Stoneridge Inc (SRI) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2015 Stoneridge Earnings Conference Call. My name is Tracy, and I'll be your operator today.

At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions)

I would now like to turn the call over to Ken Kure, Corporate Treasurer and Director of Finance. Please proceed, sir.

Good morning, everyone, and thank you for joining us on today's call. By now, you should have received our second quarter earnings release. The release and the Company presentation has been or will shortly be filed with the SEC and has been posted to our website at www.Stoneridge.com.

Joining me on today's call are Jon DeGaynor, our President and Chief Executive Officer, and George Strickler, our Chief Financial Officer.

Before we begin, I need to inform you that certain statements today may be forward-looking statements. Forward-looking statements include statements that are not historical in nature and include information concerning our future results or plans. Although we believe that such statements are based upon reasonable assumptions, you should understand that these statements are subject to risks and uncertainties and actual results may differ materially. Additional information about such factors and uncertainties could cause actual results to differ may be found in our 10-K filed under -- with the Securities Exchange Commission under the heading "Forward-Looking Statements."

During today's call, we'll also be referring to certain non-GAAP financial measures. Please see the Investor Relations section of our website for our reconciliation of these non-GAAP financial measures and most directly comparable GAAP measures.

As a result of the sale of the wiring business starting in the second quarter of 2014, our control devices, electronics, and PST segments have been reported as continuing operations, while the wiring business reported as a single line called discontinued operations. In addition, our balance sheet and income -- and statements of cash flow, including the wiring business, through July 31, 2014.

Our forward projections for 2015 are for our three remaining segments as only our historical results, including the wiring business, are not indicative of our future performance.

We will begin the call by describing -- Jon will begin the call by describing his initial observations and strategies to address the near-term challenges on longer-term value enhancements for Stoneridge. George will discuss the financial and operational aspects of the second quarter.

We've prepared and published an earnings presentation to provide more detailed schedules to help your understanding of the second quarter results, trends for our continued improvement, and update you on key initiatives to improve financial performance. A copy of these can be found on our website at www.Stoneridge.com in the Investor Relations section.

After Jon and George have finished their formal remarks, we'll then open up the call for questions. With that, I'll turn the call over to Jon.

Thanks, Ken, and good morning.

I'm pleased to report that we recorded a strong second quarter in spite of headwinds from currency changes in Europe and Brazil and continued deterioration in the economic situation in Brazil. This performance is a reflection on the capability of Stoneridge to collectively perform to our expectations. George will provide more detail in his section on the performance of the second quarter.

Over the last four months, I visited every business unit at least once. The focus of my visits has been to identify opportunities to improve the profitability, cash flow, and a return on invested capital in our current business while improving our capabilities to support future growth. Based on my initial assessment, there are a few critical themes intended to provide focus for the organization over the coming months.

First, predictability. Putting the analytical tools in place so we can reduce variation in our business and prioritize capital and human resource deployment; in essence, get better at being able to predict future performance of the Company.

Second, deepening our organizational competence. I'm going through a robust organizational review to make sure that we have the right people in the right positions and that we are effectively aligned to ensure positive future performance.

Thirdly, new program launch execution. In 2016, we will have the largest organic growth opportunity in the history of the Company, nearly $90 million in new sales. With the launch of our new shift-by-wire programs, our number-one focus for the second half of this year is to launch each of those new programs flawlessly.

By standardizing facilities and refining activities, we will increase our capability to launch products flawlessly and support our customers. To facilitate productivity improvements in engineering, we have also started to evaluate global centers of expertise, seeking to leverage development efforts across all business units and prioritize activities based on a new understanding of our strategic framework.

Fourth, develop a clear understanding of current and future strategic positioners. We need to clearly understand our markets, our competitive position, and the product offerings that serve the needs of our customers. As we develop a more detailed and sophisticated view of the external environment in which we play, we will be able to refine our global product lines, customers, and footprint strategies.

We are also actively working on repositioning our current product lines within our facilities to best utilize our capability and increase our productivity and efficiency. For example, in China, we are pursuing expansion with additional Stoneridge products to accelerate the growth in the Asia Pacific region and support our global customers.

Fifth, consistent top-line growth. Stoneridge needs to deliver more consistent top-line growth. A good example of our focus in this area is an exciting new product line being developed in Europe within our electronics business.

As we indicated in our press release on July 17, this is a mirror replacement system currently targeted for commercial vehicles that employs the use of cameras and internal display screens to replace external mirrors. This product, developed jointly with Orlaco from Barneveld, Netherlands, will drive both fuel economy and safety improvements in commercial vehicles. This system has potential to be another significant product line for Stoneridge and to be applied globally.

I'm excited to have joined Stoneridge. This is a company with a long history. I'm honored to have joined in the year that we celebrate our 50th anniversary. I'm proud of that history, but more importantly, I'm conscious of my responsibility to prepare the Company for the next 50 years.

We have a dedicated leadership team who are anxious to write the next chapter in the history of Stoneridge and to lead Stoneridge to the next level of performance.

I am convinced that all of the themes that I've mentioned this morning and how we execute on the improvement initiatives that support those themes will enhance shareholder value for the Company. I'll look forward to discussing our progress this afternoon -- later today and in forthcoming calls.

I will now turn the call over to George to discuss Q2 in detail.

Thank you, John.

In spite of currency headwinds and a difficult Brazilian economy, Stoneridge reported a strong earnings per share from continuing operations of $0.25 per share in the second quarter of this year compared to adjusted earnings per share from continuing operations of $0.06 in the second quarter of last year.

Our second quarter results show the strength of our combined businesses with the ability of our PST management team to react quickly due to deteriorating economic situation to our control device and electronic business to perform better, which helped to offset some of the unfavorable effects of PST's performance.

Stoneridge's consolidated revenues in the second quarter were $165.3 million, an increase of $3.2 million, or 2%, over the second quarter of last year. And on a constant currency basis, which excludes the impact of foreign exchange translation, [some of our] sales would've grown 12.2% compared to the second quarter of last year.

And by business units, sales in the second quarter increased in control devices by $8 million, or 10.4%, and electronics by $5.1 million, or 9.7%. And sales of electronics decreased by $1.7 million, or 3.2%, after excluding sales of $6.8 million to Motherson, which prior to the sale of the wiring business were counted for as an intercompany sale.

In addition, electronics revenues were negatively affected by approximately 8.7 million on translation of sales due to weakening Swedish krona and euro against the US dollar. See slide four for more detail.

Passenger car and light truck revenues were $68.6 million in the second quarter, a 14% increase over the second quarter of last year's sales of $60.2 million as volumes increased on control device products, which included new programs -- shift-by-wire, seat track position sensors, and keyless entry.

North America automotive production continued to look very favorable in the second quarter for control devices, and the outlook for the rest of the year remains equally positive.

In addition, our business in China, which is part of our control device reportable segment, is beginning to show significant improvement. During the second quarter, China recorded an operating margin of 7.3% on sales growth of 23.3%, which was far ahead of our plan for them this year, which is about breakeven and significantly ahead of last year's second quarter operating margin of negative 0.5%.

One very important point of why we had such a strong second quarter was Stoneridge's second quarter operating margin excluding PST, which was 7.1% to the second quarter. This is a significant improvement over the first quarter of this year, which recorded an operating margin of 4.2%. See slide five for more details.

Sales in our commercial vehicle category, which are predominantly electronic sales, were $57.9 million in the second quarter compared to $52.8 million, a 9.7% increase over the second quarter of last year, due primarily to higher-volume sales of instrumentation products in Europe and sales to Motherson of $6.8 million, which were classified as intercompany sales in the second quarter of last year.

And as previously mentioned, electronics revenues continue to be negatively impacted by weakening Swedish krona and euro against the US dollar.

PST's second quarter sales declined by $9.9 million, or 30.1%, to $23 million, compared to the second quarter of last year. These results were negatively impacted by approximately $8.7 million on FX translation as the Brazil real devalued by 37.7% in the second quarter of this year compared to the second quarter of last year. But on a constant currency basis, PST sales were down only by $1.2 million, or 3.8%.

In addition, PST also experienced a negative transactional impact of $3.6 million in the second quarter in direct material, which was largely offset by the redesign of our audio line from our Asia supplier and new supplier sourcing initiatives that begin last year along with recent pricing actions.

Our PST management team is balancing our cost structure to match the demand forecast, driven largely by the economic downturn.

To offset the unfavorable currently impact, PST management raised prices by 11.3% in March and April in the aftermarket channel, by 10% in the audio line, which was followed by Pioneer, and 12% in the OES dealer channel in April.

PST has been monitoring competitors' pricing actions taken in response to PST's price increases and their different channels of distribution to make sure competitors are following PST's lead.

Even though the economic situation has been difficult, our PST management team continue to respond by adjusting their cost structure to match market demands. PST management, in addition to the pricing action, has implemented additional cost actions in July to drive and maintain gross margins by product line and channel of distribution. The cost of actions taken to redesign the audio line in 2014 is benefiting PST in 2015, though much of the improvement is being offset by the negative impact from currency changes.

PST is also benefiting from favorable mix from higher sales of services, which has helped to offset unfavorable FX impacts caused by the strong dollar.

And the restructuring programs affecting overhead and SG&A cost actions taken in July of this year are expected to cost 1.8 million (inaudible) in the third quarter of this year but will be neutral to 2015 earnings.

And due to a large number of economically negative events, Brazil real for gross national product contracted 1.6% in the first quarter of this year in year-ago terms, and data shows this contraction deepened in the second quarter. Brazilian unemployment fell a sharp 0.7% in year-ago terms in May, raising the unemployment rate to 6.7%, the highest since Brazil emerged from the downturn in 2010.

Since most of the shocks of the Brazilian economy will be persistent ones, its downturn is likely to continue in the second half of this year. Inflation has risen to 9.1% from 7.2%, and interest rates have risen to a range of 18% to 21%.

And the economic IME forecast now shows real GDP will contract 1.5% in this year and only return to modest growth of 0.7% in 2016.

But excluding the effects of purchase price accounting, PST having negative operating margin of 7% in the second quarter mainly due to unfavorable Brazilian economy, and as a result of all the actions taken, we expect PST to return to profitability in the fourth quarter of this year as seasonal demand increases will still only break even in the second half of this year.

Consolidated Stoneridge operating income margin was 4.5% in the second quarter of this year compared to 3.8%, excluding PST goodwill impairment charge in the second quarter of last year, despite PST's performance.

Stoneridge's operating margins, excluding PST, increased to 7.1%, or 10.1 million, from 4.2%, or 5.8 million, compared to the first quarter of this year, due mostly to increased sales in our control device segment.

On a constant currency basis, our second quarter operating margin excluding PST would have been higher. See slide five.

Both PST and electronics experienced decreased profitability from raw material FX transactional exposure to the US dollar.

Slide five of our deck has a complete P&L breakout on second quarter versus second quarter of last year continuing operations, with the bridge item differences identified in slide six.

Slide three identifies Stoneridge's segment sales increases and decreases versus prior year's second quarter.

New and replacement business awards for control device and electronics in the second quarter were $28.4 million, representing $5.6 million in new business awards and $27.8 million in replacement awards.

The new business awards include a canister vent solenoid award for European [best] and light truck customer, and a ship-by-wire actuator award for a passenger and light-truck customer.

While we continue to win new business awards and focus on enhancing our long-term pipeline, our primary focus this year will be on flawlessly executing our ship-by-wire launch so that we meet our customer commitments.

Minda Stoneridge, our unconsolidated JV in India, posted record second quarter sales of $11 million, which was flat in comparison to second quarter of last year, and the rupee remained stable in comparison to the second quarter of last year.

Our share of Minda's net income from operations in the second quarter was a profit of $143,000 compared to nearly the same amount in the second quarter of last year.

China is beginning to show the results of the hard work and refocus on local business growth, and our control device sales in China have improved in the second quarter from $3.4 million to $4.5 million, or an increase of 23.3%. This growth was for EGT products for local customers in the China market. The leverage and higher-margin sales has taken control devices in China to double-digit operating income, and we are planning to continue shifting products that can be manufactured at our low-cost facility in Suzhou, China.

From a geographic diversification, our sales in North America represented 57%, Latin America was 14%, and Europe/Asia was at 29%. And our sales growth projection of $130 million in net new business is being driven across all regions, and this can be seen on slide eight.

Our customer diversification has improved with a balance between automotive and commercial customers, as can also be seen on slide eight.

For the three months ended June 30, the Company recognized an income tax benefit of $400,000 on pretax income from continuing operations of $5.9 million for an effective tax rate of negative 6.4%. The decrease in tax expense and the effective tax rate for the second quarter of 2015 as compared to the same period last year was primarily due to more favorable mix of earnings and lower interest expense with a favorable tax impact on improved US earnings, which did not attract tax through the use of net operating loss. This was partially offset by the smaller operating loss and related tax benefit for PST.

We will continue to reflect lower tax rates as North America earnings continue to improve and as a result of lower interest expense.

Our ability to drive top-line sales and reduce our costs will improve profitability and generate positive cash flow and remains our primary focus for continuing operations.

In the second quarter, operating cash flow was an inflow of $6 million in comparison to inflow of $9.1 million during the same quarter last year.

Our cash flow in the second quarter of last year included the wiring business's results, which produced a $2.1 million use of operating cash flow.

And as indicated on slide 13, we continue to improve our debt leverage from continuing operations and currently stands at 2.5 times in the second quarter of this year.

Our favorable outlook for the remainder of this year is based on our confidence that we have repositioned the Company for improved operations and financial performance.

Control devices continues to generate consistently improved operating profits by leveraging their sales growth. Their disciplined approach to targeting advanced development projects in the emissions space will continue to sustain their growth trajectory for years to come.

For electronics, new programs launched in North America in 2015, coupled with advanced display technology in Europe, that service the safety and fuel efficiency market should further enhance the growth of this segment.

In addition, near-term programs to reduce controllable costs, defer non-critical investment in headcount, and judicious reduction and advanced development will improve electronics contribution this year despite the FX headwinds they are experiencing, and we clearly are excited about our new mirror technology that has significant opportunities in both the European and North America markets.

PST has experienced significant foreign currency headwinds from both transactional and translational exposures and lower economic growth.

The PST management team has worked diligently to offset the negative impacts from these headwinds. The PST management team has implemented pricing actions in the second quarter of this year, and we expect to see benefits from the costing actions and redesigns of audio products that we started in 2014.

And we have implemented further cost actions in July of this year that we expect to be earnings neutral in the second half.

So with even the headwinds and currency changes in Europe and Brazil and the continued weakness in the Brazilian economy, we have reported our second consecutive quarter of improved operating earnings, and the second quarter was a significant improvement over the first quarter.

We have raised prices in April and May in Brazil to attempt to offset the impact of raw material cost increases and offset the devaluation of the real to the US dollar. We are working to reduce our inventory of PST to pay down debt by more than 20 million reis by year-end, and we have begun to work our operating and financial performance across our global businesses. We have initiated programs across all our organizations to improve operational productivity in our plants and efficiency across our manufacturing capabilities and functional areas.

And in conclusion, [we is] realizing the benefits from our efforts to refocus our business around our control device and electronics business units, and we are executing the right changes to position PST to at least maintain profitability even at this low level of sales, which should benefit significantly when the market returns to higher levels.

We will now open up the call for questions.

(Operator Instructions)

Jimmy Baker, B. Riley & Company.

First, could you just talk a little bit more about what's driving the control device strength in China? Who are your major customers there? And then do you have kind of an expectation for full-year sales out of the region?

Jimmy, let me try to answer the first piece. Our growth there is both with local customers but as much with coming back to export to the US, as well as export into Europe. So it's with our global footprint. But what we're seeing is an overall opportunity to rationalize our capability across the globe and utilize the capabilities we have in China. They are both with local customers and for export.

And in total sales in the region?

Jimmy, what we're seeing is even though the legislative haven't been fully implemented or endorsed by the government, as you know, it's been delayed since 2012, we're starting to see some of the local Chinese companies go ahead and implement that strategy, so it's elevated our emission-sensing products, especially high-temp, in the first half of this year.

Okay, that's helpful. And then over to ship-by-wire for a moment. Could you talk about how your back-half expectations for that product line compared to what you reported in the first half? And then should we think about that business, you know, building momentum sequentially in the back half into the 2016 backlog?

For sure, Jimmy. We currently, as you're aware, we've been in production on ship-by-wire since 2012 with Ford, and we even received an innovation award for them last year in 2014. But we continue to see our products roll across additional platforms within Ford, and we are launching products with other customers throughout this year and early into 2016.

In addition to that, we're seeing other opportunities to apply the technology with other customers, as well as beyond conventional power train, looking at some hybrid power train opportunities for the technology. So we believe that the momentum will certainly increase in the second half, and both with regard to the ramp-up of our production in our different facilities, as well as with business wins.

Okay, and then just, lastly, maybe for you, George, on the tax side, it looks like that was about a nickel tailwind for you here in the quarter versus the last quarter guide. It sounds like maybe that this lower tax rate should be expected to continue for the balance of the year. So could you just talk about that?

And then I guess the implied question is with no change to the full-year earnings guide despite that tax tailwind, would you say that that tax tailwind now has you tracking to the high end of the EPS guidance range?

Well, I think the question mark will be Brazil, whether we track to the high end, the middle point, but I think what we've consistently said is that -- and we have -- we've mentioned that Brazil will still incur a loss in the third quarter, but they will be profitable in the fourth quarter, so that will be more breakeven in the second half. So that'll offset a little bit of the tax. But I think clearly what's happening now is our earnings ramp has gotten much stronger in North America and the lower interest expense, so a lot of our earnings are now starting to come out of North America, which will have a zero tax, and so it will continue to lower our effective tax rate until we utilize the tax loss carry-forward. And as you know, we have a tax loss carry-forward of somewhere in the range of about $75 million to $85 million. So as you look at your models, I think we'll have -- our mix of tax will be zero in the US, in North America. We'll pay about 23% in Europe and 21% in Brazil once we get them back on track of profitability. So I would envision that our effective tax will stabilize in the range of probably 6% to 10% if that mix of earnings, at least for the next two years until we utilize our tax loss carry-forward. And then at that point --

Great. Thank --

-- with our mix of earnings, I think, as I've mentioned in the past, is that our effective tax rate [both] with our structure will be somewhere in the range of 25% to 27% once we come out of the tax loss carry-forward issue.

Understood. Thanks very much.

You're welcome.

(Operator Instructions)

Justin Long, Stephens, Inc.

Good morning, guys, and congrats on the quarter.

Morning, Justin. Thank you.

Morning, Justin. Thank you.

So first question I had was on the net new business backlog. I was wondering if you could speak to the level of production growth that you're assuming in that number as we look out over the next year or two. I'm sure it varies by geography and customer, but it might be helpful to just get a sense of what you're assuming on that front, whether it's flattish production, low single-digit growth, or something else, just from a high level.

Well, Justin, as you remember, we put the plan together in that October/November/December timeframe, and we use IHS and the others, JD Powers in Europe, so a combination of those really still had pass car growth in the range of 2.5%, roughly. We have not changed that. We're going through our planning process right now. In fact, we're having our strategy sessions here in August, September. That will lead to a full budget again in December.

I think what you're already seeing is that the forecast coming out of the different agencies has the growth in pass car, for example, around 2.5%. Control devices continues to grow well. They grew at 10.4%. So I think you're going to see us be above those levels, which is consistent with what we've built into our guidance based on our performance and our new growth areas that we have said.

I think the area that surprised us a little bit is Europe. If you think about Europe, there was -- the change in the currency value this year to last year was about 10% to 12%, but we've actually been neutral in dollars, and I think we've said that Europe right now have been growing in local currency terms closer to 8% to 10%, and we've been performing to that level, which has helped offset some of the currency headwinds.

And then Brazil, quite frankly, is a little bit of a crapshoot right now because the GDP continues to drop. It's actually a negative 2.6%. When the year started, it was negative 1.3%.

So I think if you want to look at a high level, and we'll certainly update this in the fourth quarter or probably January, February, when we normally do that process, is we'll continue to outperform that estimate in control devices in North America.

Europe continues to be pretty robust, ahead of what the original forecast has been but offset somewhat in dollar terms because of the currency.

And then PST, I think one of the things that we've tried to share with everybody today because I know that's been a concern to everybody is what is Brazil doing. But I think that there's two things there. One is our PST management has been very responsive to offset what's going on in the overall economy with a lot of aggressive not only cost actions but also pricing in the marketplace, and we're reviewing product lines and things like that.

And then our other two businesses have actually performing better so that they've been able to support some of the impacts that we're seeing in Brazil.

So I think -- and Jon alluded to the fact that we're looking across a global organization now called "One Stoneridge," and how do we get consistency in those earnings.

So I think we're performing better in the market in control devices, North America. We're actually doing better in local currency terms in Europe. And PST does continue to be a problem, but I think we've been able to manage through the transition here in the second quarter and still report a relatively strong quarter for us.

Okay, great. That's all really helpful.

Sorry if I missed this, but I wanted to ask, too, if your expectations for CapEx in 2015 have changed at all. And as we also look into 2016, do you have an initial expectation for how CapEx should trend? I'm just curious if your framework for free cash flow being 3% to 4% of total revenue has changed at all or if that's still a good way to think about the cash generation of the business.

No, I think, Justin, at a high level, that's still a good number. I think what we are experiencing seeing this year is that the shift-by-wire is clearly adding some additional capital here, and we have been installing the equipment since the second quarter and third quarter.

So if you look at the ramp of shift-by-wire, we've actually been in production here through the third and the fourth quarter, so you're going to see a higher level of capital. The last three years, we've spent around 23 to $24 million. I think it's going to get up closer to the $30 million this year that we're seeing right now because of that capital.

But once we get through that edge, it really depends on what we do with new launches in '17 and '18 because we have started to backfill some of the reduction that you saw last year. Two years ago, we had $176 million in net new business. It's 130. But we've already started to land some business in Europe in electronics that will offset that. That will bring a little bit of capital. But I think our capital will stabilize there.

And one action that Jon is really pushing is optimization of our capital, and we'll talk a little bit about that as we get to the third quarter because we've seen some examples of pushing efficiency levels at our plants so we're actually able to minimize our capital use. So we may be able to drive some different actions with that, with our optimization of our equipment.

Okay, great. And last question from me. I was wondering if you could provide some more color on the cadence of EPS that's kind of baked into your guidance for the back half of the year. What are you expecting between 3Q and 4Q? I know you gave the expectation for PST, but on a consolidated basis, how do you expect earnings to progress?

I think you're going to see earnings in the third and fourth quarter pretty consistent with the second quarter with slight variations on the upside. I think a lot of that will depend on where PST is. I think we shared with you we still see a loss for PST in the third quarter profitability, but they'll be breakeven essentially in the second half, and that is sort of a reduction from what we indicated last quarter. And I think that's a result of we've seen a lower economic activity. I mean GDP's dropped a lot, interest rates are going up, unemployment's going up.

So the actions we're putting in place is to mitigate those things and really position us when the market does return because we do believe that the Brazilian market will start to recover at some point.

At that level, I think our earnings per share will still be within that guidance that I've seen on the Street from all of you in the sales side that I think we're consistent with those, and the quarters won't change a lot in the third or fourth quarter from what we're seeing in the second quarter.

Okay, great. I'll leave it at that. Thanks so much for the time.

You're welcome, Justin.

Rhem Wood, [BB&T] Capital Markets.

Rhem, did we lose you?

(Operator Instructions)

I think we lost you, Rhem.

(Operator Instructions) We have Rhem back now. Please proceed, Rhem.

Hi. Can you hear me?

Yes, we can hear you now.

Okay. I don't know what happened. That's strange. So just in sticking on the guidance cadence question, can you talk about just the seasonality in the core -- you talked about PST and the profitability, but can you talk about just the seasonality in the core business in the third and fourth quarter?

I think what we're seeing right now is -- and you've seen the uplift in sales in Europe in electronics. We saw a little bit of softness in July, but I think what we're looking at would be pretty consistent in the third quarter and fourth quarter that we saw in the second quarter. So we don't see a big uplift in Europe on that side of it.

Control devices has performed very well. They've been up over last year in sales, but we see that trend about the same in the third and fourth quarter, and what's really happening there is the build and putting the equipment in place for the significant lift in shift-by-wire because when we look at that forecast for next year, and there's been some slight adjustments, nothing major, we have to be ready for really the uplift in shift-by-wire almost starting late first quarter.

So this thing is not a big ramp where it ramps over the course of the year. It's going to be pretty consistent coming out of control devices during the whole four quarters of next year for the shift-by-wire. So that's why you're not going to see a big change in our third and our fourth quarter in terms of the sales, and the sales will be influenced by currency more than anything, but our volumes are pretty well in place, so I think the sales levels that are being projected will highly depend on what the currencies are doing, and our volumes should be pretty consistent. In Europe, they'll be pretty consistent in control devices in the third and fourth quarter that we've seen in the second quarter.

Okay, thanks. That's helpful.

And then on -- to go back to PST in Brazil, I think when you bought that business, you were talking about opportunities to bring Brazilian products or PST products to other markets and vice versa. I mean where does that stand at this point? Are there opportunities to do that?

And maybe the larger question for Jon, as you get into this, I mean do you still consider that PST business to be core? I mean you got out of the wiring business. Is that still part -- something you consider to be core to what you're trying to do here? It seems like a lot of the opportunities you talked about were in the core business, so just a little color there.

Yes, thanks for the question, Rhem. Let's just frame this a little bit.

First, we continue to look for opportunities to take maybe both the products but also the core competencies that exist within PST, which is some of their own electronics development capabilities and particularly focused on how do they simplify products for their market with their electronics capability, and we looked at how we can apply that in other markets. So we've explored both by ourselves and with partners in North America. We continue to look at what we can do with our Minda joint venture in India to take some of the products from PST and move them into that market. And we also are in the very early stages of looking at China.

But the other thing to keep in mind, as you think about our core businesses, is, yes, Brazil is in a difficult situation right now but it still represents the eighth largest car market in the world with a huge population where we believe, like others, that the economy at some point will come back. And our ability to have a capable footprint there that allows us to support our core customers and their growth is a critical competitive advantage for us.

Today, we supply -- we get requests from Scania and other truck makers to be able to make our electronics products in Brazil. That isn't something that we have done in the past with PST, but we're exploring that today.

So as part of the strategic direction that the senior team and I are leading -- and George and I were there as recently as last week -- is not only looking at how do we get PST through this very difficult time but also how do we prepare it for the future, both with taking the products that it has an applying them in other markets but also doing a better job of getting it ready to be an OEM supplier.

Okay, thanks. Yes, that's good color.

And then last question just on Minda. I missed the numbers that you gave there. Could you give those again? And that market seems to be pretty strong. What do you expect kind of -- how do you expect that to trend this year and next (inaudible) time?

Rhem, now that you've asked the question, I mean this is a perfect example. When the government changed in India, it sort of -- consumer confidence picked up. It had nothing to do with the fundamental economic conditions of the country. It had just with the psyche of the consumer and all the business people. And so shortly thereafter -- I think the first quarter after the election, our sales jumped 18%. So they're back returning. I think we did 11 million in sales this quarter, about 144,000 in income, our share. And so India has actually returned.

And what we're seeing in India is really a resurgence of a complete market there. They're sort of lower cost than China to some extent. We're seeing a lot of our key customers, especially in commercial, not only building manufacturing capabilities, but they're also building engineering centers.

So India is becoming on a more important footprint in the Asia market, and so I think it fits very well. And one of the things that Jon and I and the team have talked about is that now that we've negotiated the new joint venture that we control 60%, it's a question of what products do we want to really nurture in India in the joint venture that we can be -- we have the dominant position from a leadership standpoint and a management team that we want to really move forward in India because that's a venture that we can grow.

Because I think how this venture is starting to happen is they concentrate and have the strength in two- and three-wheelers. We have converted them from electromechanical into electronics, so it's gotten us into the commercial side of the business. But there's a whole array of pass car products and both commercial products that we control the technology and the manufacturing processes. So that's something we're highly -- we're involved in right now.

So it's actually turning out to be very good location, and they went through some of the same problems that Brazil did, but I think their economy is really being driven by a new prime minister who made some of the right decisions, and that India market has recovered pretty nicely.

Okay, thanks for the time, guys.

You're welcome, Rhem.

You're welcome, Rhem.

Thank you for your questions. I would now like to turn the call over to Jon DeGaynor for closing remarks.

Well, again, thank you, everybody, for your time this morning. Our second quarter results are a demonstration of the ability at Stoneridge to overcome challenges and deliver. I'm excited to see the global teamwork that the Company is demonstrating, and these efforts really embody our theme of "One Stoneridge."

We will continue to expand the ways that we leverage our global capabilities. These leveraging actions will manifest themselves in facilities optimization, supply chain refinement, engineering globalization, and new technology development.

I look forward to updating those of you on this call regarding our progress in forthcoming calls. I hope you all have a great day. Thanks.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.

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