Littelfuse, inc (LFUS) Q3 2021 Earnings Call Transcript

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Littelfuse, inc (LFUS -1.37%)
Q3 2021 Earnings Call
Oct 27, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day everyone, and welcome to the Littelfuse Third Quarter 2021 Earnings Conference Call. [Operator Instructions] At this time, I will turn the call over to the Head of Investor Relations, Trisha Tuntland. Please proceed.

Trisha Tuntland -- Head of Investor Relations

Good morning, and welcome to the Littelfuse third quarter 2021 earnings conference call. With me today are Dave Heinzmann, President and CEO and Meenal Sethna, Executive Vice President and CFO. Yesterday, we reported results for our third 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 2 for our disclaimers. Our discussion 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 in the Investor Relations section of our website. I will now turn the call over to Dave.

David W. Heinzmann -- President and Chief Executive Officer

Thank you, Tricia. Good morning, and thanks for joining us today. Let's start with Slide 4, we delivered a quarter of outstanding performance with our ability to effectively execute within this challenging supply chain environment. Building on our strength over the past several quarters our highly skilled teams are continuously improving our global operations to meet customer demand, and our results reflect their commitment and hard work. We achieved record third quarter performance with sales of $540 million and adjusted EPS of $3.95. Meenal will provide additional color on our strong financial results.

Moving on to performance within our segments. During the third quarter our Electronics Products segment experienced strong revenue growth, our performance was driven by our ongoing operation, operational execution and capacity additions coming online to work through our customer backlog. We drove exceptional production volumes and higher shipments to North America our bookings have been strong. Globally, we continued strength across a broad range of applications, including data center and telecom infrastructure, factory and building automation, appliances and automotive electronics driven by EV applications.

Global sales remain strong, and exiting the third quarter our electronics book-to-bill remained above 1, but we do see some slowing in bookings in China. There is some evidence of electronics and customers building inventory, and distribution partners are working to increase inventory levels, however, weeks of inventory remain lean. Moving on to our Automotive Products segment, we achieved solid growth within a difficult supply chain environment for the passenger and commercial vehicle space, thanks to the hard work of our global teams. Our third quarter performance was impacted by customer shutdowns in all regions with the ongoing chip shortage.

Despite this, our passenger vehicle business grew 13% versus last year, while global car build declined. Our growth was driven by continued content growth in electric vehicles, the favorable mix of higher-end vehicles and share gains in China on low-voltage systems. Although a less significant factor we're also seeing some customer inventory build coming from partially built cars not reflected in car build data, and some inventory build are Tier-ones. There continues to be strong demand across the commercial vehicle end markets. However, we are seeing similar supply chain disruptions across suppliers and customers demand for our commercial vehicle products was driven by strength in material handling, truck and bus and construction and agriculture equipment markets.

Looking ahead, we expect ongoing supply shortages and customer shutdowns. This is further validated by the significantly lower industry car build forecast of 75 million cars, which reflects nearly flat car builds year-on-year. Beyond this noisy backdrop, we see a number of ongoing content growth opportunities across the passenger car and commercial vehicle end markets we serve. Turning to our Industrial Products segment, a number of our core markets continue to show strength during the third quarter, primarily, HVAC, renewables, energy storage and general industrial. Mining continues to improve in non-residential construction and North America oil and gas markets are seeing pockets of recovery. Going forward, we expect continued solid demand with typical seasonal softness in HVAC and MRO markets.

Turning now to acquisition activity on Slide 5. I'm pleased to report that on October 20, we made further progress on our growth strategy with our announcement to acquire Carling Technologies, a global leader in switching, circuit protection and power distribution technologies. With its strong brand name a long history of innovation, quality and reliability Carling enhances our presence and growth in commercial vehicle and telecom infrastructure markets through our complementary engineering capabilities, application expertise and product portfolios. This will allow us to drive deeper engagement with a broader base of customers and distribution partners, enhancing our platform for future growth. We're excited to welcome Carling employees to the Littelfuse team and expect to close the transaction during the fourth quarter of 2021.

Carling will operate within our commercial vehicle business, incorporated in our Automotive Products segment. We look forward to discussing further during our fourth quarter earnings call. Now let's move on to key design wins and the end markets we serve. Within our industrial end markets on Slide 6, we're seeing strong design wins with the growing momentum and sustainability. For HVAC applications, we continue to benefit from the integration of our Hartland Controls acquisition. In North America, we have design win for an industrial refrigeration application and leverage the product from the Heartland Controls portfolio to secure design win for an energy storage application.

We also captured new business for energy storage and renewable energy applications across Asia, Europe and North America. With our reputation for service, reliability and support, we also had industrial safety design wins in North America for oil and gas and mining applications, as well as a ground fault-protection win with the U.S. equipment manufacturer. Turning to our transportation end markets on Slide 7. We leveraged our strong customer relationships and technical know-how to close out dozens of business opportunities in the quarter. We continue to invest in e-mobility and are seeing robust design activity in the EV space, and secured several strategic wins in the quarter.

In India, we had wins for two and three-wheel EV applications with protection products, as well as the temperature sensor for an EV battery management system. We also secured onboard high-voltage EV wins in Korea and Europe, as well as a major win for charging -- for our charging application in Europe. Within commercial vehicles we had an important design win for our high-voltage power distribution module with the European electric bus manufacturer. We secured this win based on our engineering capabilities and successful record on our previous projects. We expect the ongoing push toward electrification to drive significant new business opportunities for us, and we're excited to be a key enabler of a more sustainable and safer world.

Globally, as new OEM programs for traditional passenger vehicles continue to drive greater content for our reliable protection products we secured a wide range of design wins with a broad set of customers. With the ongoing electronification of transportation applications we had automotive electronics wins in the quarter securing new business in Asia for LED lighting, dashboard and camera applications. In Japan and China, we have design wins to protect window, door and seat motor applications. We also secured a automotive sensor win in Europe for our solar sensor applications.

Within commercial vehicles we have several design wins in the quarter, and construction equipment applications. Our strong customer relationships and ability to respond to customers' needs, help secure a win in North America with the global manufacturer and in China, based on our high-quality product performance over a lower cost alternative. We also secured a sensor assembly win in Europe for our heavy truck fuel heater application. In addition, design activities and material handling remain solid. With our deep partnerships we leverage the success of our prior win to expand our business with the European forklift manufacturer.

On to Slide 8, with a strong mix of product features and our reputation for industry-leading technical support, we continue to see robust design wins across a wide spectrum of applications and our electronics end markets. Driven by the ongoing trend toward a more connected world we had two strategic data center wins in Asia, one for a network server application and the other for an uninterruptible power supply application. We secured appliance wins during the quarter in Asia and Europe, and building solutions win in North America.

As the power tool market shifts from combustion engines to electrification with the focus on sustainability we are seeing expanded content opportunities for our products. With rapid technical support, we have design wins for power tools in Asia and in North America and separately, in Europe, we secured a silicon carbide opportunity for power supply application on a semiconductor manufacturing tool. Across the high growth industrial transportation and our electronics applications we target, serve and support we are building a pipeline of new business opportunities that aligns with our long term growth strategy.

As we continue to work closely with our customers we remain well positioned to provide innovative solutions and technical expertise they required in a power of sustainable, connected and safer world. These value-added attributes will enable us to secure a new business opportunities and ultimately grow our collective businesses for the long term. I will now turn the call over to Meenal to provide additional color on our financial performance and outlook.

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Thanks, Dave. Good morning everyone, and thanks for joining us today. Let's start with Slide 10, sales in the quarter were a record $540 million growing 38% versus prior year and 3% sequentially. GAAP operating margins were 22.3%, while adjusted operating margins were 22.8%, up 330 basis points sequentially. Operating margins in related incrementals were exceptionally strong this quarter driven by strong performance from our Electronics segment. Third quarter GAAP diluted earnings per share was $3.69 and adjusted diluted EPS was $3.95, up 83% over prior year and 16% sequentially. This included a GAAP effective tax rate of 19% and an adjusted effective tax rate of 17.6%, 160 basis points higher than our forecast due to the mix of income across geographies.

While we see ongoing supply chain challenges in the marketplace, we've been able to meet demand needs through capacity additions and the exceptional performance of our operating teams globally. Input costs from metals and other materials, as well as transportation costs continue to be the biggest headwinds and we expect a full year impact of about 300 basis points from these. We are mitigating about half of these headwinds through our pricing actions with some additional offsets coming from lower than typical levels of discretionary spend in the ongoing COVID environment. We generated $114 million in operating cash flow and $89 million in free cash flow in the quarter.

Year-to-date, we've generated $183 million in free cash flow a 79% conversion from net income. While our working capital metrics remain in line with our expectations in this environment cash generation year-to-date has been moderated by about $100 million from working capital growth including holding additional stock of critical raw materials. With the level of sales growth driving this increased working capital we expect our free cash flow conversion to be lower than 100% of net income for the year, but our five-year free cash flow conversion target of 100% remains unchanged.

Moving on to our segments on Slide 11, I'll start with electronics. Sales were a record $347 million, up 36% versus last year and up 7% sequentially. Sales were stronger than we expected, as we work through backlog largely across our passive components while driving continued growth. Operating margins in the quarter were 28.9% our strong margins were a result of favorable regional and product mix at these robust volume levels, as well as benefits from price realization. Automotive sales were $124 million in the quarter up 19% versus last year and down 7% sequentially. Growth across our commercial vehicle products with 38% over last year.

We saw continued strength across a number of commercial vehicle markets, especially North America and Europe though mitigated in part by customer supply chain challenges. Sales in our passenger vehicle products grew 13% versus last year despite car builds declining over the same period due to the ongoing chip shortage. We continue to benefit from strong content growth due to both vehicle mix and growth in electric vehicles, as well as some customers maintaining additional inventory of our products. Operating margin for the segment were 12.7%, the continued high metal prices affected margins by over 300 basis points versus last year.

As we've discussed in the past this segment is impacted the most by higher commodity prices due to product content. Sales for the Industrial segment of $68 million grew 116% and 5% sequentially, with operating margins of 9.7%. The segment experience and supply disruptions in the quarter that unfavorably impacted production levels and margins excluding Heartland margins for the segment were in the low-teens range. We are working toward our high -- our -- we are working toward our high-teens margin target for the segment as we continue our integration efforts for Heartland.

Turning to our fourth quarter outlook on Slide 12, and customer demand remains strong. We've incorporated currently known challenges across manufacturing and supply chain operations into our forecast including across our customers and suppliers. We also assume there are no new material disruptions from COVID. We expect fourth quarter sales in the range of $503 million to $517 million, up 27% versus last year. We expect to be down 5% sequentially at the midpoint, closer to our typical seasonality with sales down across all of our segments.

We project fourth quarter adjusted EPS to be in the range of $2.80 to $2.96, this assumes an adjusted effective tax rate of 18.5% for the quarter. The fourth quarter EPS midpoint is down 27% sequentially and up 29% over prior year. Our forecast reflects the impact of sequentially reduced volumes across all of our businesses and more typical product and geographical mix across the Electronics segment. The forecast also includes a 14th week due to our reporting counter. As this is during the holidays we expect sales and profitability in that week to be lower than normal. Also our forecast does not include any impact from the pending Carling acquisition, and we don't expect it to have a material impact to our fourth quarter results. We'll share further details on Carling our fourth quarter earnings call.

For the full year, we are projecting a tax rate of 17.5% and capital expenditures of approximately $80 million to $85 million. And with that, I'll turn it back to Dave for some final comments.

David W. Heinzmann -- President and Chief Executive Officer

Thanks, Meenal. Before concluding, as highlighted on Slide 13, I'd like to mention that we have published our 2020 sustainability report, which is available in the Investor Relations section of our website. Report highlights are commitment to environmental social and government's initiatives. We have focused our efforts on creating a solid foundation for our sustainability program to ensure future success, as we work toward the goal goals discussed throughout the report. We are pleased to share our progress and look forward to providing future updates, as we strive for continuous improvement on our sustainability journey. In summary on Slide 14, year-to-date, we have delivered exceptional performance within an ongoing challenging environment, we continue to closely monitor supply chain challenges across our suppliers and customers and have proven our sound business fundamentals enable us to strategically grow. As we near the end of a challenging 2021, we are poised to achieve significant revenue and earnings growth for this year, and remain well positioned to deliver ongoing superior value for our stakeholders. And with that, I will now turn the call back to the operator for Q&A.

Questions and Answers:

Operator

[Operator Instructions] Our first question will come from the line of Luke Junk from Baird. You may begin.

Luke Junk -- Robert W. Baird -- Analyst

Good morning. Thanks for taking my questions. First, maybe a question for Meenal. Wondering if it would be possible to provide sort of just a high-level margin walk from a longer term range for electronics margins to this quarter's results. I don't know if you can put some of the factors that you spoke to in the prepared remarks into buckets. Essentially, what I'm trying to tease out here is, what might be sustainable if higher absolute levels of activity persist versus what was likely more one-time in nature of this quarter? Thanks.

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Sure. Luke. So, just stepping back. We had definitely very strong sales, very strong margins across Electronics segments in the quarter. I call it, all the stars aligned really for the quarter on this. To your point on bucketizing it, I mentioned favorable product mix, both geographic or regional product mix and as well as on the product side, I think is about two-thirds of it, and I would say that was a typical forklift, which really drove that strong margin profile we had. I'd say another third came from a combination of these stronger volumes that we saw much higher than we expected. A big part of that was coming from us really working to clear out backlog that we've had, as well as it is with all the supply chain choppiness going on, we had some -- at very, very late in the quarter, we had some deliveries that basically came through to customers and so revenue got recognized that probably would have been in the fourth quarter on that.

And then I'd say, part of that last there is also price realization. We've been talking about pricing that we've been taking a lot of pricing actions, and you can see the benefit of that both significantly in the Electronic segment just because of our go-to-market strategy there.

Luke Junk -- Robert W. Baird -- Analyst

Okay. That's really helpful, thank you for that detail. Maybe a question for Dave, in terms of distributors in the Electronics segment. Just wondering your view on the appetite for inventory restocking. You'd mentioned inventory at distributors. In your comments what that might look like is the industry theoretically catches up to demand from a supply standpoint distributors. Obviously a big part of electronics business, what are you hearing from them? And ultimately, how meaningful whichever could this be if we start looking out into 2022? Thanks.

David W. Heinzmann -- President and Chief Executive Officer

Sure, and thanks, Luke. Obviously, I within the electronics we watch very carefully to look for our kind of signs of inventory building and things like that. We've talked openly about back then on average for our distribution partners on electronics portion of our business. Weeks of inventories on a normal range is 11% to 14%. It remains lean today, obviously our distribution partners would like to build more inventory, and they have orders on us to do that in some cases, but sell through continues to be very robust. So really, there's not a lot of inventory build yet in the channels there. With that said, there clearly is some evidence that some of the EMS partners and some OEMs are trying to carry some heavier inventory positions than normal. So there are pockets out there where there is some inventory build, right now, it's not really in our, in our distribution partnerships yet, so we continue to watch that. So there certainly, they have an appetite to try to increase that, and so we'll see how that develops in the coming quarter.

Luke Junk -- Robert W. Baird -- Analyst

I'll leave it there.

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Yeah, thanks, Luke for your questions. We'll take our next caller please.

Operator

Our next question comes from the line of Karl Ackerman from Cowen. You may begin.

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Good morning, Karl.

Karl Ackerman -- Cowen & Co. -- Analyst

Hey, good morning. Thanks everyone. Congrats on the results. If I may, I'd also like to discuss electronics. How much of the uplift in electronics is coming from automotive electronics being sold into battery electric vehicles and hybrids? I guess what I'm trying to understand is, how much of the uplift in electronics operating profit this year, and also this quarter has been driven by new products that arguably carry higher than corporate average profitability? Not just today, but also going forward.

David W. Heinzmann -- President and Chief Executive Officer

Yeah. So I'll take that. Karl. I think clearly, we're seeing automobile electronics being one of the growth drivers within our Electronics segment. Along with several other end markets that are quite robust whether it's datacom applications, telecom infrastructure those appliances building and home automation sorts of things there is a lot in end markets that are pretty robust. Automotive electronics is certainly there. And while on broad-based applications car builds are pretty soft. Obviously a lot of that growth is coming from electrification applications there. I would not say that the automotive electrification opportunities have a margin profile above our norms, so new products are always important for us to sustain high margins in our business and electronics, so continually rolling out new versions, new products and new introductions keeps our margins up. That's a key part of our strategy, but I don't think automotive electronics is kind of out driving that at this point.

Karl Ackerman -- Cowen & Co. -- Analyst

Understood, thanks for that. If I want to shift to free cash flow and balance sheet if I may, inventory days on your balance sheet rose I think roughly 10% sequentially that's 96 days that appears to be largely in line with where inventory has been in the past. And so, I guess my question is, are you comfortable with the amount of inventory you have on your balance sheet today to support existing customer demand? And then secondarily, how might we think about working capital flow through both in the calendar Q4 and early part of 2022, as you start to attain some of that order backlog from customers?

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Thank you. Sure. So here in generally, I've talked about in the prepared remarks that we've seen about $100 million of cash flow tied up in working capital since the beginning of the year, but 70% of that coming from inventory, and we've seen about a 10-day increase in our days of inventory on hand. What I would say, just from a dollar perspective about a third of that increase is really just because of those higher level of sales we have, so that doesn't impact the days. And I would say the rest, it's really two main drivers. One, really being again into the prepared remarks I mentioned with raw materials, we aren't shutting our businesses and that come back to hold excess inventory of critical parts exactly, so we can support customers for things that are a little harder to get or where we feel like there are some supply chain issues that we want to get ahead of.

And then the second piece is just with all again, supply chain choppiness. We're seeing of course longer transportation times, some logistics bottlenecks. We have where we can from a cost perspective, migrated transport to ocean as well and so that extended the amount of inventory we have sitting out there. So that's probably the other factor that's out there. I think as things start to normalize in some of those areas we will definitely work on bringing that down. And then maybe your last question on just other types of working capital. I would say, the rest of the working capital build largely in receivables shift line with sales at this point. Our metrics are well in line with what they've been in the past on day sales outstanding etc. then we will start to level off would be a more even flow from a cash flow perspective.

Karl Ackerman -- Cowen & Co. -- Analyst

Very helpful, thank you.

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Hey, Karl. Appreciate your questions. We'll take our next caller, please.

Operator

Our next question comes from the line of Christopher Glynn from Oppenheimer.

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Good morning, Chris.

Christopher Glynn -- Oppenheimer -- Analyst

Hey, good morning. Congrats on some fine numbers there. So I'm surprised that everywhere you call out kind of mix to this extent to the electronics sometimes mix can have a little bit of a fundamental secular pivot too, and that may be the case at automotive, right now. But given over 100% sequential incrementals and approximately 100% decrementals implied 3Q to 4Q I 'm curious if we could just spend a little more time on that?

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Sure, Chris. So similar to the earlier question we got about this, I would say, again, the bulk of the outside margin that we experienced this quarter across the Electronics segment where it was again I'll call it the stars aligning. I know a lot of people talk about mix, but for us in terms of the product mix within this segment, we've got a lot of different product lines and we happen to see some stronger sales in the more favorable margin product lines that we have. And then also David commented in his prepared remarks, we had some stronger demand in North America, and again, that's favorable mix for us.

So it just happened to be with the competition in the quarter that is really the bulk of the favorability that came through. And I would also say, the comment on volumes and we're guiding sequentially down, which again a very typical for us with the normal seasonality way, buying patterns work and so we had some outside outsized volume again comes through this time with the transportation choppiness going on, and we had have some customer receipts clear in the third quarter we were expecting wouldn't happen until the fourth quarter. So that's where I come back to. We've always talked about our target margin profile can usually sometimes be over 20%, but we never quote hey, well, we've going to have the same margin every quarter this segment goes through upcycles downcycles, and so we're looking at the multi-year, multi-quarter average, which can be around 20% or so, and we're going to have some outside and some downsize quarter part of that.

Christopher Glynn -- Oppenheimer -- Analyst

Okay. Great. And the silicon carbide when caught my ear. I'm curious if you could just put that into context of your overall overall initiative around SiC car?

David W. Heinzmann -- President and Chief Executive Officer

Yeah. Silicon carbide, I've talked about that in the past. We see it as the critical part of our product offering in our power semiconductor business. So as we talked, target medium and high power applications silicon carbide obviously create some advantages within that. And while we're not kind of all in, if you will, on silicon carbide going after the kinds of capabilities and volumes to support maybe traction drives and passenger car, we targeted other areas where we bring unique value, this happen to be the case it was a semiconductor manufacturing equipment. And we've got a nice design win in the power supply systems within that certainly growing market these days, and so it is a good win there where we brought some unique value.

Christopher Glynn -- Oppenheimer -- Analyst

Thanks. Just last one, if I may. As you looked for electronics, as you look at your book-to-bill fulfillment and sell-through various factors how would you assess the signals for your early read on top line expansion prospects for '22?

David W. Heinzmann -- President and Chief Executive Officer

So certainly, those are all the questions we happen to have in an event last night where many of our senior leaders from distribution partners and rev partners. and so we had a lot of discussions around that. And what I would say is, the fundamental of underlying drivers of the demand profile continue to look pretty robust. So we don't really see near-term changes to those fundamental drivers. Obviously, it's a pretty hot market for us now, and their shortages out there and things so we watch very carefully for inventories, builds and things like that, like I spoke about earlier. I think we're pretty optimistic about what 2022 looks like in the electronic side of the business, as well as the overall business. But certainly electronics, we tend to be pretty optimistic about next year.

Christopher Glynn -- Oppenheimer -- Analyst

Thanks for the candor.

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Next question.

Operator

Our next question will come from the line of Nick Todorov from Longbow Research. You may begin.

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Hi, Nick.

Nikolay Todorov -- Longbow Research -- Analyst

Yeah, hi, thanks. Yeah. Thanks and good morning, congrats on great results. I also have a question around the whole electronics margin and kind of stepdown sequentially in the four quarter. So if you look and compare the results versus the June quarter, which are kind of comparable in terms of volume to the December quarter, it still looks like the decremental on the gross margin and operating margin line is about 80%, which is quite a bit above normal. And I think you spoke about a third of the improvement coming out from price, which it doesn't show up at least in the December quarter. Are you seeing incremental price pressure in the December quarter or how should we square the fact that margin, operating margin is coming down, all the way to give it about 18% versus 19.5% in the June quarter?

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Sure. So on the decrementals, and really what you're looking at it from a company perspective we gave just some general color that all of our segments would be sequentially down on sale, but the decrementals are really total company. But I would say is, if you look at Q2 versus Q4, a couple of big factors that we've been talking about. One is, with sales down our production volumes are also down versus the second quarter. So, we've talked about a number of times, we get good leverage on production. So when production levels are down, not just necessarily electronics, but all of us are Automotive segment as well as our Industrial segment we're seeing the unfavorable leverage impact on that.

And if you look at the trend on both metals, pricing on metal, which is what a big headwind for us that have been talking about for some time those costs are up also over that period of time, as well as the logistics costs that, those have gone up over the past couple of quarters as well. Then I would say, lastly, I talked about the fact that our reporting calendar includes that 14th week, which we expect to be pretty weak in sales I think we've been pretty weak in profitability as well because you take an entire week of expenses, but its a kind of a sub-week on sale. So the combination of all that is really what's driving the decrementals to look as they are.

Nikolay Todorov -- Longbow Research -- Analyst

Okay, makes sense. Also can you talk about cost increases? So I think you mentioned that you've passed half of the inflation cost you've seen. Is that across the company or is that in certain segments? How much your cost have you pass-through in automotive? And how much do you expect to pass-through at the beginning of '22 and potentially negotiate new contract?

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Yeah. So the number that quoted were really total company, but as a recap, I talked about for the year from where things are at right now, we're looking about to be 100 basis point headwind largely due to the metals, the metal's pricing year-over-year as well as just the increased cost from a logistics standpoint. I think from a company perspective we're offsetting about half of that from price, it's still consistent with what I mentioned in the past couple of quarters that we really see much more of the pricing benefit coming through our Electronics segment, again because of our go-to-market strategy, very heavy, heavier and distribution where the price increases came through. And to the other end of the spectrum is across the Automotive segment whether that's in our passenger vehicle maybe in commercial vehicle businesses lot of long term contracts in place with a number of different OEMs and so pricing moves a lot slower.

And, yes, as we go through contract negotiations, as they are coming through we are absolutely looking at relooking at all the pricing and clauses of that, but we're going through those contract by contract. So we definitely will move slower.

Nikolay Todorov -- Longbow Research -- Analyst

And maybe a last question, how should we think about the Carling Technologies' accretion and impacts on profitability at once it comes on board? And also can you talk about what products that are coming from Carling are incremental to your portfolio, and what is complementary?

David W. Heinzmann -- President and Chief Executive Officer

Yeah. So let me talk a little bit about the products and what's complementary for our business, and then Meenal could speak to the financial aspects of it. But Carling we're quite excited about the acquisition. We think it's a very strong fit into our business and to our strategy. It will roll up Into our commercial vehicle portion of our business, which is within the Automotive segment. The product, technologies they bring. They're one of the leading brands and companies and switching for the commercial vehicle space particularly strong here in North America, but also pretty strong in Europe and Asia. So we have a switching offering within our commercial vehicle today. It enhances that specifically and really takes on a leadership position now in the commercial vehicle space.

They also do some power distribution systems within commercial vehicle, also an area where we've been growing nicely, so it is very complementary there. They also have an offering of circuit breakers that are really largely targeted to the telecom infrastructure space. Again, another market where our business is very focused. So, it fits very well, enhances, add scale, allows us to bring more capabilities to our customers.

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Yeah. And on the question on financials, we're at the point in the transaction where we've just signed the deal, we're in the midst of regulatory approval right now. And so I can't answer, but right now now two companies we're operating independently and so really, our plan is to provide a lot of the financial details. I know you and others are looking for in our fourth quarter earnings call.

Nikolay Todorov -- Longbow Research -- Analyst

Got it. Thanks.

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Thanks, Nick. Appreciate your questions. We'll take our next caller, please.

Operator

Our next question comes from the line of Matt Sheerin from Stifel. You may begin.

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Good morning, Matt.

Matthew Sheerin -- Stifel Nicolaus -- Analyst

Yeah. Good morning. I just have one question, just regarding your comment about capacity adds. Certainly, being back so could you do -- could you be more specific about what -- in terms of where you've been happening capacity? And how that is impacting your lead times? Because I know, lead times in the products across your portfolio have been stretched and that's led to obviously very strong bookings in book-to-bill, and perhaps some double ordering. So I'm wondering what times look like? And how you expect bookings to adjust accordingly?

David W. Heinzmann -- President and Chief Executive Officer

Yeah, Matt, clearly, having the capacity in place to serve our customers is a critical part of of our business. So I talked about this maybe in the past where our business is not particularly capital intensive. So, therefore, part our strategy is always to try to have some flex capacity in place. So when we do see in cyclical markets an uptick in demand that we can flex up better than most. Because what we find is, we'll pick up some share during the up cycle, and while we won't this necessarily maintain all of that because of our better ability to serve, we do some of that share we retain when the cycle normalizes. So it's a key part of the strategy.

We've been adding capacity, really kind of across the board, and in all segments of the business we've been adding capacity. Quite frankly, if we could get delivery of some of the components and equipment that we need we'd add it faster. But just like the other parts of the business have some limited ability to add a capacity and speed you would like to, with that said, we're beginning to get some of that capacity online. And although our lead times have stretched they're kind of flattened out now, so they're no longer today stretching further, so they're kind of leveled off, and we think that's kind of the first time. And so I think we generally are a pretty healthy in our ability to serve that need.

Matthew Sheerin -- Stifel Nicolaus -- Analyst

Okay, great. I do you have one other question, just regarding your opex, which was down sequentially, and you talked Meenal about the reasons behind that. As we looked at the December quarter you've got an extra week of expenses, as you said. So should we expect to actually absolute inventory, I'm sorry, opex dollars to be up sequentially?

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Yeah, that's also in general part of the margin detrimental question, that I answered earlier. It's going to be a little bit higher expenses than we would normally see just because of the weak sales quarter when you look on a percent of sale basis scratch.

Matthew Sheerin -- Stifel Nicolaus -- Analyst

Okay, thank you.

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Thanks, Matt for your questions.

Operator

Our next question from the line of David Kelley from Jefferies.

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Good morning, David.

David Kelley -- Jefferies -- Analyst

Hey, good morning, team. Thanks for taking my questions. I believe, you noted some Tier 1 and partial vehicle builds in autos. Just curious as to how meaningful you think that build is? And maybe put another way, do you see any change to your targeted outgrowth algorithm in autos you made the coming quarters?

David W. Heinzmann -- President and Chief Executive Officer

Sure. Yeah. I think certainly, it's well known that there are a lot of vehicles that have been produced minus maybe some modules and things like that that are sitting out are got half finished or 90% finished. So clearly, in those types of vehicles most of our products are in those vehicles ready to go, but they're not reported as car builds, so it affects kind of that growth over car build number. And while we don't think it was a significant part of our third quarter. In fact, there was some inventory impact there.

If you look back over the last 12 months. So let's say, the last four quarters as a whole because that's when we kind of started to see some of this. And like you look back or we began talk a little bit about this in the fourth quarter last year it's an imperfect number. Because you kind of have to back your way until we don't have perfect visibility. We would probably estimate that from inventory builds within the automotive market over the last 12 months it's probably in that $20 million, maybe as high as $25 million with the inventory build during that period of time.

We easily level loaded across that time, not necessarily all done in one quarter, so clearly there is a higher level inventory there. Some of that will kind of get cleared out in the math when they finish vehicles and put them on the lots. And then the others really sitting mainly at Tier ones where they've been instructed by the OEMs to carry a heavier inventory position in order to support the ability to ramp up, as possible. Some of that will work itself back out over time. We don't really know when that might be. And our conjecture right now is, it probably doesn't all work itself back up.

Some level of that becomes a bit of the new normal of how to operate in a pretty disruptive environment, and supply chain. So we will see some of that kind of work its way back out over time. But as far as impacting our outgrowth sort of algorithm, if you will, we've had very strong outgrowth certainly some coming from distribution or not distribution but inventory, but also vehicle mix. The focus on higher end vehicles, the focus on EVs, those are all higher content for us that's been quite favorable for us. We've got some wins that have allowed us to actually gain some market share and some pockets as well. So I think we're in a positive trend, certainly on our algorithm.

David Kelley -- Jefferies -- Analyst

Okay, got it. Thank you. That's really helpful color. And then just switching gears two sizable acquisitions now year-to-date. How should we think about ongoing M&A appetite? Just given your earnings power and what feels like really strong free cash flow visibility year end?

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Yeah. We've been been talking about for a while that back in 2020, we will make sure we were gearing up and we have the balance sheet, so that as the M&A activity pick back up over the past 12 to 15 months and we were going to be ready for that, and so, two acquisitions that's what we were hoping for to find some nice bank acquisitions to pick which we have. And really there is no change to our ongoing strategy on acquisitions. We continue to look, the balance sheet remains strong, from a debt leverage perspective still quite well. So it gives us the opportunity to really take a look at a lot of different assets out there.

And for us, we talked about a number of different end markets that we would look at ranging from commercial vehicles we talked about industrial end markets, of course, we look at electronics type businesses that tuck into what we have today, and so we continue with our activity on that front still our priority and that's our goal of first use the cash then the acquisition.

David Kelley -- Jefferies -- Analyst

Okay. Great. Thanks so much, Meenal. Appreciate it.

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Thanks for your questions, David. We'll take our next caller, please.

Operator

Our next question comes from the line of Christopher Glynn from Oppenheimer. You may begin.

Christopher Glynn -- Oppenheimer -- Analyst

Hey, was just looking for an update on the capacity shift in expansion for electronics into the Philippines. How that's going? And how we might consider the -- either cost savings or productivity throughput impacts, as the timeline progresses?

David W. Heinzmann -- President and Chief Executive Officer

Yeah, so clearly there is a lot of footprint work we've been doing in the power semiconductor business, and we've talked about that quite a bit. The new factory location has been completed. We've been qualifying lines, as we've importing them. And I would say it's a challenging environment to do that. First of all to take the equipment as quickly as you'd like. Secondly, customer approvals can take a long time. And in today's world that is all done virtually. And get the customers in for visits because of the COVID situations, so that kind of put some challenges to it. But with that said, we're kind of pretty well on track. We see that's kind of including into the Philippines and getting the bulk of that kind of mid to late next year. And so the bulk of the impact and the pickup of that will happen going into 2023. And there is ongoing work beyond that as well, as we continue to work on our footprint and our cost position to be as competitive as possible in the power semiconductors side.

Christopher Glynn -- Oppenheimer -- Analyst

Great, thank you.

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Thanks, Chris, for your question. That concludes today's call. Thank you for joining us and your interest in Littelfuse. We look forward to speaking with you during the Baird and Stifel conferences. Have a great day.

Duration: 50 minutes

Call participants:

Trisha Tuntland -- Head of Investor Relations

David W. Heinzmann -- President and Chief Executive Officer

Meenal A. Sethna -- Executive Vice President and Chief Financial Officer

Luke Junk -- Robert W. Baird -- Analyst

Karl Ackerman -- Cowen & Co. -- Analyst

Christopher Glynn -- Oppenheimer -- Analyst

Nikolay Todorov -- Longbow Research -- Analyst

Matthew Sheerin -- Stifel Nicolaus -- Analyst

David Kelley -- Jefferies -- Analyst

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