Good day and welcome to the BellFuse, Inc. 1st Quarter 2019 Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Dan Bernstein, President and Chief Executive Officer.
Please go ahead, sir.
Thank you, Mary. Joining me on the call today is Craig Brocious, our Vice President of Finance Lynn Hutkin, our Director of Financial Reporting. Before we begin the call, I'd like to ask them to go over the Safe Harbor statement. Lynn?
Thank you, Dan. Good morning, everybody. Before we start, I'd like to read the following Safe Harbor statement. Except for historical information contained on this call, the matters discussed on this call, such as statements regarding sales projections, customer demand, the impact of product releases and anticipated cost savings are forward looking statements as described under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Actual results could differ materially from Belk's projections.
Among the factors that could cause actual results to differ materially from such statements are, the market concerns facing our customers the continuing viability of associated with integrating recently acquired companies, capacity and supply constraints or difficulties, product development, commercialization or technological difficulties, the regulatory and trade environment risks associated with foreign currencies, uncertainties associated with legal proceedings, the market's acceptance of the company's new products and competitive responses to those new products, the impact of changes to U. S. Trade and tariff policies and the risk factors detailed from time to time in the company's SEC reports. In light of the risks and uncertainties, there can be no assurance that any forward looking statement will in fact prove to be correct. We undertake no obligation to update or revise any forward looking statements.
We may also discuss non GAAP results during this call and reconciliations of our GAAP results to non GAAP results have been included in our release. I would now like to turn the call back to Dan for a general business update.
Thank you, Lynn. Before going through the financials, I would like to provide a brief update on how the business did from an operation standpoint this quarter and what we see going forward. Overall, we were pleased with the continued year over year sales growth during the first quarter, with sales coming in at $125,400,000, up 6% from the first quarter of 2018. Our power solution protection group continued their trend of year over year sales growth with an increase of $5,700,000 compared to the first quarter of 2018, driven by continued demand for our power supplies and array of data center applications. Sales of our DC to DC products also saw growth in 2019.
This was offset by a decline in demand for our custom modular products. Our connectivity solution group had year over year sales growth of $1,400,000. Our SIS business increased revenue by $1,300,000 compared to the first quarter of 2018, led by strong demand for our connector products in commercial aerospace applications both direct to customers and through aftermarket sales. Our Magnetic Solutions sales were generally are the same as last year for the first quarter. The sales of our signal transformer products were strong during the first quarter of 2019, related to medical industry applications.
This increase was offset by lower demand during the quarter for Mag Jack products and discrete magnetic components. Following the record bookings in 2018, we did see some slowing and bookings during the first quarter attributed to customers working down heightened inventory levels, which has been built up in response to new product launches and potential rises in tariffs. These factors led to a backlog of $166,800,000 at March 31, 2019. A reduction of $4,400,000 or connectivity products grew by $6,400,000 from year end, offset by declines of $5,800,000 for our Magnetic Solutions products, and $5,000,000 for our power solution and protection products. From a profitability standpoint, we benefited more from a favorable exchange rate environment during the first quarter of 2019 compared to the same quarter of 2018, and proved stock market conditions led to a $1,100,000 increase and cash surrender value of our COLI policies.
These factors were offset by continued challenges with higher labor costs, due to minimum wage increases in the People's Republic of China and Mexico and higher material costs as compared to the first quarter of 2018. The restructuring efforts implemented in late 2018 early 2019 will have mitigate these rising costs and preserve our margins beginning in second quarter. Overall, while we expect some downward pressure on 2nd quarter sales, compared to last year's second quarter, we are generally optimistic for future sales growth and improved profitability in the second half of this year. As our customers work through their inventory on hand, we expect there will be an upswing in bookings. There are several positive drivers we look to the second half of the year.
Particularly related to key military aerospace platforms in which we participate in continued momentum for our power products within the HEV market. And we're also investing time and resources on developing launching products to support the up and coming 5G markets. And believe that we're well positioned to capture future growth as this new technology emerges. And with that, I'll turn the call over to Craig to run through the financial update.
Thank you, Dan. To provide a quick recap on sales, sales during the first quarter were $125,400,000. North America sales were $64,600,000, up 8.6% from last year's first quarter. European sales were $23,500,000, up 16.6% and Asian sales were $37,300,000, down 3.5%. By product group, Power solution and protection sales were $42,800,000, up 15.3% from last year's first quarter.
Connectivity Solutions sales were $44,400,000, up 3.4% and Magnetic Solutions sales were $38,300,000 essentially the same as last year. Gross profit margin increased to 18.8% in the first quarter of 2019 as compared with 17.9 percent in the first quarter of 2018 as incremental sales in 2019 led to improved fixed cost absorption, partially offset by Our selling, general and administrative expenses were $19,800,000 or 15.8 percent of sales as compared with $20,700,000 17.5 percent of sales in the first quarter of 2018. The decrease in SG and A expenses during 2019 period, primarily related to a $659,000 increase in cash surrender value of our company owned life insurance policy as a result of the stock market rebounding during the first quarter of 2019. In addition, foreign exchange losses were $428,000 lower in 2019 versus the 2018 first quarter. These factors were offset by an increase in ERP implementation costs of $661,000 during the first quarter of 2019 as the 1st phase of our implementation went live in January.
On a go forward basis, $20,000,000 $21,000,000 per quarter in the near term, barring any significant fluctuations in foreign currencies. As a result of these factors, we generated income from operations of $2,800,000 in the first quarter of 2019, as compared to $437,000 in the first quarter of 2018. Interest expense was $1,400,000 in first quarter of 2019, up $263,000 from the same period last year due to the higher interest rate in effect during the 2019 period. Our provision for income taxes was $39,000 for the first quarter of 2019 compared during last year's first quarter. The provision for income positions and the impact from permanent tax differences on U.
S. Tax exempt activities. Earnings per share for the Class A common shares was $0.08 per share in the first quarter of 2019 as compared with a loss of $0.11 per share in the first quarter of 2018. As compared with a loss of excludes certain unusual and other nonrecurring items, EPS for Class A shares was $0.20 per share in the first quarter of 2019. As compared with a loss of $0.09 per share in the first quarter of 2018.
On a non GAAP basis, EPS for Class B shares was $0.22 per share, in the first quarter of 2019 as compared with a loss of $0.09 per share in the first quarter of 2018. And now I'd like to go through some balance sheet and cash flow items. Our cash and cash equivalents balance at March 31, 2019 was $43,200,000, a decrease of 10.7 During the first quarter of 2019, we made net payments of $744,000 towards our outstanding debt balance. We also used cash for capital expenditures of $2,400,000, dividend payments of $800,000 and interest payments of $1,200,000. Accounts receivable were $94,200,000 at March 31, 2019, as compared with $91,900,000 at December 31, 2018.
Days sales outstanding were 68 days on March 31, 2019, compared to 59 days at December 31, 2018. The increase in our accounts receivable balance was largely due to the higher sales volume in the month of March 2019 as compared to the month of December 2018. Our TSO during the first quarter was unfavorably impacted by the pause in in product to our customers consignment hubs while we worked down their inventory levels. Inventories were 124,800,000 at March 31, 2019, up $4,700,000 from December 31, 2018. The increase was primarily in work in process finished goods due to the slowdown of incoming orders and the shipments to the consignment hubs during the quarter.
Accounts payable were $48,100,000 at March 31, 2019, down 8,000,000 from its level at December 31, 2018, primarily due to lower raw material purchases during the quarter. Bell's outstanding debt was reduced by $744,000 during the first quarter, bringing the balance down to 115,200,000 as of March few new line items this quarter related to the adoption of the new lease standard which requires us to record a right of use asset and associated lease liability in connection with assets utilized under an operating lease, which were previously off balance sheet items. On the January 1, 2019 adoption date, we recorded right of use assets in the amount of 20.7 Book value per share, which is calculated as stockholders' equity divided by our combined A and B classes of common stock outstanding, was $14.53 per share December 31, 2018. And now I'd like to turn the call back to Dan and open the call for questions. Dan?
Yeah. Hi, Mary. Can we open up the call for questions?
And our first question is from Mike Morales with Walthausen And Company. Please go ahead.
Hi, good morning guys and thanks for taking my question. I want to dig into a little bit on the slower bookings that you commented on. I know last call that you said that January was running pretty strong, but there was concerns about inventory levels out there. Can you just give more color on when and in what vertical have you started to see the slower bookings in the first quarter?
I think across the board, I think there's 2 major things that we're facing. One with the, shortages that were out in the market, you know, driven by ICs and capacitors that people are being cautious and on double booking, making sure they had orders come in. So that was one concern that we thought that was out there. The other concern was if the government moves from a 10% tariff, to a 25% tariff. People want to get those products in before then.
And also, I think some 2 of our major distributors that are both private companies, One is Digi Key. 1 is Mauser. I think really, took a very aggressive stance in bringing in substantial inventory. So we see both those distributors just holding back on their order process at this time. And so we're projecting that by this quarter.
Hopefully, a lot of that inventory would be flushed out.
Got you. So just to make sure that I'm interpreting this correctly, you said you expect downward pressure in the second quarter. Is that a slight top line contraction? Are you still projecting a little bit of growth in the 2nd quarter? How are you thinking about that from where you sit today?
I think for the second quarter, as we indicated, we are expecting, top line sales to go down compared to last year's second quarter. And at this point, we're estimating high single digit decline. As we look to the second half of the year, it's it's still a little too early to tell at this point. We do see some positive growth drivers further out in the year, particularly related to some military programs that we're on and also, HEV projects that are picking up But we, we typically only have about 12 weeks of visibility in our business. So it's, It's hard to predict at this point how the second half will look, but we do see positive indicators as we look to the second half.
Great. That's very helpful. Thanks for the color. And then, Dan, one of the things that you mentioned was some concern about the component shortage that are out there. I've heard over the past couple of months people kind of point to June 2019 is when this starts to fully work itself out.
We've seen some release, some relief recently. From where you guys are sitting, What are you seeing on the components side? Is there any areas of tightness? Has it worked itself out? How is that right now?
I think at this point, we see a substantial easing of the lead times. We are facing some situation where lead times are stretched out. Past the year, 18 months. I think that's come down to substantially more, reasonable levels. The big, curve ball that we have out there I think is electric cars, and the uses that they have with capacitors and ICs.
So for example, if you look at it, we do a lot with fuses and circuit protection that stand in non electric car were maybe used 40 or 50 fuses. On a new car, electric car, you could have 500 fuses. So we don't know how that's going to progress and how that's going to change the market. If you look back at the shortages that we were facing last year, I think it was a large, largely dependent on the auto industry.
Okay. And then, I've also read the China's kind of pulling back some subsidies on the HEVs, electric cars, where would your HEV exposure be? Is it more China oriented? Is it U. S?
Europe?
No, it's definitely more North America and European. I don't think we've when we give you that cost of credit for the electric market in China. So our focus has been more from the power side is more niche markets in Europe and North America. And by that, for example, buses, trailers,
Not with that. Off road equipment.
Off road. Yeah. Even we do, we're working a lot with, you know, motor companies for I'm sorry, voting companies now on battery charges for them. Also, we do a lot of work with Tesla on circuit protection.
Got you. Dan, Lynn, Craig, thank you very much for the color. I appreciate it.
We appreciate the questions.
Our next question is from Hindu Sassanto with G. Research. Please go ahead.
Hi. Good morning.
Dan, do you have estimate of 5G addressable market for Bell Fuse? And can you remind us your major products that will benefit from 5G?
Okay. What we're doing is a lot of the the wireless work, again, looking at telecommunication where that's going, looking at the auto industry, different areas are moving. I mean, if you look at 5G, it's basically how the whole world interconnects with itself, from what's going to happen with the lighting systems outside, how cars interact with each other. So basically, we're coming up with an array of products that can meet this new technology really focused on the RF side and the wireless side of the business. I should say from the Cinch side, the more of the higher reliability side of the business than the commercial side.
Okay. And then, I think you cited like lower demand of MacJack and Discrete magnetic component in Q1. How should we expect those 2 product groups to trend as we see the remainder of 2019? Should we expect like lower demand to continue?
Well, I think both of those, those products go heavily into the networking companies. Like a HP or Cisco or Oracle. So I think, again, I think they're more of an over inventory situation. Of the concerns they had with the shortages that they brought in of substantial greater product than they need. So we're hoping that a lot of that product could be flushed out this quarter and hopefully the beginning of next quarter.
So it should start improving by the second half of this year.
Okay. And then Lynn mentioned future expectation of high single digit year over year. And can you elaborate, let's say, like across different segments, like whether like one would see like a higher decline versus like a slower decline among your product groups, I mean?
And then you want to take that one?
Sure. So I think that, on the on the Magnetic Solution piece, we're probably going to see the highest decline in that group. Just related to what Dan was just referring to. 1 of our major customers had a new product launch. They have a lot of inventory on hand right now that they're working through.
And under the new revenue recognition standard, we now record revenue as we ship it to their hubs. So to the extent that they are using inventory and we're not shipping as much, that does have a downward impact on our sales So I think that's the group where we see the most decline. The connectivity solutions group some pressure there, but, you know, could either be flat, slightly down, but no major concerns, there. And then on the Power Solutions group, we are expecting that to be down a bit from last year's second quarter. We did have, some shipments, especially into blockchain customers that we don't anticipate repeating in this year second quarter.
And it appears there are no further questions at this time. Mr. Bernstein, I'd like to turn the conference back over to you for any additional comments or closing remarks.
Thank you, Mary. We appreciate everybody being on the call. And look forward to speaking to you next quarter.
And this concludes today's call. Thank you for your participation. You may now disconnect.