LFUS - NASDAQ

Good day everyone and welcome to the Littelfuse Fourth Quarter 2024 Earnings Conference Call. Today's call is being recorded. At this time, I will turn the call over to the Head of Investor Relations, David Kelley. Please proceed.

Good morning and welcome to the Littelfuse fourth quarter 2024 earnings conference call. With me today are Dave Heinzmann, President and CEO; Meenal Sethna, Executive Vice President and CFO; and Greg Henderson, Littelfuse Board of Director and Incoming CEO. Yesterday, we reported results for our fourth quarter and a copy of our earnings release and slide presentation is available on 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 2 for our disclaimers. Our discussions today will include forward-looking statements. These forward-looking statements may involve significant risks and uncertainties. Please review yesterday's press release and our Forms 10-K and 10-Q 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-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measure is provided in our earnings release available on the Investor Relations section of our website. I will now turn the call over to Dave.

Thank you, David. Good morning and thanks for joining us today. Let's start with highlights on Slide 4. In the fourth quarter, our performance and results came in as we expected, as both sales and earnings were within our prior guided range. The consistency of our performance reflects our global team's strong operational execution and unwavering focus on our diverse and broad customer base as we delivered solid quarterly results amid a mixed environment across our end markets. For full year 2024, we continue to deliver design win momentum and drive new product innovations alongside our global customers while navigating a choppy environment. We believe our steadfast commitment to our customers positions us to deliver continued long-term top-tier growth. We exited the year with the electronics destocking cycle behind us and signs of distribution inventory replenishment emerging. Notably, our Electronics segment book-to-bill is at its highest level since the second quarter of 2022. Our Passives business book-to-bill is above 1. And while power semiconductor remains below 1, we observed improved order rates in the quarter relative to levels seen earlier in the year. As order rates are gradually improving, we continue to see broader design win strength across our diverse technology offering and end market exposures. We remain confident in our content trajectory, a key enabler of sustainability, connectivity and safety megatrends. We also strove for improved operational performance in 2024 and delivered meaningful profitability enhancements across our businesses driving solid second half margin expansion. Into 2025, we continue to align our cost structure to reflect current business and market conditions while positioning our company for a return to growth and further margin expansion. Finally, we generated strong free cash flow conversion in 2024, while our balance sheet exits the year well positioned to support our long-term growth strategy. Taking a step back, we are confident our actions in 2024 will support growth and solid earnings expansion in 2025 as well as meaningful long-term momentum beyond the new year. I want to thank our global teams for their focused efforts and persistent hard work in the fourth quarter and throughout 2024. Now let's turn to our end markets and design activity, starting with the Electronics on Slide 6. Electronics market trends were mixed but improved through the fourth quarter. Data center remained a strong growth driver in part driven by AI applications. Medical demand was mixed while demand for consumer products, appliances and building technologies remain subdued. Yet as the quarter progressed, we observed some emerging signs of stabilization, particularly in North American and Asia regions. Broadly, electronics end market design-in activity remains healthy and we delivered another strong win rate across a broad set of applications in the quarter. Of note, we saw strong Passives opportunities and conversion in China, driving meaningful order expansion in the region in the fourth quarter and full year 2024. In North America, we continued to observe some ongoing design win to order conversion delays but a pickup in order of trends late in the quarter was encouraging. Turning to our electronics end market design wins in the quarter, we secured a meaningful data center win for a cooling application in North America and an infrastructure application in Japan. We secured datacom, server and compute wins in North America, China and Taiwan. We also delivered global wins for appliance applications that utilize our broad technology capabilities. Similarly, we secured business for multiple building technology and automation applications in regions including North America, China, Taiwan and India. Finally, we delivered meaningful wins for medical applications in North America and Europe in the quarter. Moving on to transportation end markets and design wins on Slide 7. Starting with our passenger car exposure, we benefited from our global positioning and balanced technology offering which helped to offset slightly lower global car builds in the quarter and ongoing pruning actions associated with our sensor product line. We delivered solid growth in China as we leveraged our technology expertise, experienced local teams and strong partnerships with local OEMs. Outside of China, solid demand for our low-voltage products partially offset weaker North American and European production volumes and EV sales. In 2025, we believe our exposure to multiple secular growth drivers and ongoing innovations with our global customers position us to offset likely continued soft global car build trends. Regarding our commercial vehicle exposure, while soft underlying market trends continued in the fourth quarter, we delivered solid volume expansion and continue to drive favorable pricing. Into 2025, we see some initial, albeit early signs of improvement in certain commercial vehicle markets, led by construction and heavy-duty truck with recovery likely weighted to the back half of the year. Given our strong content offering and continued traction with customers, we remain confident in our commercial vehicle positioning and are excited about long-term opportunities across our broad exposures. In the quarter, we secured solid new transportation business across both passenger and commercial vehicle end markets. In passenger vehicles, we secured several meaningful high-voltage opportunities with customers in South Korea, China and Europe. We also delivered multiple low-voltage fuse wins, including in North America, Europe, South Korea and China which demonstrates the global scale of our business. Finally, we secured ADAS application opportunities for customers in China and Europe. In commercial vehicle end markets, we secured several construction and agriculture equipment wins for customers in North America and Europe. We also delivered multiple recreational and specialty vehicle wins in the quarter. Turning to Slide 8, industrial markets and design activity. In the fourth quarter, we observed mixed end demand trends across our broad industrial exposure. We benefited from continued strong HVAC and industrial safety application demand. However, we observed continued soft industrial equipment, factory automation and charging infrastructure trends. We continue to see more pronounced softness across our industrial power semiconductor products where we have more meaningful exposure to weaker European and Asian industrial markets. Broadly, we observed a solid order rate momentum late in the quarter and into 2025. We see an improving albeit likely gradual industrial recovery. Importantly, our industrial secular growth drivers remain intact and we see continued strong momentum headlined by renewables, automation and industrial safety. Regarding our design wins in the fourth quarter, we secured meaningful renewable opportunities, including for a solar application in North America and for a solar and energy storage application in China. We also secured several commercial HVAC wins in the quarter as our teams continue to leverage core residential HVAC technology expertise to drive new market expansion. In Japan, we secured a win for a rail traction drive application that will utilize our semiconductor capability. Finally, we delivered a variety of wins across heavy industrial markets, including construction, mining and oil and gas in the quarter. Across our businesses, we continue to partner with our broad customer base to drive innovative solutions for our diverse end market exposure. We will remain focused on operational execution as we strive to deliver leading performance in 2025. I will now turn the call over to Meenal to provide additional color on our financial performance and outlook.

Thanks, Dave. Good morning, everyone and thank you for joining us today. Please turn to Slide 10 to start with details on our fourth quarter results. Revenue in the quarter was $530 million, down 1% versus last year in total and flat organically. The product line pruning actions we discussed, reduced sales about 2%, in line with our expectations in the prior quarter. GAAP operating margins were negative 6.9% and include $93 million of noncash goodwill and intangible impairment charges. The charges are primarily related to the impairment of certain assets impacted by ongoing weak EV charging infrastructure trends. For the quarter, adjusted operating margin finished at 12% and adjusted EBITDA margins were 18.1%. Fourth quarter GAAP diluted loss per share was $1.57 and adjusted diluted earnings was $2.04. Our fourth quarter GAAP effective tax rate was negative 30% and adjusted effective tax rate was 13%. Let's turn to Slide 11 for our full year performance. We finished the year with sales of $2.2 billion, down 7% in total and organically versus last year. GAAP operating margins were 7.8%. Adjusted operating margins finished at 12.9% and adjusted EBITDA margins were 18.9%. Foreign exchange and commodities had a 30 basis point unfavorable impact to margins. We drove improvement in our cost structure in 2024 and are pleased with our resulting margin trajectory as our second half operating margins expanded 220 basis points from the first half of the year. Finally, full year GAAP diluted EPS was $4.51 and adjusted diluted EPS finished at $8.48. Our full year GAAP effective tax rate was 31% and adjusted effective rate was 21%. Please turn to Slide 12 for updates on capital allocation. We delivered strong cash generation in 2024. In the quarter, operating cash flow was $161 million and we generated $135 million in free cash flow. For the full year, operating cash flow was $368 million and we generated $292 million in free cash flow, driving cash conversion well over 100%. Our strong performance also reflects our ongoing focus on working capital management. Into 2025, we continue to target 100% free cash flow conversion aligned with our long-term goals. We ended the quarter with $725 million of cash on hand and net debt-to-EBITDA leverage of 1.2x. Our balance sheet remains strong and gives us continued flexibility on capital deployment. We'll continue to prioritize our free cash flow for thoughtful acquisitions and we'll continue to return capital to our shareholders through our dividend and periodic share buyback. For the full year 2024, we returned $108 million of capital to shareholders, including $67 million through our cash dividend and $41 million through opportunistic share repurchases. We remain disciplined in our capital allocation strategy as we strive to maximize long-term shareholder value. Please turn to Slide 13 for our product segment highlights, starting with the Electronics Products segment. Sales for this segment were down 4% organically and 12% for the quarter and year, respectively. Versus prior year, sales across Passive Products were up 9% organically for the quarter and down 1% for the year, while semiconductor products declined 13% and 20% for the quarter and year. Our solid Passives product sales growth in the quarter reflects stabilizing end demand trends and improved orders from channel partners. Within our semiconductor product exposure, we saw stabilizing demand for our protection products but continued softness across power semiconductors. Operating margins in the quarter were 12.3%, while EBITDA margin finished above 19%, both in line with our expectations. We finished the year with segment operating margins of 14.2% and EBITDA margins of nearly 21%. Moving to our Transportation products segment. On Slide 14, segment organic sales declined 1% and for both the quarter and the year amidst decline across global car builds and commercial vehicle end markets. Segment sales were negatively impacted 6% versus last year for the quarter and 5% of the year from pruning actions we've been undertaking. In the passenger vehicle business, sales declined 4% organically in the quarter and came in flat for the year. Fourth quarter sales were negatively impacted by planned auto sensor product exits and ongoing global car build declines, in part offset by growth in China. Within commercial vehicles, sales for the quarter were up 4% organically and down 1% for the year. In the fourth quarter, we delivered volume growth and favorable pricing despite continued end market weakness, this more than offset impacts pruning action. For the segment, operating margins were 9% and over 10% for the quarter and year, respectively. While EBITDA margins finished at 14.5% in the quarter and 15.6% for the year. Foreign exchange and commodities were a headwind for the full year, unfavorably impacting margins 110 basis points. We're pleased with our focus on cost actions, pricing and pruning initiatives drove 530 basis points of operating margin expansion for the year. We believe these actions position us well for continued margin growth into 2025. On Slide 15, Industrial Products segment sales increased 12% organically for the quarter and declined 1% for the year, navigating well through a number of weak industrial end markets. Fourth quarter sales benefited from strong HVAC growth, solid data center momentum and continued industrial safety expansion. Segment operating margins finished at 17.1% in the quarter, expanding 440 basis points versus prior year levels, while full year margins finished at 13.9%. Adjusted EBITDA margins were 20.8% in the quarter, while full year margins finished over 18% for the year. We delivered strong margin expansion in the quarter led by continued solid execution and strong conversion on volume growth. Our improved industrial segment margins throughout 2024 also reflect our operational execution and solid volume leverage. We expect continued growth and margin momentum into 2025. Now, please move to Slide 16 for the forecast. As we start 2025, we continue to see a mixed macro environment. Within Electronics, we expect Passives product recovery but ongoing soft semiconductor product sales in the first quarter. We expect ongoing Industrial segment momentum while we see a mixed underlying transportation backdrop starting the year. We expect low single-digit global car build decline with signs of modest commercial vehicle market recovery projected for later in the year. With these assumptions, we expect first quarter sales in the range of $520 million to $550 million. This includes about a 2% headwind from FX versus the prior year. We're projecting first quarter EPS to be in the range of $1.70 to $1.90 which includes a tax rate of 26%. Sequentially, the higher tax rate represents a $0.32 headwind to earnings as we benefited from a retroactive tax holiday extension in the fourth quarter. At current FX and commodity rates, we are expecting an $0.11 benefit to EPS versus the prior year. Please turn to Slide 17 for additional full year 2025 color. We expect solid earnings expansion, reflecting our growth positioning, recent cost-scaling actions and ongoing focus on operational execution. At current rates, we expect FX and commodities will represent a 1% headwind to sales but a $0.22 benefit to EPS. Also, as we announced in late December, we completed our acquisition of the Dortmund semiconductor fab from Elmos Semiconductor. The acquisition also includes a multiyear capacity sharing arrangement with Elmos. For 2025, we expect about a 2% total sales growth from volumes sold to Elmos and a neutral EPS impact from this arrangement. On other modeling items, we're assuming $59 million in amortization expense and $35 million in interest expense, about 2/3 of which we expect to offset through interest income from our cash investment strategy. We are estimating a full year tax rate of between 23% to 25%. As a reminder, ongoing Pillar Two tax legislation is a headwind on tax rates and we continue to evaluate opportunities to improve our rates. We also expect to invest $90 million to $95 million in capital expenditures. As we turn the page to the new year, we believe our ongoing momentum with customers on design wins and product innovation positions us well for a return to growth. Our focused execution and cost scaling actions have enhanced our operating model, positioning us for solid earnings expansion in 2025 amidst a dynamic environment. Our strong cash generation focus and our well-positioned balance sheet also give us both flexibility and confidence as we aim to deliver long-term top-tier growth and earnings expansion. In closing, I'd like to recognize our employees and partners for their meaningful contributions and unwavering commitment to Littelfuse. I would also like to thank Dave for his outstanding leadership of Littelfuse. It's been a pleasure working with him for the last decade and I'm grateful for our strong partnership. I wish you well in retirement. I've gotten to know Greg over his nearly 2 years on our Board and I look forward to partnering with him as we enter the next phase of the Littelfuse growth journey. I remain excited for the meaningful opportunities that lie ahead. And with that, I'll turn it back to Dave for some final comments.

Thanks, Meenal. In summary, while we navigated a difficult environment in 2024, our unwavering focus on our customers and our persistent push for operational enhancements have positioned us to deliver solid growth and earnings expansion in 2025. With our diversified business model and broad technology offering, we are confident in our ability to drive long-term top-tier value for our shareholders. Finally, I just want to say a few words as I will soon be wrapping up a 40-year career with Littelfuse. It's been an amazing journey with a truly exceptional company. I want to thank the Board for their continuous support over the years. I also want to thank all of the Littelfuse employees who worked tirelessly to deliver on our long-term growth strategy. It has been an honor to lead you all and I am confident that you are positioning the company for meaningful long-term success. I'm also grateful to be leading the company in such great hands. Greg and I have worked closely together over the last couple of years and he brings the ideal skill set and leadership track record to lead this company into the next stage of growth. And with that, I'm going to turn it over to Greg, who is going to say a few words.

Thank you, Dave. On behalf of Littelfuse, I want to thank you for your leadership and congratulate you on an impressive 40-year career at the company. For the Littelfuse employees listening on the call, I look forward to working with you all as we begin the next chapter of the Littelfuse growth story. And for the analyst and investor community, I'm excited to meet many of you in the coming months. And with that, I'll turn the call back to you Dave.

Thanks, Greg. Operator, we are ready to begin the Q&A.

[Operator Instructions] And our first question comes from the line of Luke Junk with Baird.

Dave, just to start with, congratulations on your 40-year career at Littelfuse and upcoming retirement, absolutely well deserved.

Thanks.

In terms of the quarter itself, to start with here, it'd be great if we could just put a finer point on book-to-bill on Passives this quarter. It sounded pretty positive based on your comments, Dave. Plus maybe just what you're hearing from distributors qualitatively as you begin to see some restocking in the Passives channel as well?

Yes, sure. Luke, I think in general, let's take a step back and look at the overall electronics and what we would say is, fundamentally, the inventory correction is largely behind us at this point. We stated that in the prepared remarks. Book-to-bills for the first time in -- since early 2022 are now above 1 in electronics as a whole. Passives and our protection book-to-bills are firmly above 1. And while the power semiconductor portion of our business is a little more challenged with the kind of the heavy industrial focus, particularly in Europe and China. So it's still below 1 but it's improved nicely over the last quarter. And through the course of the quarter, while we saw we ended the year above 1, we also saw continued momentum improvement going into -- through January. So we remain pretty positive about kind of the general direction there and kind of getting some of the correction cycles behind us. Conversations with our distribution partners range all over the map from individual kind of markets they're serving and things like that. I think what they're seeing generally is fairly stable book-to-bills and kind of stabilizing book-to-bills with a bit more positivity coming in North America and in Asia. Europe continues to still be pretty sluggish. And we don't see Europe necessarily turning anytime soon but pretty positive comments, North America and Asia momentum.

Okay, that's helpful. And then maybe just if we could double-click on those early signs of select industrial recovery relative to power semi and what has been weakness. Is there any more texture in terms of market? Should we assume that it's from a geographic standpoint also weighted to North America and Asia, Dave?

Yes. I think if you look at industrial more broadly, you've got the power semi which we talked about being very industrial heavy. There, where I'd say is kind of stabilization coming there tends to be more in the North America and Asia, where we're seeing that kind of stabilize. As I stated earlier, Europe continues to still be a bit tough there. A lot of machine automation and things like that, that are going on in Europe for global support but that continues to be a bit sluggish there. On the other industrial portion in our Industrial segment itself, we had a very solid quarter there. And it's kind of a niche business, right, where we serve individual areas. And so we continue to see strength in safety applications. That's been a really nice growth area for us. We've seen the HVAC space begin to show improvements there and we're making good progress in kind of moving from more a residential focus to commercial focus there, getting nice design wins and growth in that area. So we're seeing those places, particular applications and markets and regions where we see kind of stronger momentum and that's starting to show up in our results.

Got it. And then, Meenal, with transportation margins showing some really significant strength in the third quarter, stepping down sequentially here in the 4Q but still finishing the year above the level you were expecting. Can you just help us understand kind of what's in the margin profile in the back half of the year as we step into 2025? I guess I'm just trying to tease out what sort of base we should use to build our '25 margin assumption in the Transportation segment.

Sure. Thanks, Luke. So I'd say, one, we're really pleased with the progress that we've made through transportation. We started the year at mid-single-digit range and have worked our way up as we talked about a number of actions that we've been undertaking to really get to the point where we're at finishing in the double digits for the year. I would say going into 2025, we feel -- we continue to feel very confident about the margin expansion. There's work that we've done in '24 and continue to do in 2025 around pricing as we've been talking about for a while, finishing off some footprint work, some other cost reductions that we're taking. So we feel good and we feel those actions will mitigate some of the headwinds that you hear swirling around, around the declining car build that we're expecting for the year and a little bit of the volatility around foreign exchange and commodities. But net-net, we feel good for continued margin expansion going into 2025 and the actions we have been taking and are continuing to take.

And then, if I could just sneak in a last quick question. This is more just modeling. Historically speaking, incentive comp has had a heavier impact just seasonally in the second quarter based on how you account for it. Should we expect that to be the case again this year, Meenal?

Great question. The incentive comp will be a little bit more of a run rate when we think about Q2 as opposed to that the -- I'll call it, the outsized spike that we've had. As we get into a little bit more around the Q2 guide, we'll give you a little bit more color on that. But I would expect it would be a little bit more dampened than what you've seen in historic years.

And our next question comes from the line of Saree Boroditsky with Jefferies.

Congratulations, Dave, on your retirement and Greg, in the new role. We look forward to working with you. I just wanted to kind of go through the guidance for 1Q. I think it implies margins are roughly flat sequentially. Could you just talk through the puts and takes on margin performance and how margins should progress through the year, especially if we do see some volume recovery?

Sure. So I think you're thinking more from a sequential perspective, just a little more color as we think through the year. Yes, what I would say is that we've always talked about for us, one of the biggest factors as we think about margin recovery has typically been around volumes and strong volumes, strong conversion rates on that. While we're not waiting for that, right, we're definitely working on continuing to drive growth. We've done a lot of work in terms of, as I mentioned in the earlier comments but just around pricing, cost adjustments and other cost reductions and some footprint work. So I would expect that we'll see -- as we work through 2025, we'll continue to see margin expansion going forward through the year.

Appreciate the color. One of the markets you talked about seeing the benefit this quarter was HVAC. Do you expect -- I think there's been some talk about some prebuild there. So do you expect that to lead to an air pocket in demand in the first quarter? And how does that impact industrial growth in 1Q?

Sure. Yes. Obviously, with the refrigerant change requirements coming and things like that, there's some concerns whether is there a prebuild going on in preparation of that kind of get mixed results when you read from the OEMs and the distributors serving that. We've seen good improvement there. But I think I don't believe we're going to have an air pocket for a couple of reasons. One is we've also been pivoting a lot of energy towards taking the technologies that we're selling into the residential space into industrial space as well. So we're seeing a nice space -- in design wins into the industrial HVAC space which we think if there is any kind of bubble or a slowdown in the residential, we hope to kind of backfill that with the industrial growth there. So in general, we feel -- continue to feel positive about it.

Next question from Christopher Glynn with Oppenheimer.

Dave, wishing you the best for a great retirement. I wanted to ask about -- you talked about cost scaling actions. It sounds like a little different characterization than straight cost restructuring. Does that refer to positioning the assets for very high conversion margins as growth returns? Is that what cost scaling actions refers to?

Yes. Chris, it's Meenal. So I'd say a couple of things. It's one, as we've been talking about where we are in terms of our growth trajectory right now, we're absolutely expecting 2025 and to see that return to growth. But in the meantime, where we are today, we're really just, I'll call it, rightsizing our cost structure to align to the state of our business today to where we are today. Some of that are cost reductions. We've also spent a lot of time around discretionary cost reductions. I've been talking about indefinitely different parts of the business. We've been doing a lot of what we call footprint work, whether that's relating to manufacturing and supply chains. So we've been trying to optimize that as we normally do. So it's really for us, it's a combination of all that. But my reference to scaling is more aligning our cost structure to the current state of the business.

Okay. And then in commercial vehicle, you've been growing the last couple of quarters now in down markets. And I believe with some concentration of the overall pruning actions of the company falling within CV. I know you talked about price there. Is that really the full delta versus market? Or is content have good momentum on CV even during this broad-based lull in global CV markets?

Yes. And Chris, I think both have an impact. Clearly, we've been working to kind of look at all customers and product applications and products that we've done some pruning on and addressing that. Usually, as you take that approach, you'll do that with pricing actions to kind of drive those activities. So that certainly is a positive. Often you find when you're doing that, that some customers stick around and are willing to pay the higher prices and that's certainly a benefit. But we've also seen -- we have a fairly niche business within commercial vehicles. So our ability to gain share, get in new applications, I feel have been a positive for us, will continue to be an opportunity for us, particularly as we focus on kind of the high-growth applications and margin profiles on technologies and products that we have that we think are most attractive. So I think it's actually both. I think we've been outperforming the market because of our performance with customers and engaging with customers and supporting them and also from the pruning activities.

Great. And then could we just get a little bit more detail on the impairment, what acquisition that might have been related to? Or did it cut across a couple?

Yes, Chris, it's Meenal again. So the impairment that we took the -- and I think we noted in our prepared slides, that was a $93 million impairment covering both some goodwill and intangible assets. It's almost all related to certain assets within our Industrial segment. And we've been talking about for a while that we've seen some downturns in a number of different industrial markets but particularly, we're seeing this in the EV infrastructure space which falls into our Industrial segment. We took a look at projections, market projections, our projections just don't see a substantial near-term recovery coming. So as part of the normal accounting assessment you have to go through when you come to some of those conclusions, we went through our forecasting and basically just took a noncash charge in the fourth quarter for the accounting rules and how all the math works there.

Our next question is from David Williams with The Benchmark Company.

David, happy retirement to you. So it's good, after 40 years, you should take some time and really enjoy that. So I guess with that, I wanted to ask since it hasn't been already but just the impact of potential tariffs to your business, just kind of given China and then, of course, the discussions around EV. Anything with the new administration that gives you any concerns or thoughts around that, please?

Great question, David. And certainly, the volatility that potential tariffs and geopolitical actions take place are certainly an area that gets our attention. We spend a fair amount of time looking at scenario planning and things. However, I would say, yes, the tariff situation itself. First of all, we're kind of waiting to see how it plays out exactly. But not new. Back in 2017, we went through these sorts of issues. And over the last several years, we've worked really hard to make sure our manufacturing footprint is aligned to the regions where the primary source of our customers are. And so we try to align closer to customers over that time. So we've gotten better with that in the last few years. When tariffs do come, if they come, we have a historical kind of experience on that where we engage with our customers and try to work through solutions with the customer. It goes customer by customer, right? But sometimes supply chains can be a little complex and there's movements between the customer and ourselves that we can do to address those things and reduce the impact of tariffs. And where we can do that, we absolutely do those things. And by the way, that's all being done kind of at the business unit level, right, where they're dealing with their individual customers. And at the end of the day, if we get to the point where we can't solve those issues with customers, then we will pass those costs along to customers in a pricing fashion. So we -- while it certainly has an impact to us, I think we're fairly confident in how we've worked through it in the past and minimized the impact on the business last time and we'll continue to do that.

Okay, great. And then maybe just on the 5-year strategy update. I know you guys were going through that and was scheduled maybe to give some more color around the Analyst Day. But just curious how you're thinking about that having gone through the 5-year strategy, how you're thinking about the business longer term? And maybe, Greg, if you're able to chime in there, I would love to hear your comments. But any color just around that strategy going forward beyond maybe just 2025?

Yes. No, I think it's a good question. And obviously, as we postponed the Investor Day, we just felt it was best suited to give Greg the opportunity to get his feet on the ground, really understand the business significantly. We didn't think it was best necessary to having -- me coming in and kind of share with you where we are at on our current 5-year strategy and where we're headed. So we felt it was prudent to give a little bit of space to do that and give Greg some time to kind of learn a little bit more from the inside as opposed from the Board level on that. So Greg, maybe you have a couple of comments.

Yes. Thanks and thanks, David, for the question. For me, I'm really very excited to be here. And I think, as Dave mentioned, I think it was a great way for me to enter the company coming from the Board, I've been working with Dave and been able to meet the leadership team over the last 1.5 years. So from my perspective, Littelfuse is a great franchise. We have a strong global market position. We have great technology and people and I'm excited to be part of that next phase of growth. So we will be continuing to meet you, talk to you, roll out more about that as we go forward but I'm excited about it.

Congratulations on the move there and looking forward to working with you as well.

Thanks for the questions, David.

And our next question comes from the line of William Kerwin with Morningstar.

Dave, let me echo all the congratulations on a tremendous career and a warm welcome to Greg coming in very soon. If I could just add one more on margins but specifically for the Electronics segment. I think that came in a little bit below where the expectations were coming into the fourth quarter. So just curious what was going on there? Is that more of a semis dynamic or a passives dynamic? And how you expect that segment specifically profit margin to evolve over 2025?

Sure. Thanks. It's a great question. So here's what I would say. When we take a look at our Electronics segments over the years and that's the one we've always talked about that goes through these market cycles that are further exacerbated by the distribution inventory cycles we go through. Those prior down cycles, we've seen our margins drop into the mid-teens when you're down at the low points in terms of volumes. In this particular case, as we've gone through this down cycle which has gone a little longer than anyone was expecting, the excess inventory that we've seen, not just in distribution channels but in EMSs and OEMs and then just this elongation of timing has really had a bit of a further effect on margins for us. I'm confident as we look ahead to 2025, when we start to see recovery, Dave talked about passives and our protection, semiconductor book-to-bills now are trending well over 1 and that from a 2025 perspective, the volume for us really drives margin recovery and we've proven the incremental margins that come out of that. So I feel good about our trajectory of margin improvement across electronics and we'll see some uplift as we go through the year.

Okay. Terrific. And maybe a longer-term one for me as a follow-up. Just curious in the electric vehicle space, how you're seeing the dynamics over the next 5 years as OEMs move to higher voltage drivetrains and knowing that, that provides a good amount of content uplift for you? And even if there are maybe some short-term fits and starts here with EV programs, are you seeing that momentum continue in terms of rising from, for example, 400 volts towards 800 volts, etcetera? And then maybe just a quick view on heavier vehicle electrification, too, whether that's ag equipment, semis, etcetera?

Sure. So electrification of vehicles certainly has gotten a lot of attention, positive and negative over the last couple of years. Yes, I think our position is that electrification will happen, right? It's going to happen over time, perhaps at a slower rate than we had hoped maybe a couple of years ago. We've always had a bit more conservative view at the adoption rate than maybe what the market has viewed. So we're in it for the long haul. We've been developing products for high-voltage applications. We're in a good position there. For us, content, the higher the voltage, the higher the content for us. So as voltages go from 400 to 800 to beyond, those are all positive content opportunities for us. Look, in the fourth quarter, 94% of the EV growth took place in China. And the rest of the market was relatively flat. We're positioned well in China. We have strong relationships with the OEMs. And while the high-voltage side, we have more competition there, we continue to win the low-voltage side and the electronics applications with Chinese OEMs. So even if we don't get all the high voltage in China which we do win but not at the same rate we win in other parts of the world. The content and the growth in EVs in China will continue to be a good story for us in the long term. So I think we're well positioned for that over time. And that's kind of -- we're committed to supporting that as it happens. On the commercial side, it's a lot more variety of approaches that are taking place. And electrification in the commercial side could be everything from electrifying hydraulic mechanisms, let's say, in construction and agriculture equipment which is not necessarily a full EV but electrification of the movement systems in a vehicle, that's great content for us and creates opportunity for us moving from hydraulic to electrical. And certainly, having truck, last mile applications, there's a great opportunity there. We're well positioned there and are seeing nice opportunities in that space. So we're in it for the long haul. We think over the next 5 years, it will continue to be a content driver for us. Predicting the exact pace of it, I think we remain agile and we'll respond to that as the markets evolve.

[Operator Instructions] And we have a question from David Silver with CL King.

Yes. First, let me add my congratulations to Dave on a long successful career and also to Greg. I just would have a big picture question, I'll call it kind of a look back or a look forward type of question. But first, as a sell-side analyst, I know we're often guilty of a very narrow or a short-term focus. Dave, you've been with the company in a very long time and grown up with it, I guess. I was just wondering if you could look back maybe 3 to 5 years, maybe to the beginning of the pandemic, just as a point in time. I was wondering if you might be able to call out 1 or 2 of the longer-term or more structural changes that you have implemented that you would say really positioned your company well here and now looking ahead? And then secondarily, I do wonder if you could maybe point out 1 or 2 of the major challenges or opportunities that you think Littelfuse needs to adapt to or to succeed at in order for it to reach its long-term growth goals?

Thanks, David. And yes, I have kind of grown up with the business, I walked into the doors at Littelfuse when I was 20 years old. So I've spent my career with the company and have learned from a very early stage in the different applications and products and markets that we serve as those have evolved over the years. Certainly, if you look at the last 3 to 5 years and it's been a pretty interesting 3 to 5 years on pandemic situations, the geopolitical situations and things like that have been fairly dynamic. But what I would say is I think the keys for us have been identifying even prior to 3 to 5 years ago, what are the long-term positive megatrends that are going to drive opportunity for Littelfuse, not in the next 3 years but in the next 10, 20 years and making sure we're aligning our strategy to participate and play a role with our customers to support our customers as we go on that journey. And so I think that has been really important for us. Our investments have been in those areas. Our focus has been in those areas. I think they've served us well. And I think looking forward, the reality is those trends, if anything, are stronger today than they were 5 years ago or 10 years ago when we identified them. So we -- I think we continue to be well positioned to participate in these long-term trends. Yes, your question on what challenges or whatever, certainly, I think geopolitical situations create more challenges but we have a really strong team at Littelfuse with strong experience and we're not overly dependent on a singular application or a singular market. We have become more diversified over time. And I think that will actually serve us well as -- we run a global business. That diversification and placement we have and the strength of our capabilities and our products and our team will serve us well and our investors well for quite some time.

Okay, great. Congratulations, again. That's all from me.

That concludes the question-and-answer session. I would like to turn the call back over to David Kelley for closing remarks.

Yes, thank you and thanks everyone for your questions today. That does conclude the Q&A. We hope everyone has a great day. Thank you.