Stoneridge Inc (SRI) 2002 Q1 法說會逐字稿

Before we begin, the company statements made during this conference call which are not historical facts, may be considered forward-looking statements. Forward-looking statements, involve risks and uncertainties, that can cause actual events or results to differ materially from those expressed or implied. In addition, this conference call contains time sensitive information that reflects management's past analysis only as of the date of this live call.

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This conference is being recorded. If you have any objections, please let us know by pressing star, then zero now. Hearing no objections, I would like to turn the conference over to Cloyd Abruzzo Chairman and Chief Executive Officer of Stoneridge. Mr. Abruzzo

Thank you. I'm Cloyd Abruzzo, President and CEO of Stoneridge. With me today is Kevin Bagby, our Chief Financial Officer. I have a few comments regarding the first quarter and then Kevin will make a detailed presentation of our performance for the quarter. our guidance for the quarter is going to be above consensus estimates. Our first quarter results, which are somewhat better than anticipated production volumes, in the light vehicle market in our cost reduction initiatives. Sales in the first quarter were 158 million, compared to 156 million in the first quarter of '01, which represents roughly a one percent year-to-year, year-over-year increase. During the first quarter our EPS were 25 cents a share, compared to 14 cents a share in '01.

However, it should noted that affective on January 1, 2002 the company adopted FAS 142, and as a result has eliminated the amortization of goodwill. If FAS 142 were adopted on January 1, 2001 , the first quarter of last year would have been 21 cents a share. Our cost reduction actions implemented in late '01 have had the intended impact on our operations, with improved operating results on relative flat year over year revenues.

We anticipate continuing improvement of production volumes continue to increase over the course of the year. Improvement in our operating , and aggressive management of working capital and capital expenditures, have contributed to improved cash and liquidity during the quarter.

As we look outward, continuing to win new business awards, and are growing cautiously more optimistic about '02 as forecast of industry production volumes begin to rise from the level forecast at the beginning of '02.

Regarding the second quarter, we anticipate EPS, earnings per share, to be slightly higher within the consensus of 25 cents a share more in line with 28 -- in a range of more -- between 28 and 30 cents a share for the second quarter.

However, it remains too uncertain as we look out over the balance of the year to change our full year guidance, beyond the impacts of the first and second quarter as we discussed.

This morning we also announced in a press release, our intentions to sell $200 million of and offering, and to concurrently to refinance our credit facilities. The proceeds will be used to pay existed indebtedness and provide funds to purposes. We can resume our to our existing capital structure and believe the transactions amounts will provide the company with more -- a more stable and flexible capital structure for the future.

We would like to provide a lot more information about this transaction, however will all due respect to the securities laws, and on the advice of our counsel, we are prohibited from disclosing more information at this time.

Now Kevin will go into our financial results.

Thank you Cloyd. Revenue for the first quarter of '02 was $157.7 million dollars, an increase by $1.5 million and one percent compared with $156.2 million for the same period in '01. In the North American light vehicle market, production increased approximately five percent. The first quarter rise marked the first year over year increase in light vehicle production in six quarters.

In contrast, production of medium and heavy-duty vehicles continue to decline, falling approximately 15 percent below the prior year level. With American revenues of $133.2 million dollars, with essentially flat with the prior year-end results. While revenues generated by the European and other overseas operations of $24.6 million dollars, with $1.5 million dollars at 6.1 percent above the '01 performance. North American revenue has accounted for 84.4 percent of the total first quarter revenue, compared with 85.2 for the same period in '01. Revenue by end markets for the first quarter were as follows; total passenger car and light truck $91 million dollars, medium and heavy duty truck revenues were $49.2 million, agricultural products generated $14.1 million dollars and all others accounted for $3.5 million dollars.

Revenues generated by the power distribution product line of $34.7 million dollars, was two percent below the '01 performance, reflecting a decline in the production of medium and heavy duty trucks, upset by increase -- the increase and contents of the . Controlled devices experienced a shift in million which was 2.8 percent above the '01 level to increased the North American Light Vehicle Bill and new business offset by lower commercial volume. Revenues generated by the product group of $39.2 million dollars, which was above the '01 performance by approximately 8.3 percent.

Increased North American Light Vehicle production, as well as drove new business drove vehicle -- the revenue increase. Shipments of vehicle management products, from North America were approximately $10 million dollars, while the European operating units generated shipments of $17.8 million, which resulted in the decline of 10.7 percent in 5.8 percent respectively.

A reduction in each market reflects lower commercial vehicle production levels. The growth profit for the first quarter was $39.3 million $1.2 million dollars higher than the prior year and the corresponding margin rate of 24.9 percent, increased 50 basis points, compared to the first quarter of '01. The improvement in gross margins is primary attributed to cost reduction initiatives such as; lien manufacturing, fixed programs and improved North American Light Vehicle production.

We will partially offset by higher depreciations and continued pricing pressures. Total employees of 5,828 or 468 or 4.7 percent below the first quarter '01. Selling, administrative, and development expenses of $21.6 million in the first quarter of '02 were approximately $3.6 million dollars lower compared to the similar period in '01.

The adoption of FAS 142, accounted for $2.5 million dollars of the improvement, while the remaining reductions were attributed to the cost reduction efforts. Mitigating this impact were higher design and development costs necessary to support our strong, net new business, which currently $230 million dollars.

Operating income for the first quarter '02 was $17.2 million dollars, $4.8 million dollars above the same period in '01. Pro forma for FAS 142 operating income increased $2.3 million dollars, reflecting the cost reduction and -- volume improvements described earlier. In addition higher depreciation in design and development expenses, adversely affect our operating income during the first quarter.

Interest expense for the first year of '02 was $8.6 million, up $700,000 from the previous year. The increase is due to higher borrowing costs under our current bank agreement.

The company recognized the tax expense of $3.3 million to the first '02, which translated into a 37.5 percent tax rate.

The net income for the first quarter '02 was $5.6 million.

The basic and diluted EPS were 25 cents, versus 14 cents reported in '01, and 21 cents pro forma for FAS 142. Depreciation expense for the quarter of $5 million, up $500,000 from the prior year, while amortization expense took $700,000.

Income before interest taxes, depreciation and amortization is $23.4 million for the first quarter '02, compared to $20.1 million for the comparable period in '01.

Working in capital for the first quarter '02, with $45.3 million and declined by $41.7 million for 48 percent compared to the same period in '01, on a one percent sales increase. In addition, working capital declined by $1.1 million dollars sequentially, while sales revenues increased significantly till late into the fourth quarter.

The year to year and sequential reduction in our inventory was primarily a response -- a result of lien manufacturing initiatives adopted in '01.

We are pleased with the progress we have made in reducing our working capital and remain focused on the continuing to improve our performance going forward.

Operating cash flow, net of fixed assets additions, $9.9 million for the first quarter '02, which was $14.7 million higher than the first quarter '01. The sources of cash flow were lower working investments, lower capital expenditures, and higher net income compared to the first quarter '01.

Capital investments for the first quarter '02 were $4.2 million, reflecting investments of products with chassie applications position programs .

Total debt as of December -- as of March 31, 2002, was $282 million, compared with $291.3 million on December 31, 2001.

Financial leverage as measured by the debt to total capitalization decreases a 51.5 percent for the first quarter as compared to 52.3 percent as of the end of the .

Common shares outstanding as of March 31, 2002, were $22,399 million.

In summary, we are pleased with the progress we have made in realigning our costs structure to lower volume and improving our cash flow generations to reduce working capital investments, capital expenditures, and accrued earnings. We remain focused on driving improved operating results '02 and beyond -- with that, I'd like to return the call back to Cloyd for closing remarks.

Thanks Kevin. We'd be glad to take any questions now from callers.

Again, if you'd like to as a question, please press star, then one on your touch-tone phone. If you wish to withdraw your question, please press star, then two. Our first question is from from Morgan Stanley. Your question please

Good afternoon everybody. Just one quick question on the working capital improvement you guys showed year over year, in particular there's one line item, the accrued expenses and other, I'm just trying to understand why there's such a significant change every year?

Yeah, I think the -- when you say year over year, I think the is really from the first to year to the year end and that's roughly $9 million -- that's made up really of accrued interest and accrued taxes.

The primary driver's there?

OK. And then one quick question on the backlog, do you have -- in terms of how much is coming due this year -- in that new business that is coming on, stream?

Approximately between 25 and 30 million.

OK, and that's going to be primarily in the second half?

Yeah.

OK, thank you.

The next question is from of CSFB. Your question please.

Yeah, good afternoon.

Good afternoon .

On the tax rate that jumped up to 37.5 percent, is that because of the change in goodwill accounting and should we assume that we stay around the 37.5 percent range going forward?

Yeah, I think that going forward -- right -- 37.5 percent is we have some one time deductions that we took at the end -- at the end of first quarter last year. Primarily related to product development, credits.

So, that 37 and a half is more of an appropriate rate for you guys.

Yes.

OK. On the SG&A expense, I know that's relatively sticky, for your company, should that stay somewhere around the 21 to 22 million range?

Yeah, I think we're comfortable with that going forward.

OK, and then the last item from an income statement's standpoint is the equity losses from unconsolidated subs. Do you expect that to continue to be a small loss per quarter?

No, that should actually change back over probably to income going forward . Some of that reflects the impact of foreign exchange in South America, that's were it actually works into our financial statement from our PST affiliate.

OK. Thank you.

The next question comes from of Robert W. Baird Company. Your question please.

Good afternoon.

Hi David, hi David.

Can you -- a little bit bigger picture here -- take a step back and look at the competitive YMCA. Can you give us some perspective of -- at the margin, where business is being awarded where your winning and where some other folks might be winning, and what the difference might be there?

David, I think the new business that we're winning continues to be at reasonably good margins. You know more -- pretty much in line with our historical margins, as you know we have a, we have a, fairly rigorous, fairly rigorous analysis when we take on new projects. We look at -- really at return on investments more so than margins, and again we target internally about a 20 percent return on investment. And into that model we also build the anticipated price downs we're going to have to give over the life of the product.

OK, and what business that you're going after that you're not getting. What would be -- I guess -- if you have any examples of that and what might be the reasons someone else is getting it?

it's usually price. Rarely is it anything else but that. business that we've been going after aggressively you know -- in the selective product areas where we have a dominant position, we have a very high success rate there.

Have you seen that change at all over the last 18 to 24 months?

No, if its changed, its probably changed for the better for us.

OK, great. Thank you.

Thank you.

The next question comes from from McDonald investments. Your question please?

Good afternoon gentlemen.

Hi .

Just a couple quick question, the first is you know -- when I look at production sequentially from first quarter to second quarter -- all right it looks like productions is going to be up about nine percent. If that were the case, that would give you, that would give you revenues probably in that 165 to 175 million range. Is that, is that reasonable?

I think you're just probably looking at automotive production aren't you .

Right, North American production.

Yeah, remember probably 35 to 40 percent of our business is in commercial vehicles which is really not . any these large increase in the second quarter.

OK, another question I had concerned -- let's see here -- capital expenditures, you're still in that 20 million range for the year?

Yes.

Maybe just a little bit more than that. It's certainly around that area.

OK, and one last question, earlier in the backlog -- I guess a follow-up -- you had mentioned that you thought about 25 to 30 this year, that's through the remainder of the year or earlier I think you had mentioned that on a previous call that '02 was like in that 40 to 45 million range. Is that a change or ...

I'm not -- I'll have to go back and look at the call, the call right. I thought that we pretty much hadn't given any guidance with respect to that but, I think this is the first time we actually done anything about new business for '02. Well I'll check that and I'll get back to you.

OK, so but you're still -- but that new for this year is your saying 25 to 30?

Yes.

OK, thank you very much.

The next question comes from from Credit Suisse First Boston Your question please.

Good afternoon.

Hi Wendy.

Hi Wendy.

OK, what's for that new business for next year. Is it same magnitude? How long is the 240 that you gave us? Is that over five years?

Well roughly, but to answer your first question, it's about 85 million a for '03.

So that's, that's the real ramp up. Is that the, is that the .

basically, about four products, one of the precious sensor is a big piece of it and so is the next generation product -- next generation vehicles, excuse me.

Yes. And then, the capital spending that would be associated with that next year, are we going to have to accelerate a lot of that 20 million or can we stay around that level?

I think we're still looking at that number .

OK, and good job on the working capital in the first quarter. Do you think you can run it that rate for the rest of the year?

Well, I think there may be some accounts receivable, but in terms of inventory we think that's a good level for us going forward, and in terms of our payables, we also think that's a pretty good level for us going forward.

So -- I'm ass ... -- so inventories would stay around this level or would they continue to decline?

I would think they'd stay around this level.

OK and receivables, we should just sort of look at the days sales .

Yes.

nedum. Yeah, OK and you sort of eluded to this, but is there any kind of an up turn in the heavy truck market?

You know , I think you know, we're stating to see -- I think, just some you know, some modest increase in production schedules and -- bottom and slow comeback basically. There is some, you know, some anticipation that there may be a pre-buy coming in this place, very soon here, as a result of the new engine requirements due out in the fall, but we really haven't seen a lot of that yet.

Well, that's probably good news, you'd hate to have a pre-buy and then go back into a .

Yeah exactly.

All right, so you think you're bottoming out, but no real up turn yet.

That seems to be -- you know -- the forecast from most of .

OK and you didn't say anything at all about Brazil. Is there any color you can give us on what's going on down there?

The Brazilian market continues to do -- you know -- to do well for us. I think we're fairly optimistic to pick up and we continue to get better penetration for some of our products down there not only in the commercial vehicle side, but also on the automobile side also. So we're encouraged about the progress in Brazil.

Great, thank you.

Again, if you would like to ask a question press star, then one, on a touch tone phone. Currently Mr. Abruzzo, there are no further questions. We do have a question now from from Lumus Sales. Your question sir.

Good afternoon everyone.

Good afternoon.

Got a quick question for you about your bank revolver. How much do you have available under it right now?

I think we have about 30 million.

OK, and the ID behind the 200 million senior note offering, I suppose is to give you more financial flexibility going forward to term out some of this bank debt. Is that the point behind that?

Yes.

OK, so we can expect -- and I know you can't say much, but your debt maturities as scheduled for the next few years, we should expect that to change?

I believe we would anticipate that, yes.

OK, and that's it.

Thanks.

Thank you.

We have a question from from Robert W. Baird. Your question please?

in the heavy truck business talking about a sequential 20 to 25 percent increase in Q2 versus Q1 , admittedly that's fulfilled and we're probably going to pay for it later, but are you seeing that in your schedules for Q2?

You know thinking of that, not that I'm aware of. We have not seen any -- again, significant increase in any of our heavy schedules going into Q2 here.

OK, just wanted to check on that, thanks.

Yes.

Mr. Abruzzo, currently there are no further questions.

OK, we'd like to thank everyone that participated in our call today and we look forward to our next conference call somewhere around July 20, thank you. Yes.