Cooper-Standard Holdings Inc (CPS) 2014 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Cooper-Standard first-quarter 2014 earnings conference call. During the presentation ,all participants will be in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference call is being recorded this morning, and the webcast will be available for replay later today.

I would now like to turn the call over to Glenn Dong, Vice President and Treasurer. Please go ahead.

Thank you and good morning. Please note that certain information in this call may be forward-looking and contain statements based on current plans, expectations, events and market trends that may affect the Company's future operating results and financial position. Such statements involve risks and uncertainties that cannot particularly quantified and that may cause future activities and results of operations to differ materially from those discussed.

For additional information, we ask that you refer to the Company's filing with the Securities and Exchange Commission. This call is intended to be in compliance with Reg FD and is open to institutional investors, security analysts, [ER] representatives and other interested parties. A reconciliation of certain non-GAAP financial measures used during this call can be found in the appendix of this presentation.

At this time, I would like to turn the call over to Jeff Edwards, Cooper-Standard's Chairman and Chief Executive Officer.

Okay. Thank you, Glenn, and good morning, everyone.

Turning to slide 4, we had a solid quarter highlighted by 12% year-over-year sales growth and strong momentum towards a return to double-digit EBITDA margins. Our team in North America and in Europe have been able to address specific challenges and begin to return to what we are referring to as a more normalized operations. Our strategy in Europe is gaining traction, which I will cover in more detail in a couple slides.

We've also enhanced our bench strength, hiring over 700 engineers and other technical talent to support the global growth.

Slide 5 discusses the current dynamics in North America where production volumes remain strong at 16.8 million units for the year. However, we are starting to feel some headwinds related to full-sized trucks, really related to planned downtime for new launches and retooling here in North America. The North American region posted strong sales with a year-over-year increase of 13%.

As I highlighted in the opening, our team in North America has stabilized the challenges from the latter half of 2013 and are on track for resuming normalized operations by the end of the second quarter. Our investments in bench strength and infrastructure and business systems have had a positive impact as well in improving launch performance and creating breakthrough innovations for Cooper-Standard.

Slide 6 provides an overview of improvements in our Europe business. We have seen a slight pickup in vehicle volumes in Europe in the quarter, but overall the forecast for the year remains unchanged at 19.6 million units. Sales in the region increased 16.5% year over year as a result of gaining market share and rebounding sales from our key customers. Much of the traction we have gained as a result of improving our leadership strength in the region and executing the strategy for profitable growth. As previously announced, our Serbia facility is on schedule to open this year with ramp-up expected through 2015.

On slide 7, I would like to provide an up date on our focused approach to the Asia-Pacific business. 2014 production volumes remained stable at [44.5] million units. With Asia representing the greatest growth in the next six years, we are investing in an aggressive rate to ensure we are prepared to capture our fair share of those new business opportunities.

We continue expanding in India and have just kicked off ceiling production in our Bawal, India facility. We've opened a new R&D center in Shanghai to provide additional engineering capabilities and customer support.

In addition, to help accelerate our growth plans in Asia, we are actively evaluating the partnerships and are encouraged by current opportunities.

Turning to slide 8, the South America region faces a number of issues with a challenging economic environment. Foreign exchange volatility and decreased physical production, going from 4.5 million units in 2013 to 4.4 million units in 2014. We expect further deterioration throughout the year. Despite these challenges, we continue to win new business and gain market share. We are launching considerable new business in the first half of 2014 and seeing overall improvement in operations and in our financial performance. We remain very focused on the South America turnaround.

Slide 9 highlights the results of our recent investments in innovation. Our technical team has been actively working on innovations that will begin to fill the commercial pipeline very soon. In Sealing we have developed new materials that creates improved performance with superior aesthetics.

In our Fuel & Break Delivery business, we are nearing completion of our third-generation quick connect and are developing a new coating technology to provide additional durability and resistance to harsh conditions.

In Fluid Transfer, we are developing new technology to more efficiently form hoses, and our ArmorHose technology will greatly increase hose wear resistance without the use of a secondary sleeve.

I would also like to confirm that after careful analysis we will continue to supply Anti-Vibration Systems as our fourth core product group and are pleased to announce that we were recently awarded our first major AVS global program.

I would like to now turn the presentation over to Allen Campbell. Allen?

Thank you, Jeff.

Turning to slide 11, Cooper-Standard generated sales of $837.6 million, up 12% from $747.6 million in the first quarter of last year. Sales grew in all regions after adjusting for foreign exchange impact, but were noticeably stronger in North America and Europe. Our North American operations reported sales of $432.6 million, an increase of $49.8 million or 13% from the same quarter of previous year, as compared to North American vehicle production increase of 5.8%. Sales were impacted negatively by $7.2 million due to weakening of the Canadian dollar against the US dollar.

Sales in Europe for the quarter were $308.2 million, up $43.7 million or 16.5% from the same period in prior year with $11.4 million of favorable foreign exchange. We are cautiously optimistic about the region with vehicle production up 5.3% in the quarter and signs of improvement in some of our key customers.

Brazil continues to be an important but challenging region with vehicle production down and currency fluctuations in the quarter. Our business generated $39.8 million of sales, down 12.4% from the previous year quarter, primarily due to $7.3 million of unfavorable foreign exchange. Sales were up 3.7% when equalizing foreign exchange.

Asia-Pacific operations reported sales of $57.1 million in the quarter, up 4% from the same period in the previous year.

Lastly, our non-consolidated joint ventures continued to perform nicely, generating sales of approximately $120.6 million in the quarter, a 6.8% increase from the prior-year period. Consolidated gross profit for the quarter was $134.3 million or 16% of sales, up $13.9 million from the same period in the prior year. The increase in gross profit was driven by high sales and our continuous improvement savings, partially offset by vehicle launch costs, higher staffing and effects of our customer price concessions.

Additionally in this quarter, SG&A expense grew to $79.6 million as compared to $75.1 million in the prior year, down 0.5% as a percentage of sales. These increased costs are consequently growing sales and re-staffing of engineering and other talent across the Company to deliver our key strategies and support our customers around the world.

Operating profit in the quarter was $47.2 million with net income of $19.7 million and fully diluted earnings per share of $1.10. Additionally, the Company generated $80.6 million of adjusted EBITDA or 9.6% of sales, which I will discuss in more detail shortly.

On slide 12, we show the walk from net income to our adjusted EBITDA of $80.6 million.

In addition to customary adjustments to net income, including tax, depreciation, amortization and interest expense, we have add backs to EBITDA for restructuring charges of $3 million, predominantly in Europe, previously awarded stock compensation of $2.1 million and $400,000 in connection with acquisition and other miscellaneous costs.

Turning your attention to the next slide, although our adjusted EBITDA margin for this quarter was 9.6% as compared to the prior year of 10.3%, we have shown material improvement in our performance against the last two quarters as we worked through the specific challenges associated with some of our new product-related plant issues both in North America and in Europe. We have seen the situation gradually improving during the course of the quarter, which has enabled us to eliminate approximately $13 million of excess operations costs, which we incurred in the fourth quarter of last year. We expect improving margin trend to continue with our second-quarter full-year profitability returning to more normalized levels.

In slide 14, we show cash flow for the quarter. The business generated $61.7 million in cash prior to changes in operating assets and liabilities. We utilized approximately $57.8 million to finance changes in operating assets and liabilities, which included our working capital requirements and investments in tooling. As of March 31, we carried approximately $147.5 million in tooling on our balance sheet.

Our capital expenditures for the quarter were $63.8 million. Our relatively heavy first quarter related to expenditures which included Serbia and China expansions and various program launches in North America such as the F-150 and other Ford programs in Europe for Opel, Audi and Daimler. Experienced sales or capital expenditure is more weighted to Asia and Europe to support strategic initiatives.

Other cash items in the quarter include a $5.9 million increase in our foreign borrowings, financing Serbia, Brazil and India, and $4.9 million proceeds for warrants exercised. Overall, we ended the quarter with $138 million in cash on the balance sheet. We continue to maintain adequate liquidity to run our business with $251 million of availability, which is comprised of cash on the balance sheet and an undrawn ABL credit facility of $150 million, plus $37 million allocated to letters of credit.

On slide 15, I would like to mention our recent capital market transactions we completed shortly after our March quarter end.

On April 4, we completed a $750 million term loan facility at favorable interest rates, which will result in annual pretax interest expense savings of $23 million at today's interest rates and an increase in fully diluted earnings per share of approximately $0.81.

Additionally, we were able to extend our debt maturity to 2021 from 2018. The facility is negotiated with very flexible terms, which will enable Cooper-Standard to execute our strategies around the world. We believe this to be the first covenant-light [permanent] loan event successfully completed in our sector since the credit crisis.

Proceeds from the facility were primarily used to refinance our 7 3/8% Senior PIK Toggle Notes and the 8.5% Senior Notes through cash tender offers and redemption of those outstanding notes not tendered. As of March 31, our financial metrics continue to remain strong, and we believe the recent financing will further enhance our financial metrics.

In conclusion, on slide 16, we affirm our initial guidance from 2014. Our assumptions remain unchanged with North American vehicle production of 16.8 million and European production of 19.6 million units for the full year. But we have modified our [viewer] FX rates to reflect the current market with average exchange rate of US dollar to euro of $1.38 and US dollar to Canadian dollar of $0.91. We expect consolidated sales to be within the range of $3.25 billion to $3.35 billion, and we expect to return to normalized double-digit adjusted EBITDA margin for the full year. Capital expenditures would be in the range of $195 million to $205 million; cash from restructuring, predominantly in Europe, to be between $20 million and $30 million; and cash taxes of between $25 million and $35 million.

This concludes the formal portion of the conference call. Operator, please open the call for a Q&A portion.

(Operator Instructions). Graham Morris, Contrarian Capital.

I was wondering if you could comment on how large the one-time charges were related to the product launch and additional staffing charges.

Well, what we said last quarter is we had $17 million in the quarter. That $13 million of them would not repeat in the first quarter, and that is what we are saying today, that they did not.

Okay. Great. Thanks.

(Operator Instructions). Ed Slapansky, Visium.

Are you planning to have any transformative events in the coming quarters?

We are in no position to announce anything.

(Operator Instructions). This concludes our conference call. You may now disconnect.