solutions and multi-technology capabilities to support more complex platform requirements.

In the quarter, we partnered with a leading transportation customer for a light truck and commercial vehicle platform. Our integrated solution utilizes our current sensor and megafuse technologies, providing up to a 700 amp protection rating while monitoring and sensing high impact loads. Importantly, our solution reduces risk of battery degradation typically associated with the stress of high current loads.

This design when represents more than 20 million in annual revenue opportunity with potential to scale across additional vehicles in the future. Overall, our second quarter performance reinforces the strength of our end-market diversity and technology portfolio, as well as the benefits of our sharpened focus on high growth opportunities and operational excellence.

Heading into the third quarter, we are well positioned to build on our growth momentum. We entered the quarter with record bookings and are booked to build as well as the 1.0. We continue to partner more closely with customers on their next generation architectures with a focus on providing multi-technology solutions. Supporting this through the first half of the year, design wins were up double digits across each of our markets, reflecting improved conversion of our expanding new business opportunity pipeline.

Let me provide you with an example of our progress. In the quarter, we were awarded a significant program with a leader in battery energy storage and power supply applications. Our solution, which utilizes our fast acting TLS fuses, optimizes performance of battery backup units for data center markets. This design win and our strategic partnership with this customer is positioning us well for the expansion of high voltage battery storage solutions for both data center and grid scale markets.

Finally, I want to update you on our portfolio optimization and rapturalization in power semiconductor products. As mentioned that in yesterday, we are sharpening our power semiconductor focus on high power and high value applications where we have a differentiated right to win. As an example of where we are applying this strategy, we have a design win this quarter with a leading player in fusion power.

Our solution leverages our high voltage IGBT and diodes to actively manage the stored energy that is used to drive the fusion reaction. This solution offers an unparalleled 4.5 KV operation in extremely compact footprint. We will begin shipping for this customer in the third quarter as they build their first prototype reactor. Notably, our power semiconductor demands strengthened in the quarter and our team executed well, contributing to improved growth and profitability.

We see continued power semiconductor demand momentum into the third quarter, and we are balancing these growth opportunities with ongoing portfolio rationalization and footprint optimization.

A B will update you on the process shortly, but we believe the actions we are taking will better position our semiconductor products business for enhanced long-term profitable growth. Overall, we are encouraged by the progress we are making across our high growth opportunities, customer partnerships and operational execution as we position the company for continued long-term value creation. I wanna thank our global teams for their hard work and for positioning little teams well for the second half of the year.

With that, I'll turn the call over to Albi.

Thank you, Greg, and good morning, everyone. Today, I will walk you through our second quarter results. Please turn to slide six for details on our second quarter performance. All comparisons are versus the prior year unless noted otherwise.

Net sales in the second quarter were 739 million, up 20% and 14% organically. The bachelor acquisition contributed approximately 6% to sales growth while foreign exchange was a 1% tailwind. Adjusted EBITDA margin finished at 23.6%, up to 120 basis points, reflecting strong volume leverage, favorable mix and operational execution.

Adjusted dilutant earnings per share were $4.19, up 47% versus the prior year. In the quarter, operating cash flow was $146 million while free cash flow grew to $127 million, up 75% year over year.

We ended the quarter with $628 million of cash, a consolidated net leverage ratio of approximately 0.8 turns and returned $90 million to shareholders through our dividend.

We increased our quarterly dividend by 7% to 80 cents per share, reflecting our continued commitment to returning capital to shareholders.

Please turn to slide eight for our segment highlights, starting with the electronics product segment. Sales for the quarter increased 21% year over year with 20% organic growth.

Passive products again delivered strong growth while semiconductor products benefited from continued protection strength and improved power semiconductor demand. Across the electronics product segment, we benefited from increased demand data center, diversified industrials, and transportation and markets.

Adjusted EBITDA margin for the electronic segment was 26.3% up 470 basis points versus the prior year, reflecting strong volume leverage, mix, and execution.

Looking ahead, we are pivoting our power semiconductor focus to high value applications in the goal of driving long-term profitability enhancements.

Supporting this, early in this year, we announced the closure of our Alan Texas power semiconductor manufacturing facility. This location is slated to close in 2027 and marks an important early step in our ongoing portfolio optimization and footprint rationalization process.

Looking forward, we expect the site closure will enhance our 2027 electronic segment profitability and we will continue to share more as we make progress.

Moving to our transportation product segment on slide nine, sales increased 2% over year. Organic growth was 1%, driven by stronger commercial vehicle volumes across trucks, construction, and agricultural equipment markets. Passenger vehicle organic sales decline 2%, reflecting lower global production and continued sensor product sales declines.

Adjusted EBITDA margin was 18.6%. While lower in the quarter, our focused execution has driven improved profitability year to day, amid mixed market conditions. Our teams remain focused on driving operational excellence and continued profitability improvements across transportation portfolio.

Turning to slide 10, industrial segment sales increased 52% over year. Organic growth was 16%, supported by strong data center, industrial automation, and construction demand. In the second quarter, we also benefited from faster than expected HVAC sales recovery. I would also like to highlight Basler, which contributed approximately 36% of growth in the quarter for the industrial segment. Integration efforts are progressing well, and the business is performing ahead of our expectations, both operationally and commercially.

Demand across key and markets remains healthy, and the Basler team has executed well since joining little fees. As a result, we now expect Basler to contribute approximately $135 million to $140 million of revenue in 2026 above our prior outlook. We're also increasing our expected earnings contribution to $0.25 to $0.30 for the full year.

More importantly, our early success reinforces the strategic rationale for the acquisition, expands our exposure to attractive energy and industrial infrastructure applications, and positions us to capture additional opportunities through a broader customer relationships and technology portfolio.

Adjusted EBITDA margin was 22.6% of 50% per year, supported by volume leverage and favorable mix. We remain focused on executing against favorable industrial and market trends while continuing to advance Basler integration initiatives.

Turning to our outlook for the third quarter on slide 11, we expect continued healthy demand across several of our key markets, supported by a strong backlog, and increased customer traction.

Based on current market conditions, we expect third quarter net sales in the range of $780 to $800 million. This represents 26% growth versus the prior year of the midpoint. We expect 21% organic growth, a contribution of 6% to growth from the Basler acquisition, and a 1% effects headwind. We also expect third quarter adjusted diluted EPS to be in the range of $4.85 to $5.05.

At the midpoint, this represents 68% growth versus the prior year. Finally, our third quarter guidance assumes an adjusted effective tax rate of 23 to 24%.

Thank you to the little few teams for their persistent efforts throughout the first half of 2026. We're excited about our continued momentum and the strategic progress we're making on the way to achieving our 2030 targets of $4.5 billion in revenue and $1.1 billion in adjusted EBITDA.

With that, Robert, please open the call for Q&A.

Thanks, Luke. Yeah, good morning. I think what's important that we see this quarter is we really see broad-based momentum. So across all of our end markets where we see growth, we see broad-based momentum, and actually we see a strengthening of momentum in markets that maybe last quarter a little bit slow, for example, specifically in our industrial business, we had good growth in energy infrastructure, industrial automation, grid utility, but also this quarter we had strength in HJC, which is something that hadn't happened in the past. And actually, this is in our CCDI market, but we also mentioned that we have very broad strength in our diversified industrial business that includes medical and aerospace and defense. So we see a broadening, we talked about that last quarter, we see that continuing.

And so I would say we really see broad-based strength and growth. Also importantly, for us kind of strategically is about our design and attraction. We talked about our design ones being up double digits across all of our markets. So for us, I think it's broad growth across our reported segments and across our markets. And so our strategy and focus right now is being well positioned to capture the upside in the volume.

Great.

Yeah, thanks, Luke. I think data center was a strong growth driver in the quarter. We talked about strong growth in the CCDI market. And data center was a strong growth driver of that. And we, with the outlook we're giving you the 3-2 and actually through the back house of 26, we expect data center to continue to grow.

I think what's also important though, is that to understand that the revenue growth that we have now in data center this year is all related to the low voltage architectures. And we've talked about the high voltage architectures coming in the future, probably in 27 and beyond. We have very low volume shipments now for kind of the proof of concept of those systems. But that comes in. And then if you look at our revenue, it's largely around the lower voltage architectures.

Going forward, our pipeline and design winds are heavily, have a heavy strength around these high voltage architectures. So we see that. And I think one thing we'll say about data center, we continue to have strong design wind traction in the first half of 2020, in the first half of 2026, as well as in the quarter, our design winds, again, more than doubled compared to a year before. And like I said, a lot of those design winds are heavily focused around the higher voltage architectures that we expect to come in the future. So we have good momentum.

We had good results in the quarter. We expect that to continue through 26. And the design winds are positioning us well for beyond 26 into the future. And then this will be just to take you back to investor that if you're going to think about the content opportunity, we'll talk to our content opportunity being two to four times higher, you know, in high voltage versus low voltage today that we're seeing in terms of revenue. And so, you know, just to bring it all back, I think we're pretty confident in our 25 to 30% giga that we data out over the next five years back to our data center markets.

By mix, do you mean data center compared to other markets? Or do you mean mix of our products inside the data center?

I see, I see, yeah, I think this is, I think this is also important, right? Like we are very positive on our data center, we see strong growth, but we did talk about this, right? Last year, our growth was really dominated by data center and grid utility. This year, we have the broadening momentum across other markets, diversified industrials, our other industrial markets. And even like we said, now we see improvements in HVAC, which was kind of soft in the last couple quarters. So I think that's a difference we see now as a much broader base demand across our business than we had last year. But to this point, our data center still continues to be the fastest growing market in the quarter and for the first half of the year.

Yeah, look, at the highest level, if you think about our business model, we've talked about this before, right? When you start to see organic growth in the mid to high signals or double digits for that matter, our incrementals are pretty positive. So if you think about the margin drivers, right? I bring it down to a couple of things. Number one is the volume leverage that you see unpack as we start to grow the company on a year where your base is two, it's tied to operational execution, three, it's tied to mix. So if you think about the growth drivers and think about where the growth's coming from, passives and protection that will very high flow through on the update.

And so it's a combination of operational execution, volume leverage and mix of revenue that we're seeing within the quarter, that's contemplated in the guide.

Thanks, Luke.

Yeah, maybe David, thank you. I'll just start with kind of a little bit of context around power sammies and kind of how we're thinking about that. And then I'll give you kind of the detailed colors on the Allen and some of the kind of the timing of this. But I think we talked about this in our investor day. And I would say the thing to understand is that the power semiconductor kind of rationalization and footprint optimization, it's a, I will call it a multi-year process that we're really making progress on, but it's going to take some time. And so it's really about optimizing the portfolio to focus on the areas where we really have differentiation, where we can win, we're making progress.

We also did mention in the call that we have good momentum in power semi from a market perspective, from a bookings and order. We had good growth in the power semi business in the quarter and we actually have, it will be a strong contributor to our incrementals in 3Q. So we're making progress.

The Allen is like one of the first things we announced, there's other actions that we'll be taking over time and maybe give Abi some and give some more color on that. Yeah, David, so look, just building on the Allen piece. First of all, when you think about savings and when we'll realize those savings, I'd say it's in the back half of 2027. It marks an important step, I would say in the footprint optimization move that we've discussed in the prior quarters and that we discussed as part of investor debt, okay?

The easiest way to think about the Allen closure is this is a decision that we're making to simplify our operational footprint and a decision I'll make versus buy, which will help us reduce our lead times and improve our cost structure. More to come as we finalize the actual numbers behind it, but it does mark a big step in the direction of where we want to take the company.

Yeah, look, I think the important thing to understand is that we, number one, we have good momentum. Number two, that is very broad. And so we are, we have said that the book to build is significantly north of one and the bookings in Q2 were a record and that's kind of a company-wide record. The other thing we'll say though is that it's the breadth of these bookings across the end market. So like we said before, it's data center, industrial verticals, diversified industrials, HVHC.

And the other thing I think that's important from our perspective, right? We see good market momentum in the bookings, but also our design wins are continuing to be strong. And actually across all of our markets, our design wins were up double digit year on year. So it's the bookings are good, but also design wins, which is I would call that really future bookings. We also feel good about. So we see good momentum and it is broad. I think that's what we're comfortable saying.

And just to, you know, just to slide it up a slightly different way while we don't. And not an exact booking numbers. If you think about the year and think about our actuals in the guide and see the sequential improvement of supports the strong booking comment that we made, which is, look, organically Q1, we delivered 9%, Q2, we came at a 14% and at the midpoint at Q3, for Q3 guide, we're guiding a 21% organic. So what it also points to is the sequential improvement throughout the year, broad-based momentum throughout the year and the strong booking support the 21% organic guide that we just put out.

You look, I think generally we feel good about the channel inventory. And I would say that the channel inventory is normal in terms of weeks. Obviously, when you're in a gross cycle, right, the dollars are going up because, but in terms of weeks, the channel inventory is good. And there were some areas in the channel and other end customers that I think inventories were low that are kind of normalizing. But in general, I would say we feel good about this. We track the POS as well as POA, both are growing strong.

And so I would say generally this is, with some exceptions on kind of a little bit of hero there, channel normalization, I would inventory normalization, I would say this is real end demand across our markets.

I mean, I think, look, I'll start. I think internally what we really try to track is our growth relative to market. And we do believe that on balance that we're gaining share. I would say that there are some cases of opportunistic share, but largely, it's not really, I don't think the business is largely like that. I think for us, it's largely more about design position share.

And that's why we truly, really try to track our design wins and our design opportunities. And like I talked about, I think we feel very good about that. So I think, in general, markets are doing well, but where we measure ourselves internally is how are we doing relative to market and are we generally taking share? And I would say, heavily influenced by our design win position, that's the case. There are some cases of all kind of opportunistic share, which we can take because we can execute, and that's the key focus of us, but really, our focus on share is more about the design and design.

And craziest of support, that's common, is there, I'll tell you, so, you know, we're also really focused on the operational piece of it, right? As the, as we saw, directed bookings in the corner, as we put out a guide that's 21% organic, we're also laser focused on making sure, operationally, we can go execute. So that's the other big focus area internally that we're spending a lot of time to be able to fulfill our customers' demands.

I would say first I'll start, and I'll let Abi give a little bit more color on the numbers. I think in the HVAC market, we have a very good strong market position. So we have good products, good market position. I think our design position is good, but I will say we also are seeing a market recovery that's happening faster than we expect. So we have a strong position, that means also we are a little bit subject to, you know, obviously we work on winning share, but we're subject to the overall market.

I would say for us, there is a market recovery there that we're seeing a little faster than maybe we expect it.

And Chris, just to add more color, I think if you think about the HVAC and market, we were down for four straight quarters. This is the first time since the first half of 2025 that we've seen growth on a year-over-year basis. So to the next point, you know, the market recovery was sooner than we expected. And this is the first quarter since the first half of 2025 where we've seen organic growth.

Thanks, Chris.

Yeah, thanks, Chris. So I think first, just give context, right? So in diversified industrials, and we reported our markets, we started talking about our markets in our new go-to-market structure and investor day. So diversified industrials are inside the CCDI market, actually on the website, I think, and there's a pie chart that shows that. Diversified industrials include a bunch of markets, but, you know, so there's like, there's a bunch of markets in there, but two of the key ones that are probably the largest contributors in there is defense, aerospace and defense and medical. So those are probably the two largest sub-markets inside diversified industrials, but there's a bunch of others as well. And I would say both of those sub-markets did well.

It is true that I would say generally that our electronic segments are probably the largest of products that play there, but actually, you know, one of the things about our business is that all of our segments actually play in there. Actually, our bachelor business business, for example, does sell into the aerospace and defense market as well, and that would, when they do that, that would show up inside diversified industrials. So I would say broad-based, strength in diversified industrials. That also includes some of the broad channel customers as well. So it's a little bit of both, but specifically, if you look at medical and aerospace and defense, we had good growth. We had good bookage growth and we see momentum there.

I mean, look, I think the defense is very dynamic right now. Right. There's a lot of business that is kind of, I would call it very legacy traditional business that is growing, but also there's a lot of kind of new entrant business that is also growing. So we see momentum in both.

And I would say in the design activity, we see a lot of momentum specifically around the new intent as well.

Thanks a lot.

Okay. Thank you. Thank you all for attending this morning. Just to close, I'd like to just emphasize again, first to thank our global teams for the progress. We see a lot of broad-based momentum across our markets. And a lot of strength. And as I'll be mentioned, we're very focused on making sure that we are in the right position to execute against this. We see good progress. We feel good about the back half of 2026 and on track to the model we rate laid out in yesterday. So thank you all for joining. And we look forward to talking to you next quarter.