Yahoo Finance Standard Motor Products Inc (SMP) (Q1 2024) Earnings Call Transcript Highlights: Mixed Results ...
First Quarter Sales: Record high for the period.
Profitability: Lagged behind due to inflationary pressures.
Vehicle Control Sales: Increased by 0.5% year-over-year.
Temperature Control Sales: Decreased by 1.1% year-over-year.
Engineered Solutions Sales: Increased by 4.5%, reaching a single quarter record.
Gross Margin: Pressured in Engineered Solutions due to product cost inflation and wage increases.
SG&A Expenses: Elevated across segments, impacting profitability.
Net Sales: $185.5 million in Vehicle Controls; $71.6 million in Temperature Control.
Adjusted EBITDA: Vehicle Controls at 10.4% of net sales; Temperature Control at 4.7%.
Distribution Center Costs: Incurred $1.1 million in startup costs for new Kansas facility.
Share Repurchases: $6.1 million repurchased year-to-date.
Net Debt: $187.7 million, with a leverage ratio of 1.6 times.
Full Year Sales Forecast: Expected to show flat to low single-digit percentage growth.
Full Year Adjusted EBITDA Forecast: Expected to be between 9% and 9.5%.
Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Record first quarter sales achieved, demonstrating strong top-line performance.
Sales in the Engineered Solutions segment increased by 4.5%, hitting a single-quarter record.
Successful initial shipments from the new state-of-the-art distribution center in Shawnee, Kansas.
Maintained gross margins in the aftermarket segment despite inflationary pressures.
Continued strong demand for products across all categories in the Vehicle Controls segment.
Negative Points
Profitability lagged behind due to ongoing inflationary pressures affecting costs.
Increased SG&A expenses due to elevated expenses tied to receivables and factoring programs.
Decrease in profitability in the Engineered Solutions segment due to product cost inflation and wage increases.
Temporary increase in spending related to the new distribution center impacting short-term financials.
Challenges in achieving pricing adjustments with customers to offset cost inflation.
Q & A Highlights
Q: Good morning, guys. Thanks for taking my questions this morning, Scott. Eric, you talked about how, I guess, the weakness that we saw in Q4 sort of sort of reverse and that things are back to normal yet. On the other hand, you talked about POS being a little soft. Is that more just a function of tough year-over-year comparisons or is there something else going on? A: I think that's a fair statement, Scott, that it is more about the fact that the first quarter of 2023 was really quite strong. If you think about the POS trends come in through the fourth quarter of last year and into this year and last year, we saw a sequential erosion of that POS month over month, and that continued a bit into January of this year. And now we start to see a bit of a rebound. So if you look at the whole quarter this year, POS was a bit soft, but I think that it also does reflect that more of that return to where we'd expect it to be.
Q: So you say soft, are we talking flat or down slightly for the whole quarter? A: It moderated throughout the quarter. And overall it was roughly in that flat. There were some periods and some customers that were a little bit up or down from that. But overall, it's that that's what we saw.
Q: Got it. And then on the engine solutions side, it looks like the other most of the growth came from the other segment. Is that UTV mostly? Or is there something else in there and what's driving that? A: But we don't we don't go into the specifics of what's behind that and what's behind it that all other, there's many different end markets in there from motorsports to lawn and garden hydraulic stationary engines. There's a lot of different pieces in there. And as we always say, there's going to be some movement quarter to quarter based on the build schedules of the customers within the. So I wouldn't read too much in to the fact that any subsegment goes up or down in a quarter.
Q: Got it. And then my last question is just on the margin side, you talked about, I guess, labor wages and things like that. How are you addressing that? And what is a good margin, I guess, where should we look for the margin to eventually land in a more normalized environment for this segment? A: So I think, Scott, the gross margin we'd be looking at and I guess to give a little bit of history before I started, if you go back several years, the gross margins have kind of ranged between 18% and 20% over time. And so as we look at offsetting cost headwinds and cost reductions in this area, we look to be getting back into that range. I think on the very bottom line, adjusted EBITDA and where we tend to talk about that number recently. We'd expect that segment to also continue to be in line with the aftermarket, but once the other headwinds are offset.
Q: Hey, morning, guys. You bet, could you talk about temperature control inventory at the customer level ending Q1 and how we are year over year? A: Sure. And I think you can't just look at it after Q1, but as as they're building up their entirety of their preseason orders, which did continue into the beginning of Q2. And what I would say is that basically they're in good shape for the season, maybe slightly above where they were going into last selling season. But they're healthy and where they would want them to be. So Now ultimately, it's about what happens with the weather. And so really we're hoping that that begins over the next few weeks and lasts for a long time.
Q: And you talked about new customers, was that primarily the engineered solutions or did you pick up new customers in the aftermarket as well? A: That's correct, Brett, we were referring specifically to two within Engineered Solutions and not so much new customers as new awards with existing customers, although there is a little bit of that as well, one thing just to kind of characterize what happens in that industry is it's a lot of base hits. It's not like you're landing a new platform with a light vehicle manufacturer and all the segments of multi multimillion dollar award. It's a lot of base hits on and we have been -- that we have been getting those.
Q: Okay. And then final question, I guess on pricing outlook, and we've seen most of the inflation pass through, or is there still some to come to offset the continued high rates? A: Yes. So it's a competitive market, as you well know. And so pricing is not easy to come by. We continue to work with all of our customers where we can to be able to share with them what we're experiencing with cost inflation on. So nothing specific to report. We continue to work on it, but it is getting tougher.
Q: So in terms of kind of industry commentary, it sounded like some areas that the industry there was have a weak start to the spring selling season. Would you, given your kind of inventory and category, mix have exposure to that underlying trend? A: No, I'm not sure I completely understand your question that are you asking whether we're tracking with the overall numbers of the large public companies as they report?
Q: Just in terms -- it did sound like there was more of a DIY. A: No, I see what you're saying. Most of our products are not DIY. There's certainly a bit of work there that certain shade tree mechanics are able to do, but the majority of our products are professionally installed and dumb. So I think it has less to do really with the DIY. customer versus the GIFM. customer. It has more to do with discretionary versus nondiscretionary type purchases and the majority of what we're selling is nondiscretionary. And so while I think you have some economically challenged consumers who are perhaps deferring things that they don't need our typically our types of products, our break fix and if the cars not work in it, they may have to buy.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
