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Littelfuse Inc (LFUS) Q3 2018 Earnings Conference Call Transcript

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Littelfuse Inc  (NASDAQ: LFUS)
Q3 2018 Earnings Conference Call
Oct. 31, 2018, 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 2018 Conference Call. Today's call is being recorded. At this time, I will turn the call over to Head of Investor Relations, Trisha Tuntland. Please begin.

Trisha Tuntland -- Head of Investor Relations

Good morning, and welcome to the Littelfuse Third Quarter 2018 Earnings Conference Call. With me today are David Heinzmann, President and CEO; and Meenal Sethna, Executive Vice President and CFO. This morning, we reported results for our third quarter, and a copy of our earnings release is available in the Investor Relations section of our website. A webcast of today's conference call will also be available on our website.

Our discussion today will include forward-looking statements. These forward-looking statements may involve significant risks and uncertainties. Please review today's press release and our Form 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 Heinzmann -- President & Chief Executive Officer

Thank you, Trisha. Good morning everyone and thanks for joining us today. Sustained momentum in our Electronics and Industrial segments drove solid third quarter results, as we achieved 8% organic revenue growth. Our adjusted earnings per share of $2.49 was above the top end of our guidance and a 17% increase over last year. Our efforts drove another very strong quarter of cash generation, year-to-date we have generated nearly $200 million of free cash flow, bringing our cash position to $500 million. Our strong balance sheet provides us with the financial flexibility to continue delivering on our 5-year double-digit growth strategy.

With that brief introduction, I will turn the call over to Meenal, who will provide some additional color on our third quarter results.

Meenal Sethna -- Executive Vice President & Chief Financial Officer

Great. Thanks, Dave. Now, some highlights from our third quarter of 2018. We continued our growth trajectory in the third quarter with sales of $439 million, growing 38% over last year and 8% organically. Organic sales growth was led by both our Electronics segment at 12% and Industrial segment at 10%.

Our Automotive segment was up 1% as we saw market weakness in both Europe and China, both of which experienced year-over-year declines in car build. Our IXYS business also had another record quarter of nearly $100 million in sales, growing 14% over last year. Foreign exchange to the point of our sales growth, mainly from a weaker Chinese RMB in Europe.

GAAP operating margins finished at 17.4% while our adjusted operating margins were 19.9% for the quarter. We saw continued leverage from volume growth, particularly from our Electronics segment as well as improvements from our ongoing deployment of the Littelfuse operating system. With the foundation in lean principles, our operating system continues to enhance our capabilities in our existing business operations and establishes a framework for new and acquired operations.

Our GAAP diluted EPS was $2.10, which grew 12% over last year. It included $10 million in after-tax charges, mainly due to restructuring, purchase accounting and integration costs associated with the acquisition of IXYS. Adjusted diluted EPS was $2.49, which grew 17% over last year. Growth was led by the strong operating margin I noted, as well as improving operational performance and continued synergy execution across the IXYS.

Our GAAP effective tax rate was 21.5% for the quarter and our adjusted effective tax rate was 21% consistent with our guidance. Let me provide some additional performance highlights by business. The Electronics operating margin for the quarter was 24.4%. We've seen a continued sequential margin improvement this year, as we continue to integrate the IXYS business.

Overall, our Electronics margin has been running stronger than historical averages due to increased volume, weaker foreign currencies, primarily in China, and limited pricing pressure. Auto operating margins finished at 9.5%. The Q3 demand softness exaggerated a normally expected seasonal decline and contributed to unfavorable leverage.

We also noted last quarter that we are in the midst of several new product and technology launches across our automotive sensor business. The production inefficiencies and increased resources needed during new product launches have contributed to the drop in profitability. This is an area we are focused on improving over the next few quarters.

Our Industrial segment achieved a 14.6% operating margin for the quarter, 130-basis point improvement versus last year. We are pleased with the ongoing performance of the business as profitable growth across new markets continued to expand margin. We continue to be a strong generator of cash with the operating cash flow for the quarter of $111 million. We reinvested $16 million back into the business in capital expenditure, much of which was earmarked for adding capacity due to our robust growth. We finished at $96 million in free cash flow for the quarter.

So far this year, we generated nearly $200 million in free cash flow, a 48% growth over last year and well over 100% conversion from net income. We also continue to pursue working capital improvements in our IXYS business, including a focus on increased payable days to improved payment terms. Our capital allocation position is well aligned with our strategy. We finished the quarter at 1.8 times on a gross debt to EBITDA basis.

With $500 million of cash on hand from our robust cash generation this year, our net leverage is well below 1.0 time. During the month of October, we've repurchased 200,000 shares at just below $180 per share. As we've stated in the past, our share buyback philosophy tends to be opportunistic and we are more likely to buyback our shares when we feel they're undervalued in the market.

Well, share buyback is an element of our capital allocation strategy, it doesn't change our priority on acquisitions. We continue to cultivate new opportunities to expand our acquisition funnel. The breadth of our portfolio and strength of our balance sheet allows us to explore a broader range of acquisition opportunities.

Overall, we're very pleased with our performance to date this year. Through the third quarter, we've grown sales 44% with organic growth of 10%. Our consistent operational execution has been a key driver for our adjusted operating margin of over 19%.

And with that, I'll turn it back to Dave for more color on business performance and market trends.

David Heinzmann -- President & Chief Executive Officer

Thanks, Meenal. We will start with our Electronics segment. In the quarter, we recorded sales of $296 million, up 69% year-over-year, driven by strong broad-based industry demand. Organic sales growth for Electronics was 12% led by strong performance in North America and Asia. We continue to see solid end market demand and sell through driven by content increases and particular secular strength in industrial electronic, telecom, data center and cloud infrastructure and automotive electronics.

We exited the third quarter at a book-to-bill of 0.91 excluding the IXYS business. We've seen some recent slowing in orders across our passive components, as distributors rebalance their inventories heading into year-end. While, distributor inventories of our passive products may be at the higher end of our typical range, overall inventories continue to be within our expected range.

We continue to closely monitor distributor inventory versus their sell-through. When it comes to design wins for our electronics products, the global mega trends toward a safer, greener and more connected world remain a foundational driver of our business. Our Protect Control and Sense portfolio generated more than $27 million in design wins in the quarter, across a wide range of end-markets.

Appliances continue to be a growth focus for us, as new features and increasing sophistication require many of our products. We had wins for sensors used to ensure safety and efficiency in a variety of life goods and home appliances. With last year's acquisition of U.S. sensor, our line of temperature sensors extends our reach. One of the new business wins in the quarter was for vacuum cleaner application, meeting the high technical standards of this global manufacturer was a very positive development and expands our capabilities for higher volume opportunities.

The growth of connected devices, is driving design wins across our product portfolio. For example, we had a key win for a new Internet-enabled video doorbell. As the demand for activity continues to grow, so too does the need to store and process that data, which drives meaningful content in the data center and cloud infrastructure space, one of our strategic growth areas. We also had several key design wins in the quarter related to wireless infrastructure upgrades to 5G systems.

The IXYS acquisition continues to expand our reach into industrial electronics applications. We had key design wins in the quarter for our power semiconductor products used in propulsion systems for railways locomotives, as well as marine drives for electrified ocean-going vehicles. The ongoing global focus on energy efficiency and energy storage leverages our broad portfolio. We had a key design win for pumped hydroelectric energy storage systems and also secured a design win to protect control wind turbine generators. This particular win was a well-established Littelfuse customer, highly familiar with our circuit protection reputation. This opened the door to expand our offering and provide power semiconductors from the IXYS portfolio.

This is just one small example as tremendous cross-selling opportunities we see from the IXYS acquisition. We continue to make significant strides forward with the IXYS integration, consolidating our combined sales force and distribution partnerships gives us one phase to our customers, allowing us to leverage the breadth of our portfolio for new wins.

By the end of this year, we'll be more than 40% complete toward our $30 million run rate synergy target. Another strategic area of focus in our Electronics segment is our investment in silicon carbide, a promising semiconductor material that enables more efficient power conversion. In October, we completed the acquisition of Monolith Semiconductor and now own 100% of the company.

Silicon carbide allows us to build on a very broad portfolio of products to address the medium to high end side of the growing power electronics market. The total available market is sizable and we see meaningful design activity and wins for these products across our regions with significant interest for automotive applications. We had a key design win in the quarter to provide our silicon carbide power semiconductors to a European supplier of electric motors used in industrial vehicles. We also had several other silicon carbide design wins in China for EV charging applications.

We continue to see strong content momentum in automotive electronics which includes many of our core electronics products designed specifically for the high reliability requirements needed in traditional autos and electric vehicles. This quarter we had several design wins within the electric vehicle space such as battery management systems and on-vehicle charging. We also secured wins from more traditional body, safety and power train applications such as window lift controls, braking systems and engine management systems.

As a result of the electronics -- as I wrap up the Electronics segment, we remain confident on the long-term secular trends driving growth opportunities across the segment. As electronification take shape in the end markets we serve, we remain well positioned to provide our customers with the solutions they need for safer, greener and more connected world.

Next I will cover the Automotive segment. We had sales of $114 million for the quarter. Our automotive sales increased 1% on flat global auto build, while content opportunities drive the growth of this business, our growth was negatively impacted by WLTP in Europe, a worldwide light vehicle testing procedure that delayed production, soft auto production in China and a significant onetime program last year with the German OEM in our fuse business.

Automotive sensors achieved strong revenue growth in the third quarter, but performed below our profitability expectations. As Meenal mentioned, we are incurring higher costs associated with new program and technology launches. We will improve profitability and remain focused on the business meeting our long-term operating margin expectation. Our Commercial Vehicle Products business or CVP, delivered strong revenue growth this quarter with good demand across all geographies.

We made inroads in Asia in the quarter, as we look to gain traction in that region. The high growth material handling market also represents a significant top content opportunity for CVP. The momentum toward safer, greener and increasingly more connected vehicles up to drive more than $12 million in design wins across our automotive segment. We had several design wins for our traditional fuse products within North America light truck manufacturer and a win with the Japanese automaker to protect power window motors. For automotive sensors, we had design wins in Europe for solar sensors used in climate control systems as well as a position sensors used for power tail gate.

In China, and we also had solar sensor wins and added a speed sensor win used in dual-clutch transmission. In CVP, we talked in previous quarters about design wins with the North American manufacturer of specialty trucks. We've built a great relationship with this customer and have become a trusted design partner. We won additional new business with this company for a semi-custom power distribution module, one of our strategic growth opportunities.

Our solution allows for fewer connections improving reliability, reducing weight and helping the customer lower overall costs. Beyond power distribution modules, we recently won new business to design and one of our ruggedized switches across the entire vehicle lineup. Overall, we have been successful this year leveraging secular trends to grow in excess of car build, growing sales 10% to-date across the automotive end market. We continue to see meaningful long-term content opportunities and our confidence that our great customer relationships and broad portfolio of solutions will continue to drive growth beyond global car build.

Next, we will cover our Industrial segment. Third quarter sales of $28 million were flat year-over-year, which reflects the impact of exiting our custom business during the second quarter. However, we saw 10% organic growth led by Asia and North America. Driven by share gains across a range of applications and performance outside North America, we continue to outpace the growth of the end markets we serve.

We made great progress expanding the presence of our Industrial product portfolio across our electronics distribution channel. Data center projects and solar winds are driving growth in Asia and in Latin America, some rebounding in the oil and gas market is driving growth in that region.

One of our key industrial design wins in the quarter was for our higher power industrial fuse offering which will be used to protect servers at the customer's data centers in the US and in China. Looking ahead for our Industrial segment, we expect normal seasonality in the fourth quarter. Longer term, we expect heavier industries oil, gas and mining to continue their recovery and the solar and EV markets to drive further grow.

And all, in all of these, we are well positioned to participate given our broad portfolio of solutions for industrial applications and access to the established IXYS industrial customer base. Across all of our businesses, operational excellence is core to what we do. During the third quarter, we were again recognized by the association for manufacturing excellence. The third consecutive year for our operations in Asia, receiving this important recognition.

Following wins by three of our China plants in 2016 and 2017. This year, our plant in the Philippines was an AME Award recipient. AME award recognize the commitment of our teams and their ongoing efforts to drive continuous improvement across our operations. I want to congratulate the more than 2000 Littelfuse associates in the Philippines on this tremendous accomplishment.

In summary, our global teams are focused on serving our customers and their end markets driven by the mega trends of a safer, greener and more connected world. With a healthy pipeline of new business opportunities across our segments, supported by our strong global footprint, we remain well positioned to execute our 5-year strategy of double-digit annualized sales and earnings growth.

With that, I will turn the call over to Meenal.

Meenal Sethna -- Executive Vice President & Chief Financial Officer

Thanks, Dave. Let's move on to our guidance. Based on the current foreign exchange rates and the regulatory environment, we anticipate sales for the fourth quarter of 2018 of $408 million to $420 million. The midpoint of the guidance reflects 36% reported sales growth and 6% organic growth over last year.

We expect fourth quarter adjusted earnings per diluted share to be in the range of $1.92 to $2.06 with the midpoint, representing 10% growth over last year. The EPS guidance assumes an adjusted effective tax rate in a range of 20% to 21% for the fourth quarter. We typically see slowing sales going into the fourth quarter led by our Electronics segment. Earnings are typically impacted with the deleveraging from overall volume decline for the slightly higher impact of the quarter from the distributor inventory rebalancing we're seeing in our Passive Business within Electronics.

For full-year estimates on specific financial items, we're projecting adjusted amortization expense of approximately $40 million and interest expense of approximately $23 million. We expect the full year tax rate of approximately 20%, slightly higher than the 19.5% midpoint of our prior range. Our full-year estimate also include about $0.20 of accretion from IXYS business after netting in the additional interest expense, and share dilution from the acquisition.

In summary, we're projecting another year of tremendous growth, 42% sales growth and a 9% organic growth rate. We continue to expand margins and increase our cash flow generation while reinvesting to further grow the business. We're confident in our ability to build upon our performance to-date, executing our double-digit sales and earnings growth strategy.

And with that, Trisha, let's open it up for questions.

Questions and Answers:

Trisha Tuntland -- Head of Investor Relations

Thanks Meenal. We'll take our first question please.

Operator

(Operator Instruction) Our first question comes from Christopher Glynn of Oppenheimer. Your line is open.

Trisha Tuntland -- Head of Investor Relations

Good morning Chris.

Christopher Glynn -- Oppenheimer -- Analyst

Thanks, good morning. Happy Halloween. So, yes, just you talked a little bit about capital allocation priorities earlier in the call. Just wondering how your acquisition pipeline looks right now? What repatriation is or complexities are post-tax reform and if sensors is a bit of a backseat in terms of M&A strategy as you kind of get the cost structure aligned in that group?

David Heinzmann -- President & Chief Executive Officer

Well, Chris. Let me take the pipeline and acquisition comments and I'll let Meenal comment on repatriation and those sorts of things. In general, I would say our funnel is very active. We continue to explore and expand our funnel and I think our balance sheet gives us the flexibility and freedom to look at very key strategic acquisitions. So, clearly we continue in that area and are looking for the right opportunities that fit our model and our strategy.,

You asked specifically about sensors, does that take a backseat, I wouldn't it necessarily takes a backseat. But I do think, particularly in the automotive side, we've probably narrowed our focus a bit on the specific areas we're targeting within the automotive space. And I think that's the healthier place for us to be. But overall, sensors that can sell into industrial or general electronics space, we also see as an opportunity. So, certainly sensor acquisitions are still in the funnel and a part of our pipeline.

Meenal maybe you can talk a little bit about the challenges, repatriation.

Meenal Sethna -- Executive Vice President & Chief Financial Officer

Sure, so I'd mentioned, Chris, earlier in the year that we had put together plans as part of the IXYS acquisition, we wanted to bring cash back. We did that earlier this year in the first half of this year, we repatriated over $100 million of cash from overseas. Given our cash position now and the strength of the business, we're looking at our next round of plans to be doing the same and we'll add a little bit more color in the January call on that.

Christopher Glynn -- Oppenheimer -- Analyst

Okay. And then a very broad question on Electronics, just thoughts on the notion that the revenue base is largely recurring as it gets consumed by your downstream channel partners and therefore thought about the revenue run rates being pretty from baseline and similarly for IXYS kind of a breakout within Electronics?

David Heinzmann -- President & Chief Executive Officer

Sure. Clearly, in our core electronics business which has a heavy amount of the business flowing through distribution channels. We know managing the inventory that our distributors are matching inventory positions to their sell-through rates and things like that is quite critical for us. We spent a lot of time and energy around that.

And what I would say is end-market demands continue to look pretty strong and the secular drivers and the content stories that have been driving that for the last 2 or 3 years, continue to look pretty good and pretty optimistic about that. I do think at times, our distributors look particularly kind of leading into the back end of the year and kind of challenge where they're at, and do they want to rebalance a little bit and as we talked about in the call, specific to our passives, not our semiconductor, we're probably at the higher end of our normal range. So we are seeing a little bit of near term softness in those orders, which is reflected in our guidance.

But overall, we don't see problems or challenges with the sell-through that we see there. IXYS is a bit different and the fact that IXYS is more of a 50:50 split between distribution and direct sales. So, in that case, we probably have maybe a little bit better visibility to end-markets and end-customers and we continue to see very strong backlogs in orders in IXYS with some areas still constrained in a capacity standpoint.

But one thing probably give a little color on, we're finding the pure book-to-bill metric as a little noisier metric to use as a true measure of exactly what the demands are, because our customer base is changing and order patterns and things are changing as we get more industrial type customers that may flow through the channel, they will tend to book out through the course of the year. Our automotive electronics customers who may use of channel, they actually do scheduling orders -- scheduling agreements, they don't really do orders one-off in the system. So, it's a little noisier today and trying to pull from that as the exact measure of demand.

Christopher Glynn -- Oppenheimer -- Analyst

Great. Thank you.

Meenal Sethna -- Executive Vice President & Chief Financial Officer

Thank you Chris.

Trisha Tuntland -- Head of Investor Relations

Thank you. We'll take our next caller, please.

Operator

Our next question comes from Steven Fox of Cross Research. Your line is open.

Trisha Tuntland -- Head of Investor Relations

Good morning, Steven.

Steven Fox -- Cross Research -- Analyst

Hi, good morning. First question, I was wondering if you can walk through the rationale of buying in the rest of Monolith. And then secondly, in terms of the margin progression quarter-over-quarter, can you just maybe break out what drove it, how much was related to volumes versus the acquisition versus anything else there might have been the puts and takes? And then I had a follow up.

David Heinzmann -- President & Chief Executive Officer

Okay. Let me cover the Monolith question and Meenal can cover the quarter-over-quarter progression. Monolith was a start-up that we invested in, started investing in a couple of years ago and really was intended as a step acquisition as a start-up. We have milestones for them to achieve, technology milestones, production milestones and we were really the only outside investor beyond the founders and so it was a planned progression as they delivered on their commitments from a technology and production standpoint.

We would take on further ownership. We have very strong belief in the long-term potential of silicon carbide space. We have a very broad power semiconductor portfolio today, focused on the mid-range and high-end range of power and clearly silicon carbide is a key element in the future for the very high end side of that. And so we see it very critical and key to our strategy on the power electronics side.

With that, Meenal you can cover the progression in the quarter.

Meenal Sethna -- Executive Vice President & Chief Financial Officer

Great. Sure. On the margin progression, as we continue to integrate the IXYS business within the legacy Littelfuse business, it gets harder and harder to break out specifics, but I would generally say, it's probably around half and half, if you think about sequential margin improvement pass due to volumes in the legacy business, I'd say about half due to margin expansion in IXYS, some as we increase the operational throughput and the operational efficiencies in IXYS as well as you start to get full quarters of synergy realization as well.

Steven Fox -- Cross Research -- Analyst

Great, that's really helpful. And then just as a quick follow-up, so you cited the weakness in the auto markets in your Auto segment. But I would have imagined that you saw some of that within the Electronics segment, where you also serving the auto market? Was that that case or not necessarily?

David Heinzmann -- President & Chief Executive Officer

Yes, it's a great question, Steve and and really the automotive electronics, which does roll up into our Electronics segment. We really didn't see a lot of weakness there, mainly. I think some of the reason for the driver is there's a content story. Also in automotive electronics for us, it's a market share story and opportunity as well. Whereas in our core electronics or automotive business, particularly on the fusing side, our global market share is quite steady and it's really, that's not the driver of our growth. So we have both content as well as share opportunities in automotive electronics, so really didn't see any pullback in growth in the automotive electronics side.

Steven Fox -- Cross Research -- Analyst

Great, that's very helpful. Thanks again.

Trisha Tuntland -- Head of Investor Relations

Thank you, Steven. We'll take our next caller, please.

Operator

Thank you. And next question comes from Shawn Harrison of Longbow Research. Your line is open.

Trisha Tuntland -- Head of Investor Relations

Good morning Shawn.

Shawn Harrison -- Longbow Research -- Analyst

Good morning everybody. Few questions if I may, just first on the share buyback in October. Nice to see you guys stepping up here, what's the appetite to continue with that buyback through the remainder of the quarter?

Meenal Sethna -- Executive Vice President & Chief Financial Officer

Yes, Shawn. As we've talked about in the past. Your buyback is absolutely a part of the capital allocation philosophy that we have. I think you've seen from our history, we are not the company that has an annual program, and we tend to be a little bit more opportunistic when it comes to share buyback and you're going to see us more likely to buy when we think our shares are undervalued or our shares take a dip. So that's philosophically how we think about it.

And then in general, I would say, as we've talked with investors, we tend to prioritize acquisition for share buyback, so it ends up being a balance. If we've got maybe extra cash on the balance sheet and we'll take a look at that in the context of how the funnel is coming along, acquisition funnel and buyback.

Shawn Harrison -- Longbow Research -- Analyst

Okay, two follow-ups, if I may. The 5 point year-over-year decline in, I believe, auto segment margins, how much of that was tied to the growth investments that you're making in other kind of longer-term initiatives versus volume dynamics?

Meenal Sethna -- Executive Vice President & Chief Financial Officer

Yes, I'd say some of both. I would say this quarter with some of the unexpected -- well some expected and even a little bit unexpected volume declines that we saw in the legacy business just with the end-market weakness that definitely drove good chunk of it. And then with the automotive sensor business, just the resource-intensiveness that we've seen, as well as we know production inefficiencies in stretch out a few quarters when you're starting up new products and maybe even longer when we think about new technology launches that we're doing. So I'd say it was probably both to this quarter.

Shawn Harrison -- Longbow Research -- Analyst

Okay and then lastly, if I look at both SG&A and R&D on a dollar basis, both dropped pretty significantly sequentially, how should we think of both SG&A dollars as well as kind of R&D into the fourth quarter on a dollar basis?

Meenal Sethna -- Executive Vice President & Chief Financial Officer

Yes, I don't know -- I would say that there's much difference, I mean we might see with -- either with currencies in some cases, right, with the weaker R&D, there's a little -- sometimes a little bit of FX that we see in there and then the other pieces with the synergy impact especially from IXYS as I mentioned, we're starting to get full quarters of synergy impact. So the guide I would give you really if you think about the full year, I think about R&D in the mid '80s for the full year and I think from an adjusted G&A perspective, somewhere around the 250 range or so.

Shawn Harrison -- Longbow Research -- Analyst

Thanks. Extremely helpful. thanks Madam.

Meenal Sethna -- Executive Vice President & Chief Financial Officer

Thank you Shawn. We'll take our next caller please.

Operator

Thank you. Our next question comes from David Leiker of Baird. Your line is open.

Meenal Sethna -- Executive Vice President & Chief Financial Officer

Good morning, David.

Joe Vruwink -- Robert W. Baird & Co. -- Analyst

Good morning, this is Joe Vruwink for David.

Trisha Tuntland -- Head of Investor Relations

Hi, Joe.

David Heinzmann -- President & Chief Executive Officer

Hi, Joe

Meenal Sethna -- Executive Vice President & Chief Financial Officer

Hi, Joe.

Joe Vruwink -- Robert W. Baird & Co. -- Analyst

I wanted to unpack automotive growth in the quarter, so passenger car production fell 2% to 3% globally in that context, 1% organic growth is good in 3 to 4 points above market. Can you maybe bridge that level of out-performance with the midterm 7% to 9% organic growth target which I really view as an outgrowth target as well.

What's factors arose during the quarter that maybe cause you to deviate from plan and i throw -- I guess two big ones in there. First off, China weaken month by month as Q3, we're on. So how much was there maybe destocking that took place beyond what you would have anticipated?

And then the second thing is, in Europe, you alluded to WLTP, German production ended up down 22% in the quarter. So obviously German vehicles with high content that probably weighed as well. I'm just wondering if those explain some of the variance and maybe on -- you can quite adjust it, but on an adjusted basis, are you closer to plan organically?

David Heinzmann -- President & Chief Executive Officer

Great questions, and it's a fairly complex situation right now with some of these moving pieces. Clearly the China softness, that we saw in the quarter and which still remains relatively soft. Clearly, is a driver and slightly different -- supply chain in China versus the rest of the world that actually our products flow through a local distribution channel to some of these key customers. So you might see a little more inventory adjustment that might take place in China versus other parts of the world. So that probably decremented the growth, a little more than just the car build. So that probably impacted.

One of the other things that -- and we talked briefly about, I mentioned it in the prepared statements, is third quarter last year we had a pretty sizable one-time effects, that was in our run rate last year for our German OEM. And so as a comparative to third quarter last year, certainly is impacted by that. And so overall, I would say our content story is still hanging in there quite good. The long-term growth prospects we have in there clearly, we feel -- continue to feel very good about, particularly if you overlay, consistent where we get the segment in the end markets that kind of -- are a little overlap, particularly with the very strong growth in automotive electronics. The automotive end market growth story is still hangs in there and we feel very confident with it.

Joe Vruwink -- Robert W. Baird & Co. -- Analyst

What are you hearing from customers in Europe, in regards to alleviating some of the WLTP pressures and specifically the automakers that seem to have been most impacted, most have commented on this plant that they would expect exit the calendar year with all of their name plates, all their models certified. So maybe Q4 is still has an impact, but entering Q1 back to normal. Does that maybe support an improvement in your gross into Q4 relative to Q3 and then back to normal by Q1?

David Heinzmann -- President & Chief Executive Officer

Yes, I mean there's a lot of -- you've got a lot of different inputs on WLTP and exactly how it's impacting things, the amount of inventory that's sitting as they built up ahead of, the testing that is coming on. Yes, certainly we're going for some of the OEMs that they're nearing completion of some of their model testing, which has certainly been the bottleneck.

Certainly, we continue to see some weakness in the fourth quarter. In Europe, however, as we look out into 2019, visibility for us is a little bit challenged if you look at kind of third-party views, they still show in Europe specifically, car build soft in the first half of next year, down to 3% each quarter from the previous year. Overall, we do see some rebounding in the fourth quarter in our automotive numbers. And we're not seeing overly abnormal sort of demand patterns as as we're kind of moving into the back end of the year.

Joe Vruwink -- Robert W. Baird & Co. -- Analyst

And if I can squeeze one more and China appears to be close to implementing a stimulus plan, and it seems like it would nearer went into place and might 15 where purchase taxes get cut and obviously that the experience in 2015 following that was really positive sales ended up growing at a mid-teens rate for the next year. Do you think your customer inventories in China, you alluded to the dynamic, but the selling being a little bit different? Are they lean at this point, so if China all of sudden flips from down double-digits like it has been in recent months to maybe flat and into next year up -- if that were to come to fruition, you'd expect some large restocking impact on your business?

David Heinzmann -- President & Chief Executive Officer

Yes, I would say right now, our view would probably inventories are about right. I don't think they're lean particularly. I think they probably came down a little bit, during the third quarter, but today I'd say they're pretty normalized there, so I'm not expecting some restocking ahead of maybe some car build growth, but certainly they're not carrying weeks and weeks and weeks of inventory. It's a fairly crisp supply chain so as car build picks up, we certainly would expect to see the pull-through on that happen pretty rapidly.

Joe Vruwink -- Robert W. Baird & Co. -- Analyst

Great, thank you very much.

David Heinzmann -- President & Chief Executive Officer

Thanks Joe.

Meenal Sethna -- Executive Vice President & Chief Financial Officer

Thanks for your questions, Joe.

Operator

(Operator Instructions) Our next question comes from George Godfrey of CL King. Your line is open.

Meenal Sethna -- Executive Vice President & Chief Financial Officer

Good morning, George.

David Heinzmann -- President & Chief Executive Officer

Thank you, good morning David. Good morning. Really nice performance out of IXYS, $100 million this quarter, and if memory serves, they were running probably $83 million a quarter before you acquired them. You've never provided a revenue synergy target. But if I say 5% growth on the $83 million for the core business. And then, but I look at the other call, $14 million or so million is the revenue synergy on a quarterly basis that you're bringing to the table.

I think when we look at revenue synergies there, the bulk of the near-term growth that we've seen in IXYS, first of all as we acquired it, they had a very strong backlog. They were very constrained on their ability to perform against that backlog. So I would say the bulk of the improvement has really been more generated by our ability to work with them and the IXYS teams and our teams to drive throughput through the factories.

I think that's been the the bigger driver of the step-up and candidly, when you have some level of constraints, you can't push overly aggressively trying to target new applications and things like that. So if anything, revenue synergies have been a little bit restrained because of that, capability, but as we begin to flush through capacity constraints and things like that, we do expect to see fundamental growth, particularly kind of the industrial electronics space. I gave one example where a nice win with new IXYS product set a core Littelfuse company that's doing wind turbines.

George Godfrey -- CL King & Associates, Inc. -- Analyst

So not to put words in your mouth, but while you are well down this the cost synergy curve, your mind the revenue synergies that you probably thought about at the time of the acquisition is still on the thumb (ph), so while of $100 million lot better than the $83 million. There's still more to be add there on the top line.

David Heinzmann -- President & Chief Executive Officer

Yes, over the long term, absolutely. Timing of that, it's a little hard to predict at this point in time, but we absolutely continue to be very bullish about the opportunities with IXYS portfolio, their customer base, our customer base, the real long-term potential of really strong growth is in the auto side, where IXYS really has not participated historically, that's a core part of our business. But we know in the automotive world that takes time because we actually have to get the IXYS teams prepared to handle and the IXYS factories to be setup the handle automotive types of qualifications and approvals. So, long term, we really see that as a big driver. We continue to remain confident in the revenue synergies of the two businesses.

George Godfrey -- CL King & Associates, Inc. -- Analyst

That's great. And then my follow-up question is, the 7% to 9%automotive organic growth rate looking at it on a 3-year time-frame, say, what would be the lowest build rate that you could work with on a global level to hit the low end of that 7% range or say it in another way if we go to the midpoint of the 7% to 9%, call it 8%. What is your baseline assumption for global build rates and I'll leave it there? Thank you for taking my questions.

David Heinzmann -- President & Chief Executive Officer

Yes, sure, our strategy, our baseline assumption is that over time global car build grows at about global GDP. So, we build in about a 2% car build growth into the long-term strategy when we compare that to the 7% to 9% organic growth. So that's the assumption behind the 7% to 9%.

Trisha Tuntland -- Head of Investor Relations

Thank you George for your questions. Before concluding, we'd like to mention two upcoming investor events; on November 6, we will be presenting at Baird Global Industrial Conference in Chicago and on December 5th, we will be presenting at NASDAQ's Investor Conference in London. These events will be webcast and archived on our website. Thank you for joining us on today's call and your interest in Littelfuse. We look forward to talking with you again soon. Have a great day.

Duration: 44 minutes

Call participants:

Trisha Tuntland -- Head of Investor Relations

David Heinzmann -- President & Chief Executive Officer

Meenal Sethna -- Executive Vice President & Chief Financial Officer

Christopher Glynn -- Oppenheimer -- Analyst

Steven Fox -- Cross Research -- Analyst

Shawn Harrison -- Longbow Research -- Analyst

Joe Vruwink -- Robert W. Baird & Co. -- Analyst

George Godfrey -- CL King & Associates, Inc. -- Analyst

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