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Electronic system and device provider Bel Fuse (NASDAQGS:BELF.A) announced better-than-expected results in Q2 CY2024, with revenue down 21.1% year on year to $133.2 million. It made a GAAP profit of $1.50 per share, down from its profit of $2.17 per share in the same quarter last year.
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Bel Fuse (BELFA) Q2 CY2024 Highlights:
- Revenue: $133.2 million vs analyst estimates of $130.2 million (2.3% beat)
- Q3 revenue guidance of $122 million at the midpoint (11.6% miss vs. expectations of $138 million)
- Adjusted EBITDA: $27.4 million vs analyst estimates of $20.0 million (37.0% beat)
- EPS: $1.50 vs analyst estimates of $0.93 (61.3% beat)
- Gross Margin (GAAP): 40.1%, up from 32.9% in the same quarter last year
- Free Cash Flow of $30.84 million, up from $3.22 million in the previous quarter
- Market Capitalization: $911.9 million
Founded by 26-year-old Elliot Bernstein during the electronics boom after WW2, Bel Fuse (NASDAQGS:BELF.A) provides electronic systems and devices to the telecommunications, networking, transportation, and industrial sectors.
Electronic ComponentsLike many equipment and component manufacturers, electronic components companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include data centers and telecommunications, which can benefit companies whose optical and transceiver offerings fit those markets. But like the broader industrials sector, these companies are also at the whim of economic cycles. Consumer spending, for example, can greatly impact these companies’ volumes.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Over the last five years, Bel Fuse's sales were flat. This shows demand was soft and is a tough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Bel Fuse's recent history shows its demand has stayed suppressed as its revenue has declined by 3.5% annually over the last two years.
This quarter, Bel Fuse's revenue fell 21.1% year on year to $133.2 million but beat Wall Street's estimates by 2.3%. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months.
Operating Margin Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Bel Fuse has done a decent job managing its expenses over the last five years. The company has produced an average operating margin of 8.7%, higher than the broader industrials sector.
Analyzing the trend in its profitability, Bel Fuse's annual operating margin rose by 14.7 percentage points over the last five years, showing its efficiency has significantly improved.
This quarter, Bel Fuse generated an operating profit margin of 17%, up 2 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.
EPS We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Bel Fuse's EPS grew at an astounding 52.4% compounded annual growth rate over the last five years, higher than its flat revenue. This tells us management responded to softer demand by adapting its cost structure.
Diving into the nuances of Bel Fuse's earnings can give us a better understanding of its performance. As we mentioned earlier, Bel Fuse's operating margin expanded by 14.7 percentage points over the last five years. On top of that, its share count shrank by 14.6%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Bel Fuse, its two-year annual EPS growth of 34.7% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.
In Q2, Bel Fuse reported EPS at $1.50, down from $2.17 in the same quarter last year. Despite falling year on year, this print easily cleared analysts' estimates. Over the next 12 months, Wall Street expects Bel Fuse to perform poorly. Analysts are projecting its EPS of $5.21 in the last year to shrink by 15.4% to $4.41.
Key Takeaways from Bel Fuse's Q2 Results We were impressed by how significantly Bel Fuse blew past analysts' adjusted EBITDA and EPS expectations this quarter. on the other hand, revenue guidance for next quarter was well below expectations, which could weigh on shares. Management stated that "in addition to the typical seasonal slowdown in Europe, we anticipate some downward pressure on our Power sales given recently-enacted trade restrictions on one of our former suppliers previously used for our Power segment." Zooming out, we think this was a mixed quarter, with negative guidance potentially outweighing the positive quarter. The stock remained flat at $81.94 immediately following the results.
