Standard Motor Products Inc (SMP) 2012 Q3 法說會逐字稿

And Welcome to today's program. At this time, all participants are in listen-only mode. (Operator Instructions) Please note, today's call is being recorded. It's now my pleasure to turn the program over to Jim Burke. Please begin.

Okay, thank you. Good morning and welcome to Standard Motor Products Third Quarter 2012 Conference Call. And attendance from the Company are Larry Sills, Chief Executive Officer and myself Jim Burke, Chief Financial Officer.

As a preliminary note, I would like to point out that some of the material we will be discussing today may include forward-looking statements regarding our business and expected financial results. When we use words like anticipate, believe, estimate or expect these are generally forward-looking statements. Although, we believe that the expectations reflected in these forward-looking statements are reasonable, they're used on information currently available to us and certain assumptions made by us and we cannot assure you that they will prove correct.

You should also read our filings with the Securities and Exchange Commission for a discussion of the risks and uncertainties that could cause our actual results to differ from our forward-looking statements. I will review the financial highlights and then turn it over to Larry followed by Q&A. However, before we begin our highlights, we hope that our employees and the investor community have come through the storm fairly unscathed. It's a devastating storm and we wish everyone good luck, getting things back to normal with minimal damages.

Overall, we are very pleased with our results in the third quarter. Three key highlights from Q3 2012 are revenue growth, primarily from acquisitions, gross margin expansion and solid cash flow performance. Each of these drivers bode well for future operational improvements. I will now walk through our financial results.

Consolidated net sales in Q3 2012 with acquisitions were $276 million, up $39.8 million or 8%. Without acquisitions, $241.6 million, up $5.4 million or 2.3%, which is basically in line or favorable to sales results reported by many distributors. By segment, Engine Management net sales in Q3 2012 with acquisitions were $175.8 million, up $10.6 million or 6.4%. Without acquisitions, $166.2 million, up $1.1 million or 0.6%.

Temperature Control net sales in Q3 2012 with acquisitions were $95.2 million, up $27.1 million or 39.7%. Without acquisitions, $70.4 million, up $2.3 million or 3.3%. We are very pleased with our sales performance both organically without acquisitions and our sales contributions from recent acquisitions.

Consolidated gross margin dollars in Q3 improved $13.3 million at 28.2% versus 27.3% last year. The nine months improved $20.9 million at 26.7% versus 25.8%. By segment, Engine Management gross margin dollars in Q3, up $7.5 million or 2.7 points to 29.2%. For the nine months, up $16.7 million or 2.2 points to 27.5%. This fairly puts us within our stated goals for Engine Management gross margins of 27% to 28% and we'll look [for four] continuous improvements.

Temperature Control gross margin dollars in Q3, up $5.8 million, but down 1.1 points to 24.3% and for the nine months dollars were up $4.3 million. However, again, down 1.3 points to 22.1%. Temp Control gross margins have sequentially improved this year quarter-to-quarter. In Q1, the margin was 18.9%. Margins were reduced due to production cutbacks as a large customer elected to direct source from China.

In Q2, the margin improved to 21.4%, again Q2 felt the effects of reduced production levels. However, during our Q2 conference call, we noted that the warm season and anticipated further improvements. Q3, the margin improved to 24.3%, which reflects almost a three point improvement over Q2 and within our stated goal for Temperature Control of 23% to 24%. Again, we are very pleased with our gross margin improvement efforts.

Consolidated SG&A expenses in Q3 increased $9.3 million to 18.5% of net sales or 17.6% last year and the nine months increased $20 million to 18.8% of net sales versus 17.5%. Let me break down the major contributors for the nine months increase. The post-retirement curtailment gain last year in Q2 is a non-cash item, which was a benefit of $3.6 million that did not repeat itself this year. Another post-retirement non-cash item for the amortization of prior amendments was a $1.6 million increase.

In addition, for the nine months we had acquisition intangibles amortization, non-cash, an increase of $2.2 million and we had a cost of sales re-class item of $1.6 million. So roughly half, $9 million of the increase in SG&A was for non-cash and a small re-class item. The incremental SG&A expenses from the acquisitions totaled $10 million. In addition, we had AR draft fees increase with our volume of $3 million. The result is, all other SG&A expenses were a reduction of $2 million favorable to total to $20 million. We anticipate further savings in 2013 as we integrate our acquisitions into both our Engine Management and Temperature Control businesses.

Consolidated operating profit before restructuring and integration expenses, [three year] post-retirement curtailment gain of $3.6 million and other income net. In other words, operational operating profit in Q3 2012 was $26.9 million, up $4.1 million at 9.7% of net sales equal to the 9.7% operating percentage in Q3 2011. For the nine months in 2012, operating profit was $59.4 million, up $4.6 million at 7.8% of net sales again, matching the operating percentage for the nine-month period last year.

The net effect of our operational results as reported on our non-GAAP reconciliation was diluted earnings per share in Q3 2012 of $0.73 versus $0.59 last year. And for the nine months, $1.55 versus $1.39 last year. As we stated in our last investor conference call, we anticipated improved results and are pleased with the 23.7% improvement in Q3 EPS and 11.5% for the nine months EPS.

Looking at the balance sheet, accounts receivable increased $57.2 million from December 2011, a combination of our seasonal business and our CompressorWorks acquisition at the end of April 2012. A large portion of this increase will be collected by year-end. Inventories decreased $1.8 million from December 2011, despite the $22.7 million inventory from the CompressorWorks acquisition. Hence, we achieved a $24.5 million favorable reduction in inventories this year.

Goodwill and intangibles increased $15.5 million. This reflects the increase from our CompressorWorks acquisition less amortization of some intangibles. Accounts payable increased $16.5 million from December 2011, primarily due to the seasonal nature of the business and incremental payables from the acquisition. Some of these payables will be paid down by year-end.

Our total debt decreased $12.8 million since December 2011, this decrease is after we expended $38.6 million for the CompressorWorks acquisition in April 2012 and $5 million for our common stock share repurchase. Overall, we generated $62.9 million cash from operations with the remaining cash used for capital expenditures and dividends. Our total debt was $60.5 million at September 2012 and we anticipate to reduce this number further by year-end. Lastly from our cash flow statement, CapEx spending in the quarter was $2.7 million and $8 million year-to-date and depreciation and amortization was $4.2 million and $12.1 million year-to-date.

With that, I'll turn over to Larry.

Okay. Good morning, everybody. Jim has reviewed the numbers. What I'd like to talk about for a minute are the three acquisitions we've recently made because they are a significant part of our results. We've made three acquisitions in the last 18 months and they're all doing well. In April of last year, we acquired a company called BLD, which was a basic manufacturer of certain engine management product groups. We were buying these from them. We have relocated the factory to our locations mostly in Mexico and now we are a basic manufacturer of these important groups.

And in October of last year, we acquired Forecast Trading Company. They were the leading supplier of engine management products to the industry. That segment is a growing part of the business with -- along with the aging of the car population and that's doing quite well. Then in April of this year, we acquired CompressorWorks, which was the leading manufacturer of new air conditioning compressors, which is the fastest-growing part of the Temp business and we are in the process of relocating that manufacturing operation from Dallas to our air conditioning plant in Reynosa, Mexico.

So all three are doing well. Sales are achieving expectations. We maintain all the major customers, the integration is proceeding on schedule. We have achieved certain savings in 2012 and we anticipate further savings in 2013 and all [having] profitable in the first year. That's all very good. What's even more important we think in the long run is that they are all helping us to achieve long-term goals.

BLD and CompressorWorks are helping us to become more of a basic manufacturer. Forecast Trading is helping us with economy line sales. All of them are helping to strengthen us in different market channels and bringing in new customers. We think this is the model for future acquisitions, products we understand, markets we understand, customers we understand. We believe this provides the best synergies and least risk. We'll continue to look for acquisitions of this type. But we will continue to be selective. We're not doing any acquisitions for the sake of acquisitions. But we believe this is a good model for the future. So with that that's our story. We're pleased with the results and now we will open for questions.

(Operator Instructions). Bret Jordan, BB&T Capital Markets.

Good morning. This is actually David Kelley in for Brett. Just a couple of quick questions. First looking at the Temperature Control business, I know you said that if you take out the acquisition impact, it looks like sales were up 3%, but that's including that major account that was lost. I mean could you just help us think about a comparable revenue change year-over-year excluding that major account?

I'm not sure, I understand your question. Could you rephrase it?

I guess, I'm just asking, if you exclude that major account from the third quarter 2011, about what would the revenue increase be on a comparable sales basis year-over-year?

If we isolated this customer, actually because we're out here at the industry show, I don't have that, those numbers handily. We're up 3%. Again, we said that account was in the neighborhood of [20% to 25%], if it was about, if it was a about $4 million or something. The bulk of it was in the first quarter and the second quarter. And what we said during our last conference call, it would be less of an impact in the second half. So if I had to go from my memory, I would say probably there was another differential in the maximum $4 million.

Maximum $4 million. All right, great. Thank you. And then just looking at the Engine Management side, I mean going forward, I mean, any thoughts on what the potential weather impacts be? I know in the last year fourth quarter, there wasn't much of a winter on most of East Coast. Any idea of what the potential impact could be as we have normalized winter year-over-year and go back to normal temperatures, specifically on the East Coast?

The Engine Management business is not nearly as weather related as it was way back with traditional ignition. With most of the products being electronic and sensors, they're just not that weather related. Temp is obviously weather related. So I don't -- we don't see the weather being a factor in the fourth quarter, either this year or past years.

Okay, great. Thanks for answering my questions guys. Thank you.

You're welcome.

(Operator Instructions) And it appears we have no further questions at this time.

Okay. With that I'd like to thank everybody for joining our conference call. And again, hopefully everyone is able to get through the storm unscathed, the best to everyone's families and our employees. Thank you.

And this concludes today's program. Have a great day. You may disconnect at this time.