Earnings Call Transcript - LFUS Q3 2023

Operator, Operator

Good morning, everyone. Welcome to the Littelfuse Third Quarter 2023 Earnings Conference Call. I would now like to hand the call over to the Head of Investor Relations, Mr. David Kelley. Please proceed.

David Kelley, Head of Investor Relations

Good morning, everyone, and welcome to the Littelfuse Third Quarter 2023 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 disclaimers. Our discussions today will include forward-looking statements. These forward-looking statements may involve significant risks and uncertainties. Please review yesterday's press release and our Forms 10-K and 10-Q for more detail about important risks that could cause actual results to differ materially from our expectations. We assume no obligation to update any of this forward-looking information. Also, our remarks today refer to non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measure is provided in our earnings release available on the Investor Relations section of our website. I will now turn the call over to Dave.

David Heinzmann, President and CEO

Thank you, David. Good morning, and thanks for joining us today. Before I begin, I would like to welcome our new Head of Investor Relations, David Kelley. I expect many of you already know David from his prior role in equity research at Jefferies, where we were part of a sell-side coverage. David brings a strong understanding of our business and industry, and we'll continue fostering strong relationships with our investors and delivering valuable insights as we continue to drive the growth in shareholder value. Please join us in extending a warm welcome to David. With that, let's start with a summary, Slide 4. Our global teams delivered solid Q3 results as both sales and earnings exceeded our prior guidance. Our performance reflects strong execution, ongoing diversification, and favorable content momentum within a continued challenging macro environment. We're pleased with our overall performance, yielding strong year-to-date profitability, despite the ongoing channel destocking and pockets of end-market softness. We significantly improved our financial performance versus past market cycles. This reflects our resilient business model and continued strong underlying fundamentals on Slide 5. Secular growth themes, including sustainability, connectivity, and safety continue to drive our organic growth trajectory. Our recent acquisitions have further balanced our end-market exposure while complementing our diverse technology capabilities and expanding our market leadership. We remain well positioned to deliver on our long-term strategy. And I want to thank our global teams for their unwavering commitment and persistent hard work. Let me start with a view on what we are seeing across our markets. Through the third quarter, we continue to see inventory destocking across our electronics and commercial vehicle distribution channels. Our electronics book-to-bill remains below 1. And while we have limited visibility, we also believe some of our OEM customers are working through inventory reductions. While we expect inventory destocking to continue into next year, we anticipate that as inventory levels stabilize, we can return to normalized order rates. Regarding our end markets, we're seeing varying demand patterns across a broad customer base. Starting with electronics markets, we continue to see softness in consumer and personal devices as well as pockets of datacom. In industrials, we benefited from growth in renewables, infrastructure, power supplies, and industrial safety offsetting pockets of softer demand. Finally, while the UAW strike had a modest impact in the quarter, automotive demand remains solid, driven by both low- and high-voltage applications. Our automotive content expansion is benefiting from program launches, led by China, and we saw a 15% growth above car build in the quarter, strongly within our targeted double-digit range. Despite the current challenging macro environment, we continue to diversify our portfolio, build upon our design wins, and fortify our market positions, and we expect a return to growth during 2024. Broadly, across our end-market exposures, design activity remains robust, and we continue to benefit from content outgrowth. Customers remain invested in expanding secular growth capabilities, and we are delivering a robust design win cadence that supports consistent long-term outgrowth. We believe our execution through this variable macro environment is reflected in our year-to-date margin performance as well as our robust cash generation. For the full year 2023, we expect to exceed operating margins we delivered when we last experienced market down-cycles and disruptions in 2019 and 2020. We remain confident in our margin resiliency despite the current challenging macro environment, reflecting a robust outgrowth opportunity and well-positioned cost structure. Our ability to drive strong cash flow through cycles enables us to continue investing for future growth across our portfolio and deliver outsized long-term shareholder value. Now let's move on to business design wins during the third quarter. For industrial end markets on Slide 6, we continue to build a robust and global funnel of new business opportunities and secured a wide range of design wins. We secured a multi-technology win for energy storage in India, and leveraged our solutions-focused product portfolio to deliver a solar design win in the EMEA region. We also secured key industrial safety design wins across the energy sector, including wins in Indonesia and North America. Taking a step back, industrial safety remains a long-term growth theme for us, given the need for safeguards against electrocution from higher power applications in an increasingly electrified world. Turning to the transportation end markets on Slide 7, we continue to see a strong funnel of meaningful content opportunities driven by the ongoing push towards greater sustainability, connectivity, and safety. For passenger vehicles, the launch of several new OEM platforms, particularly new programs coming online in China, was a key driver in the quarter. Momentum with EVs and EV-charging infrastructure helped secure wins for both low- and high-voltage applications. We won new business for a vehicle telematics module by leveraging product offerings from our C&K Switches portfolio. An area where we are seeing design win success is our innovative current sensor offerings, which are helping drive new business opportunities for EV battery management systems and inverter applications. Within the commercial vehicle space, we secured a multi-technology win for a medium-duty EV truck that will utilize software from our Embed acquisition in conjunction with hardware from our legacy portfolio, a great example of leveraging complementary technologies to drive revenue synergies. We also won new business for commercial truck and bus applications in South America and China. In Japan, we were able to leverage some of the rugged and reliable switch products from our Carling portfolio to win new business for construction and specialty vehicle applications. Moving on to Slide 8. In electronics end markets, design activity continues to be robust, and we're seeing multi-technology design wins globally across a broad set of end markets. We secured a diverse range of design wins, including power tools, garage door openers, appliances, and other general electronics. We continue to see growth in medical equipment and security end markets with wins globally. Our momentum in securing meaningful design wins remains strong. We've achieved success across a diverse range of end markets, applications, and geographies, which underscores our global capabilities and extensive reach. Our close collaboration with our customers' engineering teams has played a pivotal role in accelerating the development of next-generation products and design initiatives. As we continue to grow organically through the new business activities bolstered by strategic acquisitions, we are well positioned to continue executing on our long-term growth strategy. I will now turn the call over to Meenal to provide additional color on our financial performance and outlook.

Meenal Sethna, Executive Vice President and CFO

Thanks, Dave. Good morning, everyone, and we appreciate you joining us today. Please turn to Slide 10 to start with our third quarter results. Revenue of $607 million exceeded the high end of our guidance, as we continued working through backlog and supported several customer product launches. Revenue was down 8% and down 11% organically versus last year. Acquisitions and foreign exchange added 3% of growth. GAAP operating margins were 15.4% in the quarter. Adjusted operating margins were 16.5%, while adjusted EBITDA margins finished at 22%. GAAP diluted earnings per share in the quarter was $2.30. Adjusted diluted EPS was $2.97 higher than our projections driven by our stronger sales performance. Our GAAP effective tax rate was 23.3%, and adjusted effective tax rate was 20%. We've continued to be prudent in spending while furthering investments in high-growth opportunities for our future pipeline. We're pleased with the resiliency of our business and operating execution across multiple vectors, resulting in year-to-date adjusted operating margins of 17.4% and adjusted EBITDA margins of over 23%. The strength of our business model also shined this quarter, as we generated $162 million in operating cash flow and $140 million in free cash flow. Year-to-date, we generated $250 million in free cash flow, a 115% conversion rate to net income. We are ahead of last year despite lower cash earnings, a testament to our ongoing focus on inventory and overall working capital management. We've reduced our own inventory by $66 million so far this year and lowered inventory days on hand by 15 days. With our typical fourth quarter seasonality, we expect another strong quarter of cash generation, aligned to our full year target of 100% free cash conversion as a percentage of net income. We've also maintained our net debt-to-EBITDA leverage at 1.4x, continuing to provide ample capacity for both organic and inorganic growth investments. Moving on to our segment results. Please turn to Slide 11. Electronics sales were down 14% year-over-year and down 17% organically. Operating margins continued at over 22% and adjusted EBITDA margins over 28%. Sales were stronger than we had expected, as we continue to work through backlog with semiconductor customers in the quarter. We've maintained a strong profitability profile amidst the dynamic end market environment and inventory rebalancing. Turning to the Transportation segment on Slide 12. Sales were down 3% overall and down 4% on an organic basis. Trends varied by end market again this quarter. Our passenger vehicle business grew 12% as we supported several customers on their platform launches, particularly across China. Our commercial vehicle business was down 16%, with continued inventory destocking largely among distribution partners as well as continued weakness across China markets. Segment operating margins improved sequentially to 5.5% and adjusted EBITDA margin over 11%. We're starting to see the benefits from our footprint reduction work across our passenger vehicle business. Across our commercial vehicle business, we are reducing the cost structure and also extending actions to optimize our product and customer mix. While this will reduce sales growth in the near term, we expect to reduce and refocus our resources to amplify profitability. We anticipate these actions will sustain our progress toward our mid-teens segment margin target. Across our industrial segment on Slide 13, sales were up 8% and up 5% organically. We continue to drive wins across growth areas in solar, clean tech manufacturing, and EV fast charging infrastructure. Sales were a bit softer than we expected as we started seeing market softness in some industrial end markets such as mining, residential HVAC, and capital equipment, as well as some customers working through excess inventory. We've maintained strong profitability, with operating margins over 15% and adjusted EBITDA margins just over 20%. Turning to the forecast on Slide 14. We expect fourth-quarter sales in the range of $520 million to $550 million. At the midpoint, that's a decline of 13% versus last year and 12% sequentially. As a reminder, our sales are typically down sequentially across all of our segments going into the fourth quarter. We do expect a more pronounced decline across our Electronics Products segment with some of the softness we are seeing in some industrial end markets. Additionally, we've assumed about a 1% sales decline relating to the product line pruning in our commercial vehicle business. We've also factored in continued inventory destocking, which we expect to continue into 2024. We expect adjusted EPS to be in the range of $1.90 to $2.10, which assumes an 18% tax rate in the quarter. The sequential decline in earnings is largely driven by the sales volume decline. Slide 15 includes some additional full year 2023 color. At current rates, we expect foreign exchange to have about a $0.35 unfavorable impact on our EPS and a 50 basis point headwind to operating margins, but no material impact to sales. We're projecting amortization expense of $66 million and interest expense of $40 million. Based on our fourth quarter forecasted rate, we expect a full year tax rate around 18.6%, and we're projecting full year capital expenditures of $90 million to $100 million. Before I turn it back to Dave, I want to reiterate, we remain confident in the strength of the long-term fundamentals of our business. We've laid the foundation with our structural growth teams, combining that with ongoing portfolio diversification and operational execution. We're well positioned to drive upper teens operating margin for the year, stronger than our historical performance during past market cycles. We'll continue to focus on the areas we control, investing for both organic and inorganic growth opportunities and bolstering our cash generation. We're confident these core building blocks position us well to deliver on our long-term growth strategy. I'd like to thank our team members for their unwavering hard work and dedication as they deliver for our customers everywhere and every day.

David Heinzmann, President and CEO

Thanks, Meenal. Before we wrap, I wanted to highlight some additions to the Littelfuse Board of Directors as we continue to refresh our Board, adding diverse, talented, and capable business leaders. Dr. Greg Henderson joined the Board earlier this year. Greg is Senior Vice President of the Automotive and Energy, Communications, and Aerospace Group for Analog Devices. He's a seasoned global public company leader with extensive technology experience across the broad range of end markets we serve. His comprehensive technical expertise and management experience will make him a great addition to our Board. Gayla Delly also recently joined our Board. Gayla was CEO and a member of the Board of Directors of Benchmark Electronics before retiring in 2016. Gayla's Board leadership and broad management experience across companies operating in a diverse set of end markets will complement our Board. Her track record of driving growth with market expansion while delivering financial performance will be beneficial as we execute our growth strategy. We're pleased to add both Greg and Gayla to our Board. In summary, on Slide 16, our solid year-to-date performance and the challenging macro environment reflects our resilient and increasingly diversified business model. While our financial results will be impacted in the near term from continued market challenges, we expect to return to growth during 2024. We remain confident in our ability to deliver long-term shareholder value. As we continue to target double-digit sales and EPS growth, we believe our projected 15-year sales and EPS CAGRs of 10% and 18% exemplify our execution track record through multiple cycles. And with that, I'll now turn the call back to the operator for Q&A.

Operator, Operator

We'll go first this morning to Luke Junk at Baird.

Luke Junk, Analyst

First question, Dave, I'd like to follow up on your comment about expecting to return to growth in 2024. I want to connect that to the destocking occurring in the business right now. In our surveys, we're noticing that shorter lead times are impacting distributor order placements currently, and there seems to be some mixed inventory among end customers as well. I'm curious how this aligns with your perspective and how long you think it might take for these new dynamics to settle, if you are seeing them as well.

David Heinzmann, President and CEO

Thanks, Luke. It's always the challenge and the question as we look at kind of the destocking, particularly in electronics. Certainly for Littelfuse products, lead times have been down and come back down to normal for most product lines for quite some time now. Some of our power semiconductor products are really just reaching that stage now, coming to more normal lead time in the environment. What we've seen is our distribution partners, we look at their inventory and where they're carrying month-to-month; we're seeing declining inventory and dollar inventory values at the distribution partners. So it's making steady progress. We just got to reach that stage where end customers adjust their ordering lead times to distributors, distributors get their inventories where they need them to be, and then things start matching up again. When we start matching up again, of course, then that will actually drive that return to growth, even if the end markets are reasonably flat, which we're hopeful that we'll begin to see some momentum in some of the end markets later next year. That's kind of our best view of it.

Luke Junk, Analyst

Okay. Great. And then in your remarks, you mentioned that working on actions in transportation, in the commercial vehicle portion of that business specifically to reduce costs and optimize your product and customer mix going forward. Can you just comment specifically on what products and customers you're looking at there? I appreciate the 1% sales headwind that you provided as well.

Meenal Sethna, Executive Vice President and CFO

Sure. Yes. Just taking a step back, this is not necessarily anything new that we've done. This is something we do regularly within our portfolio, especially taking a look at acquisitions and making sure that we're focusing our resources and driving the value from the right areas of the portfolio. So we are focusing on the recently acquired Carling business. Even though it's been a couple of years, this is an area where you recall back in 2022, we were really focusing on the customer backlog and really delivering and trying to meet expectations of customers out there. Now that we've gotten past some of that, we're really taking a look at really the entire portfolio we have through that acquisition, both from a product perspective and a customer perspective. I'll just say there are select areas that we're starting with that have come forward a little bit, and there's an opportunity for us to improve the profitability of the portfolio. I remind you, this is stuff we've done in the past, as I mentioned, as an example, we talked about this a few years back when we looked at our automotive sensor portfolio, same type of thing. So this is just part of our playbook as we think about running the company.

Luke Junk, Analyst

If I could ask one last question, Dave, could you comment on the backlog you're managing in the semiconductor segment of electronics? How does the backlog compare to point-of-sales demand, especially considering you've mentioned some areas of weakness in the industrial sector?

David Heinzmann, President and CEO

Yes. We've been, like a lot of companies, particularly on the semiconductor side, particularly for us in the power semiconductor side, there has been an extended lead time there for quite some time. We've talked in the last couple of quarters how we've been working on that and showing improvements in throughput to be able to bring that sort of inventory level down or the backlog down. We had a really strong quarter in the third quarter in the power semi business, where we were able to clean up the vast majority of that backlog to kind of get into a more stable environment there. So it becomes a bit business as usual. We're seeing some pockets where there's some softness. That's, if you recall, that's a very heavy industrial customer base. So we've seen some softness there. But we also have areas where we're seeing strong growth from there. Some other industrial applications like renewable, we also have a medical business there that is quite strong right now as well. So although we see some of these kind of broader-based softness, there are these pockets. We've talked about it in the industrial side, where kind of broader-based industrials are beginning to slow, but we're still seeing some growth driven out of these pockets of things like renewable energy and industrial safety, and things like that that help balance that. So it's a complex business with a lot of different end markets that we're serving, and it's actually part of the strength of the portfolio, is that we do serve many different applications which helps to balance it a bit.

Operator, Operator

We'll be going next now to Matt Sheerin at Stifel.

Matthew Sheerin, Analyst

I have a question about your profitability guidance. It seems that the operating margin is expected to decline by about 300 basis points sequentially and significantly year-on-year. I understand that negative volume leverage is a factor, but are there any pricing or other considerations? The margins appear to be at their lowest levels in four years, similar to what we saw during the pandemic. Does this indicate that we have reached the bottom for margins, or are there additional factors influencing this situation?

Meenal Sethna, Executive Vice President and CFO

Thanks, Matt. Good question. Sales volume tends to be a significant factor in our margin profile, especially on a quarter-over-quarter basis when considering near-term trends. In the fourth quarter, as I noted in my prepared comments, we are experiencing a sequential decline in sales, which leads to an expected decline in margins. While I won't specify the exact margin, this expected decline is closely tied to the sales volume. If I reflect on our overall margin expectations for 2023 compared to previous cycles, I am reminded of 2008 and 2009 when our margins fell below 10%. Even during the pandemic cycle from 2019 to 2020, our margins were around 14.5%. With the efforts we've put into execution, pricing, and diversifying our portfolio over the past few years, I anticipate that we will exceed that margin profile for 2023.

Matthew Sheerin, Analyst

Okay. And could you talk about the pricing environment? I know you've had success in the last couple of years in terms of passing along higher input costs. Are you seeing pressure the other way here?

David Heinzmann, President and CEO

Yes, Matt, we've received a lot of questions regarding the pricing environment, and our observations indicate that it is quite broad-based. This aligns with what I'm hearing from our peers as well. Our distribution partners are experiencing similar trends; while we are facing pricing pressures, they represent a return to a more typical environment. The past couple of years have been unusual, during which we successfully transferred cost increases to our customers, significantly raising prices. We are not experiencing a retraction in this regard but rather a shift back to a more normal setting. It’s important to note that there are still numerous cost pressures that we are managing, and we communicate this to our customers. Currently, the substantial price increases we implemented to address rising costs in recent years are holding, but we are starting to see a gradual return to normal where we can expect to lose a couple of percentage points on the pricing side over the year.

Matthew Sheerin, Analyst

Okay. And just lastly, Dave, you talked about demand in China auto being a little softer. Could you talk about your position there with China OEMs, local OEMs versus international OEMs and content trends, anything positive or negative going on there?

David Heinzmann, President and CEO

Yes. Actually, our comments were that our third quarter was quite strong in China. There were preparations for a lot of platform launches. As you may know, well, the Chinese OEMs have lots of platforms. As they're launching those, we have a strong position both with multinationals and local Chinese OEMs. With a lot of launches going on there, we had a very strong third quarter in China. Car build in China, we expect to be okay, not particularly strong going forward. But we feel pretty good about it. We've been open with the fact that on the high-voltage side, we expect we may not be able to maintain the same level of share with Chinese OEMs as we do on the low-voltage side, but we continue to have tremendous success on the low-voltage side and pockets of success with Chinese OEMs on the high-voltage side as well.

Operator, Operator

We'll go next now to David Williams at Benchmark.

David Williams, Analyst

First, congratulations to David on the new role there. Looking forward to working with you. Just kind of going back to the inventory situation, is there a way maybe to size the magnitude that you think it still needs to be digested across your end markets? You talked about maybe this lasting into next year. But do you think this is the end of maybe 1Q or is it into the first half of the year? Just trying to get a sense on how big of an inventory destocking we have still remaining.

David Heinzmann, President and CEO

Yes, that's a question we frequently consider since visibility isn't perfect. We have good insight into our distribution partners' inventory, but less clarity regarding their end customers. This cycle seems different as end customers may be holding more inventory than usual, which has affected how quickly we and our distribution partners can reduce inventory in the channels. The visibility there isn't ideal. On the electronics side, we still see several weeks of excess inventory in our distribution channels. This situation will gradually improve, but it's likely to extend well into 2024 unless circumstances change. We don't have precise visibility on when that will occur, but we expect to continue making progress throughout the first half of the year.

David Williams, Analyst

Okay, great. Regarding Matt's question about the difference in content, specifically in China compared to domestic customers, how should we view that difference? Additionally, how does this relate to electric vehicles and internal combustion engine vehicles? What is the extent of that difference, and is it significantly higher in China compared to the domestic market?

David Heinzmann, President and CEO

Yes. Kind of interesting mix there on content. If you take ICE vehicles, the content on Chinese ICE vehicles is approaching what we would find in the West these days because the sophistication of the vehicles continues to grow dramatically and large drivers of growth where we're working are with pretty sophisticated vehicles. So on the low-voltage side, OEMs on the EV side, but it's a tough environment in China there. So perhaps our content in an EV in China may be a little lower than our content in an EV in Europe.

Operator, Operator

We'll go next now to David Silver at CL King & Associates.

David Silver, Analyst

Maybe I'll just start with a question on your CapEx guidance. But if I'm correct here, I think the number you put out for full year now is maybe $20 million, $25 million lower than it was earlier. I'm just wondering if you could maybe comment on that in terms of maybe pinpoint where discretionary spending is being reduced. If you consider this maybe more of a delay rather than suspension or cancellation. So where would the shift be in your CapEx budget? How do you expect that to progress maybe into 2024?

Meenal Sethna, Executive Vice President and CFO

Sure, David. So yes, compared to, I think, back to the beginning of the year and the forecast we had on CapEx, we have brought that down. A few things. To answer one of your questions, this isn't necessarily a permanent reduction in many cases; it's just delays. It's delays because when we start out the year, we had a view on what we thought was going to happen to the year. Clearly, it started to move a little bit softer. We talked about volumes maybe coming down a little bit and/or extending a little longer than we thought. Where we have a lot of businesses that we're anticipating capacity adds during the year, they've said, 'You know what? I think we can hold off a little bit, given where the volume trends are.' We'll look at moving some of that out into 2024. At the same time, we continue to spend for the growth that we have, the growth that we anticipate, and other areas like health and safety, normal maintenance, and even sustainability. There are a lot of things that we're doing around our manufacturing and supply chain footprint around improving energy usage, and water usage, especially when we think about new equipment. For us, those investments matter. They're important to our customers and employees, and they're important to our profitability as well. No big shifts other than just a little bit of a delay, given the macro environment.

David Silver, Analyst

I have a question that relates to some of the electronics components companies I've been looking into. I've noticed a significant difference between the ongoing strong activity regarding new contract wins or new designs and the relatively weak demand for older products across various markets. Could you share your thoughts on this, especially considering what you've heard from your distribution channel? Do you see the current weakness in distribution as a temporary issue? Are customers becoming more focused on pricing? Is this a cyclical trend, or are customers perhaps holding off for next-generation products, leading to a drop in demand for older items? When addressing the weaker markets, do you see a clear divide between the healthy activity at the cutting edge and the consistently soft demand in current markets? I apologize for the lengthy question.

David Heinzmann, President and CEO

I understand your question. Our design activity across the board continues to be very strong. In the electronics sector, we have significant design activity across various end markets. We aren't seeing any signs of a slowdown in the design of new products or applications; it's currently very robust. This is a positive indicator for our medium and long-term outlook. While we've noted that some segments within electronics, such as personal and consumer electronics—like small appliances, PCs, and tablets—have been facing challenges, there are reports from some players in the advanced semiconductor space that these markets may be bottoming out, which is encouraging news. Our main challenge is managing inventory and supply chain issues, which we will work through. As we navigate through this phase, we will naturally see a return to growth as we balance incoming and outgoing orders, which will create growth for us. With strong design activity, true growth will be realized when we notice an increase in demand beyond this. Overall, we maintain an optimistic outlook.

David Silver, Analyst

Okay. Great. Just a quick question. I usually dislike taking questions from current events, but I can't overlook the recent high-profile labor negotiations, like those involving auto workers and truck drivers. Has your perspective changed regarding the labor situation for skilled industrial workers? How does the current environment of labor costs and availability influence your thoughts about next year?

David Heinzmann, President and CEO

We don't observe any unusual labor situations across different regions where we operate. Our labor force is well-balanced, and we strive to be the preferred employer in these locations, maintaining a strong reputation. We invest significantly in the communities we serve, which helps us maintain good relationships. I don't see any major issues. The UAW strike has had a minor impact on our third quarter, and while it appears to be winding down, it may still affect our fourth quarter minimally. However, we do not view this as a significant concern.

Operator, Operator

We'll go next now to Joshua Buchalter at TD Cowen.

Joshua Buchalter, Analyst

Let me echo the congrats and good luck to David. I wanted to ask about inventories as well. So I totally appreciate that trying to time or quantify things in the channel is difficult, but I wanted to ask about your on-book levels. In your prepared remarks, you called out some good progress year-to-date. I was wondering, is there a target level that you'd like it to be? Because I still see it's over 100 days now and pre-COVID, it used to run sort of in the 80 to 90 days range. I just want to be curious how you're thinking about the level you'd like on-books inventories to be and how we should think about that as we contextualize the channel inventory as well.

Meenal Sethna, Executive Vice President and CFO

Yes. That's a great question, Josh. As you mentioned, we made really good progress this year on inventory reductions. As I've been talking about the past few quarters, that's been a huge working capital focus area for us, and that's been a nice tailwind as it relates to our cash generation this year. We are running at about 115-ish days or so of inventory on hand, but our target is somewhere 100, maybe a little bit more than 100 days of inventory on hand. The biggest change for us versus the reference point you mentioned is, as our business has evolved versus pre-pandemic times, there are different mixes, some of which have longer lead times. As we continue to grow our OEM-related business, we're holding a lot of our own inventory also that adds a little bit more. Our target may be a little higher than historical, but at the same time, we've got more progress we can make that's going to help us from a cash generation, still going into the end of the year and into 2024. I'm pretty pleased with where we are, the progress we've made, and where we're heading. I think our teams have done a tremendous job managing through some really challenging market dynamics.

Joshua Buchalter, Analyst

I appreciate all the color there, and you actually teed up my follow-up pretty nicely. You called out softness in consumer and personal electronics, but it's sort of stabilizing. Could you remind us of, within your electronics segment as we sort of think about this inventory digestion, the exposure between things like consumer, personal electronics, datacom and industrial, and automotive. Anything you can help us quantify, it would be great.

David Heinzmann, President and CEO

On the consumer-facing side, that represents about 20% or less of our electronics business, or less than 10% when viewed at a corporate level. We do not specifically break out industrial within electronics, but it's important to note that our power semiconductor business has a significant industrial component, along with some of the core electronics. This constitutes a meaningful portion. In terms of end-market exposure, while we have reporting segments that are technology-based, approximately one-third of our revenues are directed toward the transportation sector, which is evenly divided between commercial vehicles and passenger cars. Another one-third is in traditional electronics, and the remaining one-third in traditional industrial applications. I hope this provides some useful insights.

Operator, Operator

It seems there are no more questions this morning. Mr. Kelley, I will now turn it back to you for any closing comments.

David Kelley, Head of Investor Relations

Thanks, Bo, and thanks, everyone, for your questions. That concludes our Q&A session. Thank you for joining us on today's call and for your interest in Littelfuse. We look forward to speaking with many of you at the November 8, Baird Global Industrial Conference and the November 9, Stifel Midwest One-on-One Growth Conference. Have a wonderful day. Thank you.

Operator, Operator

Thank you, Mr. Kelley. Again, ladies and gentlemen, that will conclude the Littelfuse Third Quarter 2023 Earnings Call. Again, thank you so much for joining. I wish you all a great day. Goodbye.