Earnings call transcript: Vishay Precision’s Q4 2024 earnings miss, stock drops

Vishay Precision Group Inc . (NYSE:VPG) reported its fourth-quarter 2024 earnings, revealing a significant miss on both earnings per share (EPS) and revenue forecasts. The company posted an EPS of $0.03, falling short of the expected $0.21. Revenue also came in lower than anticipated at $72.65 million, compared to the forecasted $74.18 million. Following the announcement, VPG’s stock price dropped by 6.04% in pre-market trading, reflecting investor disappointment. According to InvestingPro data, this performance comes amid analyst concerns, with multiple downward earnings revisions for the upcoming period.

Key Takeaways

• VPG’s Q4 2024 EPS was $0.03, missing the forecast of $0.21.
• Revenue for the quarter was $72.65 million, below the expected $74.18 million.
• The company’s stock fell by 6.04% in pre-market trading.
• VPG plans $5 million in annual cost reductions and expects $100 million in new revenue over the next 3-4 years.
• The company is optimistic about increased orders in the latter half of 2025.

Company Performance

Vishay Precision Group’s performance in Q4 2024 was marked by a decline in key financial metrics compared to previous expectations. The company’s revenue for the full year reached $306.5 million, with Q4 contributing $72.7 million. The adjusted gross margin decreased to 38.3% from 40% in the third quarter, indicating pressure on profitability. Despite these challenges, VPG continues to focus on business development projects, which contributed $18 million in revenue during the year. InvestingPro analysis shows the company maintains strong financial health with a current ratio of 4.41, indicating robust liquidity with assets well exceeding short-term obligations.

Financial Highlights

• Revenue: $72.7 million in Q4 2024, down from the forecast of $74.18 million.
• Earnings per share: $0.03, significantly below the expected $0.21.
• Adjusted EBITDA: $5.1 million, representing 7% of revenues.
• Cash and cash equivalents: $79.3 million.
• Total (EPA:TTEF) long-term debt: $31.4 million.

Earnings vs. Forecast

VPG’s earnings for Q4 2024 fell short of analyst expectations, with actual EPS of $0.03 versus the forecasted $0.21, marking a surprise percentage of -85.7%. Revenue was also below estimates at $72.65 million against a forecast of $74.18 million, reflecting a miss of approximately 2.1%. This performance contrasts with previous quarters where the company had managed to meet or exceed expectations.

Market Reaction

Following the earnings announcement, VPG’s stock experienced a 6.04% decline in pre-market trading, dropping to $24.02 from a previous close of $25.47. The stock’s movement places it closer to its 52-week low of $20.83, indicating negative investor sentiment in response to the earnings miss. InvestingPro’s Fair Value analysis suggests the stock is currently undervalued, while additional ProTips indicate management’s commitment through active share buybacks. Subscribers can access 8 more exclusive ProTips and comprehensive valuation metrics through the Pro platform.

Outlook & Guidance

Looking ahead, Vishay Precision Group has set a revenue guidance range of $70-76 million for Q1 2025. The company anticipates an acceleration in orders during the second half of the year and targets $30 million in business development revenue for 2025. While analysts tracked by InvestingPro anticipate a sales decline in the current year, the company maintains a strong balance sheet with more cash than debt, providing financial flexibility to navigate market challenges. Get access to VPG’s complete financial health analysis and detailed Pro Research Report, along with 1,400+ other top stocks, through an InvestingPro subscription. Additionally, VPG plans to implement $5 million in annual cost reductions and has projected a capital expenditure of $10-12 million for 2025.

Executive Commentary

CFO Bill Clancy expressed optimism about the company’s business development initiatives, stating, "We are excited about the potential of our business development initiatives." CEO Ziv Shoshani highlighted a cautious outlook for the first half of 2025, saying, "Our optimism for the first half is more moderate while we are looking for an accelerated uptick in the second half." Shoshani also emphasized the importance of cost-saving measures, noting, "We are looking at permanent cost savings regardless of volume."

Risks and Challenges

• Supply Chain Disruptions: Potential delays in manufacturing and delivery could impact operations.
• Market Volatility: Economic uncertainty and fluctuating demand in key markets may affect revenue.
• Tariff Impacts: Changes in trade policies could influence costs and competitive positioning.
• Competitive Pressure: Increasing competition in the semiconductor and load cell markets could challenge market share.
• Currency Fluctuations: Variability in exchange rates may impact financial results.

Q&A

During the earnings call, analysts inquired about the potential impact of steel tariffs on VPG’s operations, the company’s business development strategy, and the specifics of its cost-saving initiatives. Executives addressed these concerns, emphasizing their focus on strategic growth and operational efficiency.

Full transcript - Vishay Precision Group Inc (VPG) Q4 2024:

Ezra, Call Coordinator: Good morning, everyone, and welcome to the BPG Fourth Quarter Fiscal twenty twenty four Earnings Call. My name is Ezra, and I will be your coordinator today. I will now hand you over to Steve Kanter, Senior Director of Investor Relations to begin. Steve, please go ahead.

Steve Kanter, Senior Director of Investor Relations, VPG: Thank you, Esra, and good morning, everyone. Welcome to VPG’s twenty twenty four fourth quarter earnings conference call. Our Q4 and full year press release and accompanying slides have been posted on our website. An audio recording of today’s call will be available on the Internet for a limited time and can also be accessed on our website. Today’s remarks are governed by the Safe Harbor provisions of the 1995 Private Securities Litigation Reform Act.

Our actual results may vary from forward looking statements. For a discussion of the risks associated with VPG’s operations, we encourage you to refer to our SEC filings, especially the Form 10 K for the year ended 12/31/2023, and our other recent SEC filings. On the call today are Ziv Shoshani, CEO and President and Bill Clancy, CFO. I’ll now turn the call to Ziv for some prepared remarks. Please refer to Slide three of the quarterly presentation.

Ziv?

Ziv Shoshani, CEO and President, VPG: Thank you, Steve. I’ll begin by reviewing our sales and business trends for fiscal twenty twenty four and the fourth quarter, and then provide an update on our 2025 priorities, particularly our business development activity. Bill will provide financial detail for the fourth quarter and for our Q1 guidance. Beginning with our 2024 performance, it was a challenging year for VPG. Revenue of $306,500,000 reflected continued macroeconomic and cyclical headwinds.

Moving to Slide four. These headwinds impacted our fourth quarter revenue, which declined 4% sequentially. Revenues were lower in Avionic Military and Space or AMS (VIE:AMS2), Test and Measurement and in our other markets, mainly consumer. On the other hand, our consolidated orders grew 5.5% sequentially and resulted in a book to bill of 1%. This marked the first quarter of a positive book to bill in eight quarters and a return to a sequential order growth after six consecutive quarters.

Booking (NASDAQ:BKNG) in our Sensors and Weighing Solutions segment grew to their highest quarterly level of the year, while measurement systems booking reflected cyclical softness and a push out of $5,000,000 of orders, of which $2,000,000 is expected to be booked in Q1 of twenty twenty five. Although near term visibility remains limited, we are encouraged by these order trends and believe they may signal the beginning of the recovery and support our increased optimism for 2025. I’ll now review the business segment performance. Moving to Slide five. Beginning with our Sensor segment, fourth quarter revenue declined 8.7% sequentially.

However, it’s important to note that sensor bookings grew 7% sequentially, resulting in a book to bill of 1.04%. The order growth reflected higher demand for precision resistors in the test and measurement for semiconductor back end equipment and in AMS. Order trends for advanced sensor stringages were stable. Moving to Slide six. In the Weighing Solutions segment, fourth quarter sales increased 2.2% from the third quarter.

The increase was driven by higher revenue in the industrial weighing market and for precision agriculture and construction applications. This offset lower sales in the transportation market. Weighing solution orders of $28,900,000 grew 14.5% from the third quarter, resulting in a book to bill of $1.12 bookings were higher for general industrial and for transportation applications as well as in our other markets, mainly in the medical and construction. Moving to Slide seven. In the Measurement Systems segment, revenue in the fourth quarter of ’20 ’1 point ’2 million dollars declined 5.3% sequentially.

The sales decline reflected lower DSI sales, which offset approximately $1,000,000 dollars of added sales related to the acquisition of Nokra at the September. We are pleased to report that the integration of Nokra is proceeding on track. Nokra differentiated laser based thickness measurement technology broadens our Kelk product offering in the steel market. We believe we can grow this business to $6,000,000 in 2025 as we continue to leverage Kelk’s brand and the sales channels. In the fourth quarter, measurement systems orders declined 8.9% sequentially, which includes $5,000,000 in customer push outs, of which $2,000,000 is expected to be booked in Q1 of twenty twenty five.

This change was primarily related to orders of DTS products in the AMS market and DSI systems for the steel market, which offset the additional orders for Nokra as a result book to bill for measurement systems of 0.78 declined from 0.82 in the third quarter. Moving to Slide eight. Our priorities for 2025 are clear. First, our business development activity is focused on securing design wins in new applications and new customers in robotics, consumer, data center, medical and aerospace and defense. These opportunities are being driven by megatrends such as industrial automation and electrification.

In 2024, our business development projects contributed about $18,000,000 in revenue. While we are pleased with the early momentum of these efforts, the potential is significant. Typically, the design cycle and lead time for our projects from the initial customer discussions to revenue can be as much as thirty months. Over the next three to four years, we believe that these new opportunities may contribute $100,000,000 of revenue in aggregate across our business segments. We expect to further broaden our business development funnel over this period of time.

I want to highlight a couple of the current initiatives. Our project with a leading developer of a humanoid robot to provide advanced sensor strangages continues to proceed well. The project reflects our ability to utilize our extensive expertise in deep engineering design and manufacturing to create high performance solutions. In the fourth quarter, we received additional prototype orders from this customer. Since the beginning of this project, we have received approximately $1,500,000 in prototype revenue.

With the project now moving to the preproduction phase, we believe this opportunity could generate millions of dollars in revenue annually as the humanoid robot are expected to be deployed in larger numbers over the next two to three years. As I indicated last quarter, we are also in the process of providing prototypes to more humanoid robotic developers. In January, we announced a partnership with the University of Alabama to test new DSI system for testing and developing ceramic materials. This innovative system builds on our flagship simulation tool utilized in metal alloy testing and marks our entry into the new and untapped market for VPG. It’s focused on the testing of ceramic and composite non conductive materials, which require extremely high temperatures.

Since we do not address the ceramics test market today, this represents a significant growth opportunity that could potentially double the size of DSI over time. Another priority for 2025 is to continue to implement our long term efficiency initiatives. These efforts in 2024 yielded approximately $5,000,000 net improvements resulting from manufacturing efficiencies and higher selling prices. In 2025, we have put in place a minimum of $5,000,000 for additional annual cost reductions. A focal point of our strategy is optimizing our facility in India, which supports high volume businesses development initiatives and plays a vital role in our manufacturing consolidation.

As a result, our manufacturing footprint in China is dedicated to supporting the Chinese domestic market. To improve efficiency, we are moving most of our shared functional services to the India facility. This transition expected to take about eighteen months should save us an additional $1,000,000 annually once completed. M and A continues to be an important complement to our organic growth initiatives. Our strong balance sheet provides us with the means to acquire larger businesses with recognized brands and growth path.

Before turning the call to Bill for additional comments, I want to thank our employees and our customers around the world for their continued commitment and dedication. I will now turn it over to Bill Clancy. Bill?

Bill Clancy, CFO, VPG: Thank you, Steve. Referring to Slide nine and the reconciliation tables of the slide deck, our fourth quarter twenty twenty four revenues were $72,700,000 adjusted gross margin of 38.3% in the fourth quarter compared to 40% in the third quarter of twenty twenty four. This includes a $700,000 impact from unfavorable product mix as well as $200,000 of one time material adjustments. Sequentially by segment, gross margin for sensors of 32% increased as improved manufacturing efficiencies offset the impact from lower volume. Wayne Solutions gross margin of 34.1% declined from the third quarter, primarily due to higher material costs and a reduction in inventory, which was partially offset by the higher volume.

Adjusting for acquisition related purchase accounting impacts, adjusted gross margin for measurement systems of 51.2 declined sequentially, primarily due to lower volume and unfavorable product mix. Our operating margin was 0.3% for the fourth quarter of twenty twenty four and adjusted operating margin was 0.8% excluding $378,000 of adjustments as outlined in the reconciliation tables. Selling, general and administrative expense for the fourth quarter of twenty twenty four was $27,300,000 or 37.5% of revenues as compared to $26,300,000 or 34.8% of revenues for the third quarter of twenty twenty four. The increase included approximately $400,000 related to the NOKRA acquisition and one time cost of $300,000 for measurement systems R and D projects and $200,000 of other fees. The GAAP tax rate for the full year of 2024 was not a meaningful number given the geographic mix and the level of income.

We are assuming an operational tax rate of approximately 27% for the full year of 2025. The adjusted net earnings for the fourth quarter of twenty twenty four were $400,000 or $0.03 per diluted share compared to $2,500,000 or $0.19 per diluted share in the third quarter of twenty twenty four. As I mentioned, our results were impacted by unfavorable product mix and one time costs. Combined on a tax effective basis, these impacted our fourth quarter twenty twenty four diluted EPS by $1,100,000 or $0.08 per share. Adjusted EBITDA was $5,100,000 or 7% of revenues as compared to $8,100,000 or 10.7% of revenue in the third quarter.

CapEx in the fourth quarter was $2,200,000 Total CapEx for 2024 was $9,200,000 or 3% of revenues. For 2025, we are budgeting $10,000,000 to $12,000,000 for capital expenditures. We generated adjusted free cash of $4,600,000 for the fourth quarter of twenty twenty four as compared to a negative $2,300,000 in the third quarter. The improvement was driven by a $4,000,000 reduction in inventory in the fourth quarter. Our stock repurchase program expired in August of twenty twenty four.

For the full year of 2024, we repurchased $7,800,000 of common stock or 601,000 shares. Moving to Slide 10. We ended the fourth quarter with $79,300,000 of cash and cash equivalents and total outstanding long term debt of $31,400,000 We believe that we have a strong balance sheet and ample liquidity to support our business requirements and to fund M and A. Regarding the outlook. For the first fiscal quarter of twenty twenty five, at constant fourth fiscal quarter twenty twenty four exchange rates, we expect net revenues to be in the range of $70,000,000 to $76,000,000 In summary, our fourth quarter bookings grew sequentially, resulting in a book to bill of one point zero for the quarter.

We are excited about the potential of our business development initiatives and we continue to implement additional efficiency programs, which expand our operating leverage as revenue strengthen. With that, let’s open the lines for questions. Thank you.

Ezra, Call Coordinator: Thank you very much. We will now open the floor for the Q and A session. Our first question comes from John Franzreb with Sidoti. John, your line is now open. Please go ahead.

John Franzreb, Analyst, Sidoti: Good morning, everyone, and thanks for taking the questions. Aviv, I guess I want to start with the Sensor segment. Can you talk a little bit about what’s going on in the Test and Measurement and Avionics markets there? And when do you expect to see a turnaround in the Sensor business?

Ziv Shoshani, CEO and President, VPG: Good morning, John. If we look at the Sensor business, you see that the book to bill is over one for Q4. We already started to receive larger semi annual orders in Q4 for AMS business. We also see recoveries in the back end equipment for IC chip testing. It doesn’t yet it didn’t yet come at the front end, but already in the back end, which is a strong indication that we start to see the semiconductor continues to go back.

So we believe that all

John Franzreb, Analyst, Sidoti: in

Ziv Shoshani, CEO and President, VPG: all given the sensor bookings we should expect to see a positive trend in net bookings in the sensor segment in Q1 and Q2 and for the rest of the year. I would say that the expectation is that there would be an acceleration of order intake in the second half, but already we see those positive signs and it’s very encouraging. Regarding semiconductor equipment and regarding AMS business and we still expect to see the front end equipment bookings to come in the next coming quarters.

John Franzreb, Analyst, Sidoti: Good. That’s good to hear. And actually rather than ask you a blanket question about tariffs, I’m actually curious about the steel market in particular. Did you see any meaningful revenue spend during the last twenty eighteen steel tariffs? Anything you can kind of share about the history of the steel market and tariffs based on your experience?

Ziv Shoshani, CEO and President, VPG: Regarding tariffs, as you know, our main manufacturing facility is in India and we are sourcing most of our steel and aluminum from India suppliers. So tariffs was tariffs from China was not a significant impact. We did not see any significant impact as the new administration has increased the tariffs from 25% to 35%. Our footprint in China is very, very limited. Most of our Chinese operation we are selling into the Chinese domestic market.

So the cost or the excess effect on VPG’s P and L regarding future tariffs from goods coming from China is going to be extremely limited at best around the $200,000 in 2025 given current volume. We hope and we do expect to see a nice backwind by getting more market share in our load sales business in The United States given the fact that there are very few manufacturers that has non Chinese operational base like we do in India, while most of them are manufacturing in China. So I think that the additional 10% tariffs is going to give us a nice backwind in terms of bookings. In regards to tariffs or steel, I would say that if the tariffs would I believe that we should expect to see more manufacturing from U. S.

Based steel manufacturers that should also give us a positive backwind for kelp products, which are sold into U. S. Suppliers.

John Franzreb, Analyst, Sidoti: Yes, that’s why I was kind of curious about what you’d see in kelke and the load sensors and everything. Just curious on those thoughts there. Yes, we have a question, I guess, go ahead.

Ziv Shoshani, CEO and President, VPG: No, no, sorry. I’m just saying we didn’t see the effect yet given the fact that the tariffs have been implemented or put in place a while ago, very short time, but we do believe it will happen in the coming months. We should expect to see an effect.

John Franzreb, Analyst, Sidoti: Understood. Regarding the $5,000,000 in cost savings, can you talk a little bit about the expected timings of realizing those cost savings via either is it a mix of pricing and productivity or is it just pure productivity? Any color would be helpful.

Ziv Shoshani, CEO and President, VPG: When we are looking about cost reduction or I would say a minimum of additional cost reduction of $5,000,000 in 2025 with respect to 2024. We are looking at continuation of moving from high level countries to low level countries. By now our India facility is the largest facility for VPG and it takes a much bigger role in our future. We are speaking about more automation in the I would say in some of the facilities. So all in all, it’s all about yield and efficiency improvements in all our larger manufacturing base locations.

John Franzreb, Analyst, Sidoti: Okay. And just one last question, I’ll get back in the queue. Regarding Nokra, it’s about $1,000,000 of revenue contribution. Were they accretive to the operating income line? Can you any kind of color there would be helpful?

Ziv Shoshani, CEO and President, VPG: Nokra in Q4 was a net zero effect in Q4, but the expectation is that we are planning to sell 6,000,000 of no car products in 2025, which is at least a 50% higher run rate than the complete 2024, which definitely would provide us with very nice margins, positive margins naturally.

John Franzreb, Analyst, Sidoti: Okay. I appreciate you taking my questions. I’ll get back in the queue.

Ezra, Call Coordinator: Thank you very much. Our next question comes from Griffin Bose with B. Riley Securities. Griffin, your line is now open. Please go ahead.

Griffin Bose, Analyst, B. Riley Securities: Hi, good morning and thanks for taking my questions. So, since the last earnings call was in November, there’s perhaps a bit more well, setting aside tariffs, there’s perhaps a bit more macro certainty regarding interest rates in The U. S. And now we have the U. S.

Presidential election in the rearview mirror. So I’m just curious seeing sensors and weighing solutions book to bill pushing above one. Are you seeing any customer trends that might suggest that capital spending and demand is now picking up given less macro uncertainty or are the increased orders you’re seeing today or I guess in the fourth quarter more so inventory replenishment?

Ziv Shoshani, CEO and President, VPG: Well, good morning. We have a couple of effects. Our optimism for the first half I would say more of a positive or more moderate optimism while we are looking for an accelerated uptick in the second half is based on the fact that we see a continuation of reduction of interest rates by the EU Central Bank and we do see more demand coming from European customers especially on the onboard weighing and process weighing on the weighing solutions which also applies for some customers also in the industrial sensor segment. We are also looking at continued depletion of our customer inventories and also early result of our business development initiatives, which are now picking up and we do see the additional business being generated by those business development initiatives. So all of the three effects we feel much more confident regarding the order intake and the demand going forward.

Griffin Bose, Analyst, B. Riley Securities: Okay, got it. Thank you, Jia, for the color. I did just want to jump back to the $5,000,000 additional cost savings you’re aiming to achieve in 2025 and beyond. I’m curious how much of that is we should look at it as sustainable for the long term. So you mentioned the $1,000,000 annual savings from moving functional services from China to India.

But I’m curious about the additional $4,000,000 plus. Is that sustainable cost savings at higher revenue levels? Or is this more so optimizing for the current revenue profile of the business?

Ziv Shoshani, CEO and President, VPG: The $1,000,000 shared services we are looking at G and A cost, consolidation of G and A cost from higher labor countries into India and this is kind of a permanent cost once the systems is in place. Regarding the other $4,000,000 and here it’s minimum $4,000,000 we are looking at further consolidation mainly in the sensor segment and in the weighing solution segment, which are more operationally driven by nature of further consolidation of products to our India facility, while also adding more automation in some other high labor manufacturing facility. So we are looking at permanent cost savings regardless of volume in a way we are just reducing the cost base of our products of our cost of goods sold, regardless of volume. This is just putting in place more efficiency initiatives.

Ezra, Call Coordinator: We have our next question from John Franzreb with Sidoti. John, your line is now open. Please go ahead.

John Franzreb, Analyst, Sidoti: Yes, Steve. Just a question about the new product development. I think you said there was $18,000,000 of revenue recognized from new product development in 2024. And I think you alluded to $100,000,000 of new product opportunity. I didn’t catch the timeline on that.

What’s the timeline on that? And does it manifest more likely in one year versus another? What kind of visibility do you have on that?

Ziv Shoshani, CEO and President, VPG: Sure. So John, we are clear about business development. Business development, our definition for business development, we are looking at new products as well as existing products at new customers or new part numbers. So that’s in essence business which the company did not had in respect to products or customers. The initiative of the BD teams and the infrastructure has been put in place around eighteen months to twenty four months and we have teams that started to fill a BD funnel in a much more consistent way.

When we are looking into the funnel, given the design cycle that I’ve indicated earlier that may take up to thirty months, we have realized that $18,000,000 of revenues has been realized in 2024 due to new business development initiatives. Our target for 2025 is $30,000,000 and when we are speaking about additional $100,000,000 we are speaking about three to four years, which means from 2025 to 2027, ’20 ’20 ’8 up to in aggregate for an additional $100,000,000 of new business with new products or new customers that the company did not have before.

John Franzreb, Analyst, Sidoti: And is it fair to assume that the margin profile of the new products is at least as good as the current gross margin profile or well, you tell me.

Ziv Shoshani, CEO and President, VPG: So I would say that the profit profile should be similar or better than the existing profile. The fact is that on one hand our business initiatives goes for smaller scale opportunities at higher margins, but when we also speak about significant volume, we also need to be cost competitive. So overall, it could be with slightly lower margins, but overall it should be at least the same or much better than our current average gross margin.

John Franzreb, Analyst, Sidoti: Great. I appreciate the clarity. Thank you, Ziv.

Ziv Shoshani, CEO and President, VPG: Thank you.

Ezra, Call Coordinator: Thank you very much. We currently have no more questions. I will now hand back over to Steve for any closing remarks.

Steve Kanter, Senior Director of Investor Relations, VPG: Thank you. I want to note that we will be participating in the Sidoti conference in March and we look forward to updating you on VPG next quarter. Thank you all and have a good day.

Ezra, Call Coordinator: Thank you very much, Steve. And thank you to Bill and Ziv for being our speakers today. That concludes our conference call. We appreciate everyone for joining. You may now disconnect your lines.

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