Bel Fuse Inc. today announced preliminary financial results for the first quarter of 2017. Net sales were $113.7 million for the first quarter of 2017, representing a 6.2% decline from $121.2 million in the first quarter of 2016. Gross profit margin improved to 20.5% in the first quarter of 2017, up from 19.0% in the first quarter of 2016 due to cost savings realized on prior year restructuring efforts and a more favorable product mix in the first quarter of 2017.
Net earnings increased to $0.7 million in the first quarter of 2017. This compares to a net loss of $100.7 million in the same period of 2016, which resulted primarily from a $108.6 million impairment charge on goodwill and other intangible assets as further described below.
Daniel Bernstein, President and CEO, said, "After several consecutive quarters of downward trending sales, our book-to-bill ratio for our two largest businesses reached a record high level since 2014 of 1.2 in the first quarter of 2017. While we are still in 'wait-and-see' mode on the ultimate timing of the upturn in sales, this is certainly the best indicator we've seen in a long time. Also during the quarter, we worked with Avnet to finalize a new global franchise agreement that will give us access to a broader array of customers worldwide. The new agreement will also enable us to provide these customers with world-class design and supply chain support which will bring our products to market more quickly and cost-effectively.
"Bel's Connectivity Solutions business started 2017 with its strongest booking quarter since the formation of this group in 2014, largely led by orders for our RF and Harsh Environment Optical products from military and distribution customers both in the U.S. and Europe. First quarter sales in our Connectivity Solutions business were $41.8 million, up 7.7% from the fourth quarter of 2016. Significant progress made in the fourth quarter in military bookings in Europe led to strong sales in the UK during the quarter. There was also an increase in sales to our commercial avionics customers. Growth in these areas was partially offset by slight declines in sales through our distribution partners and continued weakness in the industrial segment in the first quarter. While sales to distributors in the aggregate weren't particularly strong in the first quarter, there was a 30% increase in sales through catalog distributors, which represents low volume sales to engineers during their design-in phase, and we anticipate volume through broadline distributors to follow suit in future quarters as some of these projects move into production.
"Bel's Power Solutions and Protection group continued to engage in open compute initiatives for datacenters and opportunities in the eMobility segment of the market. Overall, sales in the first quarter continued to be down for this product group due to general network market weakness over the past several quarters. On a positive note, there was a mild upswing in sales to customers that support datacenters during the first quarter. We anticipate the second half of 2017 to yield additional sales volumes as certain key projects move into full production and other recent project wins in the eMobility segment will serve to enhance our sales volumes in 2018 and 2019. In our circuit protection business, which accounted for $11 million of our annual sales in 2016, we saw a 7.9% increase in the first quarter of 2017 as compared to the fourth quarter of 2016 and we expect this trend to continue with projected wins from 2016 translating into shipments beginning in the second quarter.
"Bel's Magnetics Solution business experienced a slight improvement in sales as compared to the first quarter of 2016 while gross margins also improved slightly based upon favorable product mix. As growth in our traditional customer base has slowed, our focus is on increasing volume through our distribution partners and deploying new 2.5-gig and 5-gig variants, providing our key customers with cost effective solutions that bridge the gap between our 1-gig and 10-gig offerings. In parallel, we are expanding our product portfolio of 30W and 60W Power over Ethernet ICMs used in next generation routing and switching hardware," concluded Mr. Bernstein.
Net sales were $113.7 million, down $7.5 million, or 6.2%, from last year's first quarter. By geographic segment, North America was down by 8.9%, Europe was down by 8.9% and Asia was up by 0.1%. By product group, Power Solutions and Protection sales were 14.4% lower, Connectivity Solutions was down by 3.7% and Magnetics Solutions was up by 0.5%. During the first quarter of 2017, 37% of our sales related to our Connectivity Solutions products (compared to 36% for the same period of 2016), 32% related to our Power Solutions and Protection products (compared to 35% in 2016) and 31% related to our Magnetic Solutions products (compared to 29% in 2016).
The decline experienced in the Power Solutions business throughout 2016 accounted for $6.9 million of the decrease in first quarter 2017 sales compared to the first quarter of 2016. Lower sales through distribution partners and weakness in the industrial markets, particularly in the oil and gas segment, also contributed to the reduced sales volume in the first quarter. On a sequential basis, consolidated sales were down by $4.9 million compared to the fourth quarter of 2016. With fewer production days in the month of February coupled with the Chinese New Year holiday, the first quarter tends to be the lowest revenue quarter of the year.
Gross profit margin improved to 20.5%, up from 19.0% in the first quarter of 2016, and gross margin dollars were up by $0.2 million in the first quarter of 2017 despite the $7.5 million decline in sales. Cost savings from the restructuring efforts in 2016 were partially realized in the first quarter of 2017, which contributed to margin expansion in the quarter. A shift in product mix also had a favorable impact on our margins during the first quarter of 2017, as our connectivity products generate higher margins as compared to our power products.
SG&A expenses were $21.2 million, up from $17.7 million in the first quarter of 2016. In the first quarter of 2016, SG&A benefited from a reversal of certain value-added and business tax items recorded in connection with the acquisition of Power Solutions of $2.8 million. Other factors contributing to the increase in 2017 related to consulting fees in connection with the Company's ERP implementation of $0.4 million and an increase of foreign exchange losses of $0.2 million.
Operating income was $2.1 million, compared to an operating loss of $103.4 million in the first quarter of 2016, with an operating margin of 1.8% in the first quarter of 2017 compared to (85.3)% in the first quarter of 2016. The first quarter 2016 operating results were significantly impacted by a non-cash, pre-tax charge for impairment of goodwill and certain intangible assets of $108.6 million recorded during that quarter due to lower-than-anticipated growth rates from challenging macroeconomic conditions.
The income tax benefit was less than $0.1 million in the first quarter of 2017 as compared with an income tax benefit of $4.9 million during the same period of 2016. The Company's income tax provision can fluctuate significantly based upon the geographic segment in which the pre-tax profits and losses are earned. Of the geographic segments in which the Company operates, the U.S. has the highest tax rates; Europe tax rates are generally lower than those of the U.S.; and Asia has the lowest tax rates. In 2017, the Company generated a higher amount of taxable income in Asia than in the other geographical segments. The 2016 period was impacted by tax settlements of $2.7 million in the first quarter, as well as a tax benefit on the impairment charge related to goodwill and intangible assets that was recorded during the first quarter last year. These factors resulted in an effective tax rate of (3.2)% during the first quarter of 2017, compared to an effective tax rate of 4.6% during the same quarter last year.
Net earnings were $0.7 million in the first quarter of 2017 as compared with a net loss of $100.7 million in the first quarter of 2016.
