What happened

Littelfuse (LFUS -2.12%) stock fell significantly in morning trading on Wednesday, and was down 11% as of noon E.T. compared to a 1% drop in the S&P 500. Yet shares of the industrial tech manufacturer are still beating the market so far in 2023, up over 20% so far on the year.

Wednesday's decline was partly due to a broader downturn that pushed most tech stocks lower. But the more direct factor was Littelfuse's second-quarter report, which arrived before the market opened.

So what

Sales fell 1% through July 1, and were down by 8% after adjusting for exchange rate shifts and the impacts of recent acquisitions. Those results were slightly below Wall Street's consensus expectations and reflected continued demand pressures on the electronics manufacturing industry. For context, Littelfuse's organic sales were down by the same 8% in its fiscal Q1.

Executives still asserted that the latest figures were encouraging, considering the tougher selling environment. "We delivered solid results in the second quarter driven by our strong operating fundamentals, within an ongoing dynamic environment," CEO Dave Heinzmann said in the earnings release.

Littelfuse's results demonstrated the power of its diverse selling model. The company remained cash-flow positive and generated a solid profit despite its falling sales. Free cash flow landed at $82 million, down only slightly from $87 million in the prior-year period.

Now what

Investors weren't thrilled to see management's modest guidance for the fiscal third quarter. Sales will land between $570 million and $595 million, the executives estimated, translating into a roughly 8% decline year over year. The company experienced a 22% spike in Q3 2022, but Wall Street analysts were only expecting revenue to fall by a modest 2% in the current quarter.

Still, Littelfuse has a clear path toward a return to sales growth as it gains new customers across its portfolio of industrial tech products. New acquisitions are bulking up its semiconductor capabilities in high-growth niches as well. The company's continued positive cash flow also bodes well for long-term shareholder returns.

Yet shareholders should expect more volatility as Wall Street looks for clarity about Littelfuse's growth rebound. There's plenty of uncertainty about both the timing and intensity of that recovery right now, which pressured the stock on Wednesday.