Superior Industries International Inc (SUP) 2014 Q1 法說會逐字稿

Good day and welcome to the Superior Industries first quarter 2014 earnings teleconference. At this time I'd like to turn the call over to Mr. Kerry Shiba, Executive Vice-President and Chief Financial Officer. Lease go ahead.

Thank you, Ryan, and welcome everyone to our first quarter 2014 earnings call. During our discussion today, as usual, we have a PowerPoint presentation that is available on our website at www.supind.com. Joining me on the call today is Mike O'Rourke, our Executive Vice-President of Sales, Marketing and Operations.

As usual, I'm going to start with slide two of the presentation, where I would like to remind everybody that any forward-looking statements made in this webcast or contained in this presentation are subject to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially because of issues and uncertainties that need to be considered in evaluating our financial outlook. We assume no obligation to update publicly any forward-looking statements. Specific conditions, issues, and uncertainties that may be discussed from time to time are noted in detail on the slide. I also would like to point you to the company's SEC filings, including our annual report on Form 10-K, for a complete discussion on forward-looking statements and risk factors that may cause actual events to differ from these forward-looking statements.

And before we begin the discussion of the results of the first quarter, I'd like to turn your attention first to a press release that we issued earlier this week, we I believe was on Wednesday. And in case you didn't see it, the press release can be found on our website in the section titled Recent Headlines or you can find it under the category labeled News.

We are pleased to announce that Superior Industries has a new President and CEO in Donald Stebbins, who also will become a member of the Board. Donald was recently was the CEO and Vice-President of Visteon Corporation, who most of you will recognize as a Tier 1 automotive supplier of electronics and climate control products. Preceding his tenure at Visteon, Don also held senior positions at Lear Corp, the Tier 1 supplier of automotive seating and electrical distribution systems. We're fortunate to have someone of Don's experience at stature at Superior and I know the organization looks forward to helping him quickly get acclimated to the company.

In addition, we also announced on Wednesday that Steven Borick has chosen to step down off the Board of Directors. Don Stebbins will fill the vacancy created by Steve's departure. We want to thank Steve for his leadership and dedication to the coal during his 33 years as part of the Superior team. The company's position as a leader in the North America market reflects the Borick legacy. I know I speak for thousands of employees at Superior in saying that we will miss Steve, and we wish him the very best as he turns to the next chapter in his life.

Now I'm going to turn to the detailed discussion of the first quarter, and as usual, we look forward to addressing your questions at the conclusion of the formal presentation. We're going to follow the same format as the last call by starting with a very brief overview intended to set overall context. If you would like to refer to the data, slide number 16 shows the income statement summary for the first quarter.

We noted in our last conference call which took place around the beginning of March that we were experiencing a softening of sales volume and revenues when compared to the prior year. While the comparisons for February and March were better than for January, sales for the first quarter of 2014 still were down overall when compared to the prior year. The quarter ended with unit volume down 8%, while total revenues were 11% lower than for Q1 of 2013. Despite the somewhat steep volume decline, the gross profit margin increased 200 basis points from the same period last year, and earnings were improved all the way down to the pre-tax line. A $112,000 or 2% net income decline reflects a significant increase in income tax expense when compared to the low tax rate of 2013. Finally, EPS was flat at $0.18 per share as our share repurchases offset the impact of lower net income.

With this brief overview in mind, if you would now turn pack to slide number three, I'll begin the detailed discussion of our first quarter financial results and hopefully give you the key underlying factors that affected the business. Slide number three is titled North American Vehicle Production versus Superior Shipments. As usual, this is where we frame the market environment where we operate.

Let's first take a look at North American light vehicle production, which is shown in red on the graph at the top of the slide. As most of you know, North American vehicle production provides a broad indication of the demand driver for our products. As usual, I also will provide some detail on customer and product mix in the next few slides, which hopefully will help you contrast the overall market and our specific performance.

The market reached 4.1 million units in the first quarter of this year, that's up 3.9% over what also was a strong quarter -- a strong Q1 of last year. There are only two quarters going back to the first quarter of 2002 where vehicle production levels were stronger. First quarter assembly rates also increased on a sequential basis, up 3.6% over Q4 of 2013. As noted during the overview, Superior's first quarter unit sales volume was down 8% year-over-year. Against a growing market, we ceded an estimated 2.9 percentage points of share compared to Q1 of last year. I will speak more about this in a few minutes.

If you would now please move to slide number four, we will take a look at the production analysis by major customer. As a quick orientation to the slide, the chart on the left shows our top five customers individually, but the remainder of the OEMs are grouped together in the last set of bars. For each customer we provide year-over-year production volume comparisons for the quarter, including a product category breakdown between light trucks, which is shown in blue, and passenger cars, which are shown in red. To remind you of the total industry context, total production was up almost 4%. I will share some observations regarding our major customers in just a moment.

Before getting there, however, I would like to point to the chart on the right-hand side of the slide. This chart shows the year-over-year change in mix of vehicles assembled in North America. What quickly stands out is the almost 10% growth rate in the light duty truck category. As a reminder, the light truck category includes SUVs, crossover vehicles and vans in addition to pickup trucks. In contrast, the first quarter build rate for passenger cars declined 3% when compared to last year. It doesn't show on the slide but the mix between domestic and international brands was about unchanged.

Here are a few key observations regarding our major customers. Ford is the number one customer in our portfolio. Assembly rates for Ford were down about 2%, the only decline for domestic brands. A modest increase in light trucks was more than offset by a passenger car decline. While our focus on Ford is tilted toward the light truck category we also have significant participation in their passenger car programs. Commentary on the slide provides some underlying detail about the quarterly comparison at Ford, so I won't read them individually.

GM is our second largest customer. Their Q1 production rate was a plus 5% over all when compared to the same period last year. The improvement was much stronger in the passenger car category of plus 10%, with the increase spread across several individual programs. Our participation in GM passenger car programs was relatively modest. Although at a much more moderate pace, the growth in light trucks was also spread across several different GM programs.

Chrysler's overall rate of production increased at well above the industry rate at a plus 13%. Vehicle mix shifted rather dramatically, reflective of a 32% rate of decline in passenger cars, coupled with a 30% growth -- I'm sorry, 33% growth in light trucks. We are concentrated heavily in the light truck category at Chrysler.

Production for the international brand in aggregate somewhat mirrored the overall market with assembly rates increasing 3% overall. At Toyota, our number three customer in unit sales volume, production was down 3% overall, a bit more in passenger cars than in light trucks. The decline was spread across several programs with the exceptions noted on the slide. We participate in the Highlander and Tundra programs but not on the Corolla.

For other international brands affecting Superior, Nissan was up a very significant 23%, while about two-thirds of the vehicle mix at Nissan is focused on passenger cars, the rate of first quarter growth in light trucks was over three times greater than for passenger cars. The change at BMW reflected the overall market, while production at Subaru and Volkswagen declined 11% and 20% respectively.

Turning to slide number five, which is titled Superior Shipments Year-over-Year Comparison, let's take a look at what drove the company's unit volume change when compared to the first quarter of last year. We are using the same chart format as just shown except now focuses on Superior's unit shipments for our customers.

As I noted earlier, the first quarter started very slowly for us in terms of sales and unit shipments. While the total quarter ended up at minus 8% in terms of unit volume shift, the comparisons to last year for February and March were improved over a very weak January. As I mentioned earlier, we estimate the resulting year-over-year share decline in 2.9 percentage points. We have discussed in the past our manufacturing capacity limitations, which stretch back to 2010, put us into a position to be more selective regarding our efforts to capture new business. In addition, shipments for the GMT 900 and K2XX platform in particular also were down significantly when compared to last year.

While it is difficult to discern from the chart, our first quarter sales mix between domestic and international brands shifted 300 basis points toward the international brands. This shift reflects a combination of a large increase at Nissan, coupled with declines at GM and Chrysler.

One last observation can be seen in the vehicle mix comparison shown on the right. While our volume was about flat in passenger cars, shipments in the light truck category were down about 11%. As mentioned, shipments for the GMT 900 and K2XX platform were a large driver of that change.

Let's now address our individual customers. For Ford, our volume was down about 4%, with most of the decline occurring in the light truck category. The majority of the decrease directionally followed changes in assembly volume at Ford. The one exception was for the F series, where a somewhat modest decline in our shipments compared to flat production for this program. We don't see the first quarter representing a trend with respect to our share of the F series program. However, as most of you know, Ford will implement a rather substantial model changeover with the F series late in 2014. How both the extent and the timing of the changeover will impact us is somewhat of a wild card still as we look at the remainder of the year. This is important to note, because the F series represents the largest single program in our portfolio.

At GM, our number two customer, we were down 18% overall. While the percentage decline in passenger cars was larger, the actual unit volume decrease for light trucks was higher and was focused on the GMT 900/K2XX comparison. When looking back to Q1 of last year, it is apparently apparent that our strong volume was affected by GM's buildup of the GMT 900 inventory in advance of the model conversion. This in particular was the case for the pickup truck version of the platform. Going forward, we believe there has been more models and trim line differentiation spread among wheel suppliers for the K2XX as compared to sourcing for the GMT900. As a result, we expect that volume will be more mix-sensitive than in the past both for us as well as our competition.

At Chrysler, our business largely is focused on light trucks. The large year-over-year decline for the first quarter reflects phase out of our participation on the Jeep programs. On the Dodge Caravan, we were replaced partially by a steel wheel substitution at the beginning of the model year, while on the Journey, it mostly is a matter unfavorable product trimline changes. These declines did mask nice gains on the Chrysler Town & Country, the Dodge Durango, and the RAM truck programs.

The year-over-year decline at Toyota was about 9%, The largest decline was for the Avalon, the program where vehicle assembly rates were also down significantly for the quarter. There was some model launch surge for the redesigned Avalon, which occurred during a great portion of 2013.

One more item that stands out on this slide is the substantial rate of increase for Nissan at a whopping plus 57%. We are focused heavily on passenger guard programs at Nissan, and our increase is driven by three programs in particular, including the Note, the Maxima, the Altima. You may recall that in Q2 of 2013, we experienced the opposite with Nissan. This is a good example of how trimline and model mix changes can impact our business in various periods, sometimes rather significantly.

If you would now turn to slide number six, we can look at the sequential sales volume comparison. The changes going from Q4 of last year to Q1 of 2014 tell a bit of a different story for both the markets and Superior.

Let's start with the context of what happened in the market. First quarter assembly rates were up 3.6% on a sequential basis, which is relatively close to the year-over-year comparison. However, vehicle mix was more steady, as assembly rates were up both for light trucks and passenger cars, a bit higher in the passenger car category. The mix between domestic and international brands tilted about 200 basis points in favor of international, while this mix was flat in a year-over-year comparison.

At the customer level, the story that stands out overall, again, is with Nissan, who increased assembly rates 22% over Q4 of last year. The increase was large in both the passenger car and light truck categories, and was relatively broad-based across their model line-up. Ford was up sequentially, as was GM, while Chrysler's assembly rates declined in contrast to a strong year-over-year in Q1. I am not going to address all of these specific program deems which are noted on slide for your information.

Now, let's take a look at Superior. Our unit volume also was down sequentially but about one-half the rate of the year-over-year comparison. There was some relatively substantial differences when you look at the underlying mix. On the plus side, we experienced sequential increases at Chrysler, Toyota, and Nissan. The individual vehicle programs are noted on the slide. We did see declines at Ford, and to a much larger extent at GM. The GM decline, again, was focused on the K2XX program. Similar to the year-over-year comparison, we believe there still was some timing impact as the transition build-out on the GMT 900 SUV programs continued for most of 2013. As noted earlier, the platform is more vehicle and trimline sensitive with respect to impact on individual wheel suppliers.

I next would like to turn to slide number seven. In this slide we focus on the net sales dollars and a year-over-year comparison for the first quarter. The slide is in the familiar format used in the past, so I'll move right to the data, and as usual, I will focus only on the larger items.

At the top, you can see the 8% unit volume decline, which is shown in the first line on the data table. This change contrasts with an 11% decrease in sales dollars which is shown on the second line. The remainder of the data breaks apart the components of the sales dollar comparison. Not surprisingly, the volume decline is the largest component of the change, driving a $15 million drop in sales dollars. In addition, the value of the aluminum component fell and reduced net sales almost $7 million as shown in the bottom section of the analysis. Finally, the price mix comparison continues to be positive at plus $2 million for the quarter.

If you now would please turn to slide number eight, let's review what happened with gross margin. First, we look at the year-over-year comparison for the first quarter.

As I discussed earlier during the overview, we achieved an approximate $2 million improvement in gross margin committees, despite the relatively significant buying decline. The improved gross margin equated to plus 200 basis points when measured as a percentage of sales. The somewhat sudden nature of the volume decline, which occurred most dramatically in January did pose a significant challenge operationally. As much as we could, product demand was reallocated to manufacturing capacity in Mexico to leverage our lower cost there. Such reallocation exacerbated volume reductions in in the US facilities, requiring production cutbacks, staffing reductions, and controls on factory spending. Notwithstanding quick reaction overall, a drop in cost efficiency still was incurred, which you will see in a few minutes when we look at the sequential analysis.

Despite the challenges of Q1, let's look at the waterfalls analysis itself on slide number eight to see what contributed to the gross margin expansion when compared to Q1 of 2013. We can start with the volume impact, which of course is substantially negative at minus $2.4 million. The impact of production mix again was positive for the quarter, at plus $1.5 million. FX, or foreign currency impact, reflects some weakening of the Mexico peso compared to last year, which lowers our reported cost for the Mexico business.

The next two items relate to aluminum. The first item, labeled Aluminum Pass-Through, has been discussed categorically on prior calls. As a review, you will recall that our commercial agreements generally provide a mechanism to pass commodity aluminum price changes through to the customer. However, the sales adjustment at times does not precisely match the frequency of how proceed cuter costs for metal moves first through inventory and then through the income statement.

The timing difference can cause a short-term variance. For the first quarter, the impact was $1.7 million favorable. For the first time, we are highlighting another aluminum component labeled Alloy Cost Increase. I haven't discussed this item in the past because the period to period impact was negligible.

Let me start with some background. This is standard in the aluminum wheel industry, a special aluminum alloy is used in the product. This alloy carries a price market over the cost of commodity aluminum, primarily to reflect the value for extra alloying materials included in the metal.

The cost we pay for the alloy premium has increased in 2014 for a variety of reasons. Looking at the sales side, the periodic aluminum adjustments discussed typically are based on movement in published price indices for commodity aluminum. These price indices do not track changes in the alloy premium. Because of this, what we have highlighted is $1.4 million of cost increase that we expect will not be fully recovered based on the structure of the majority of our existing sales agreements.

The next item is labeled Plant Performance. This item fundamentally measures the change in manufacturing cost performance from period to period. Excluded is the impact of any operating cost items listed separately, for example, foreign currency translation. In aggregate, we estimate the year-over-year change in plant cost performance at a net $900,000 positive. The variance reflects improved performance of our US facilities, in particular at the larger of the two factories when compared to the first quarter of 2013. As we noted in our last conference call, process control and equipment reliability enhancements continue to improve overall manufacturing efficiency when compared to what in general was a very challenging first quarter of 2013 for our US operations.

As I mentioned earlier, our ongoing goal is to try and keep our facilities in Mexico filled to take advantage of lower cost and proven operating efficiencies there. As a final note on the slide, capacity utilization in the first quarter fell to an estimated 93%, reflective of the sudden falloff in unit volume.

Please turn next to slide number, which provides an analysis of gross profit performance when compared to Q4 of last year. The financial impact of the volume decline is roughly proportional to the decline in unit volume, which is about one-half of the year-over-year comparison. I'm going to jump over to the plant performance bar because the sequential comparison is markedly different from what you saw on the last slide. What you primarily see in the negative $3 million variance is the impact of the sudden volume decline that we experienced, beginning very soon after the new year. I discussed earlier the various operating adjustments that were made in response to the volume downturn, but it still took some time to react and reallocate volume, implement staffing reductions, turn down the valve on certain areas of expense and spending.

Finally, I want to address the capacity utilization comparison shown at the bottom of the slide, which I know looks a bit odd on the surface. The 11% -- the 11 percentage point decline masks a difference in effective capacity when comparing the quarters. In the fourth quarter of last year, our scheduled plant maintenance shutdowns, which were at a minimum one week in duration, are excluded from the capacity base when computing for the utilization rate.

Moving on to slide number ten, we can address a couple more areas of the income statement for the first quarter. SG&A expense was up $725,000 compared to Q1 of 2013. The increase reflects $1.1 million of cost recognized in 2014 for executive severance costs, offset partially by lower payroll.

The income improvements down to the pre-tax line were offset by higher income tax expense. The effective income tax rate for the first quarter of last year was relatively low at 28%, which compares to roughly 40% for Q1 of this year. Individual factors affecting the comparison are noted on the slide. Of these factors, the year-to-year difference in tax credits is the most material item in the quarterly comparison. As usual, our effective tax rate going forward may be affected by the occurrence of discrete events that occur during any single quarter.

Please turn next to slide number 11, which addresses the balance sheet and cash flow. These financial schedules are shown on slide numbers 17 and 18 respectively. Cash and short-term investments ended the quarter at approximately $162 million, a decline of almost $42 million during the quarter. As expected, the decline primarily resulted from higher capital expenditures for the new manufacturing facility in Mexico. In addition, we paid $4.9 million of dividends during the quarter. I'm speak more about these items and cash flow considerations in just a minute. I think the remaining balance sheet comments on the slide are self-explanatory so I will not address them individually.

Moving on to cash flow, we have provided a breakdown of 2014 spending for the new factory versus what we spent on existing facilities. Just as a reminder, for Q1 of 2013, we had not yet started to flow cash for the new factory. Regarding the year to year comparison for first quarter dividends, you will recall that we had no payments in Q1 of last year because we had accelerated the 2013 dividend into December 2012. Finally, we had some modest share repurchase activity which continued into the first quarter of this year. It totaled about $1.8 million. And in total we thus far repurchased $10 million worth of shares under the previously-granted $30 million authority.

Next, if you will turn to slide number 12, I will update you regarding some key factors affecting our liquidity outlook. The major factor to keep an eye on, obviously, is the pace of spending for the new manufacturing facility. Just to avoid any confusion, I'm going to focus my comments on cash, and that's in contrast to what has been accrued based on the accounting method being applied. In 2013, we invested just under $36 million, the bulk of which was for the facility and infrastructure. Money now is flowing for machinery and equipment. In Q1 of this year, we invested another $17 million, which brings us to $53 million in total.

As we continued to update status, it currently looks like we should be able to bring the initial project in under original expectations. You may recall, at the time that we announced the object kickoff, we estimated the total cost for the facility in the range of $125 million to $135 million. At this stage I am lowering the total capital range to $120 million to $125 million. And just to keep it simple by using round numbers, this is roughly $65 million to $70 million of capital spending still to go.

I also see the pace of spending being a bit slower, with about one-half falling into Q2 and the bulk of the remaining capital outlay falling into Q3. The slower pace of cash spending should not be confused with timing expected for physical completion, which remains unchanged. I want to remind everybody, that, in addition, we also expect to incur start-up costs, which we estimate in the range of around $8 million in 2014, a portion of which should be capitalized once all the proper accounting is determined.

Finally, we also will need liquidity to support a working capital build, expected to incur in 2015 after the plant becomes fully operational, and we begin to produce more commercial programs. We currently estimate this need to be in the range of $20 million to $25 million once we get the plant up close to capacity levels.

With respect to the base business, you saw in the last slide that we spent $8.4 million for capital improvements in Q1 of this year. The upward range of investment in the existing facilities for 2014 is estimated to be $40 million, but we will continue to assess this in the context of current year performance.

I won't speak to the aluminum sensitivities, but I want to remind everybody, these are important to recognize the impact of metal pricing and how it affects our liquidity. And lastly our dividend payments should approximate $20 million for 2014 at the current rate.

If you now would please turn to slide number 13, we'll provide a brief update on physical progress of the new manufacturing facility. We also provided just a few photographs on slide 14. As you can see, the building is basically fully closed in and infrastructure is almost complete. Machinery and equipment continues to arrive on site, and is being installed. The photographs show a melt furnace on the left, a portion of one of the casting decks in the middle, and a construction booth for the paint system on the right. We still estimate a start-up of commercial production during the first half of 2015. And as I mentioned previously, we currently expect the range of cost per fixed capital to be $120 million to $125 million. As we have commented before, we have provided infrastructure to allow an incremental expansion of up to an additional 500,000 wheels per year.

Our summary and concluding points are on slide number 15. They're self-explanatory after this discussion so I'm not going to read the list of bullets. On our Form 10-Q for the first quarter 2014 it's going to be filed later today with the SEC, once filed, the 10-Q also will be available on our website at www.supind.com.

And with that, I'd like to thank each of you for attending our conference call today, and Ryan, we'll go ahead and open up the lines to take questions.

Thank you. (Operator Instructions). We'll take our first question from Mark Close with Oppenheimer and close.

Hi, Kerry. On the F series, the uncertainties surrounding that, can -- I mean, I would think that their production will probably decline somewhat as they do the model changeover, but where is Superior right now in terms of those programs for the new all-aluminum F150?

I'm going to let Mike speak up.

Hi, mark. We're in the middle of basically validating the tooling. We've been authorized by Ford in anticipation of the launch. I think it's pretty clear at launch that it's going to be spread out over a broad timing period with two different assembly plants we'll change over firstly in Dearborn, so the uncertainty as far as that timing is really a concern that Kerry has outlined. And we're busy making moves and preparing for the launch.

And Mark, we were just discussing this yesterday, and as Mike and I were reflecting, there's nobody who would rather have perfect clarity over this than I think Ford Motor Company at this point in time. It's a very, very important program for them, also. We're just going to have to kind of keep our ear to our contacts at this stage. It's a complicated changeover for them, probably maybe one of the more complicated ones they've gone through certainly on this truck program because of the aluminum body, the skins they're going to be putting on it. So one thing, I guess, to keep in mind, and this is just me speaking, if I'm sitting in Ford's seat for the importance of this program to their line-up, I think the last thing they want to do is lose market share in the light truck market. So how they balance final production on the existing model compared to the start-up variables that they're seeing on the new truck, again will be interesting to see. But we're prepared to obviously service them on either side of the line, if you will.

Okay . Thanks.

(Operator Instructions). And we'll take our next question from Jimmy Baker with B. Riley.

Hi, this is Richard Magnuson in for Jimmy Baker.

Hi, Rich.

Hi. There question is for Don Stebbins. I'm sure you've evaluated several opportunities over the past year and a half, and obviously Superior is not without some challenges. So could you speak to us as to why you chose in option and share any initial thoughts on areas where you hope to drive improvement?

Richard, we don't have Don on the call. He doesn't really start as an employee until Monday morning, and so --

Okay.

Obviously he's not here to answer the question, and there's nobody sitting in the room who can speak for Don on that one.

Okay. I do have a couple other questions.

Okay.

Okay. Can you give us an update on the pricing environment for the new programs? And have you seen many of your competitors adding capacity recently or any plans to do so?

Richard, I'll address that. It is always competitive. We are always locally competitive landscape so every opportunity that comes, we're looking at in terms of how it fits within our plant capacities and capabilities, but extremely competitive, and it has been pretty much forever. I definitely would see [indiscernible] decade of a shift to more global supply opportunities, very competitive.

In terms of additional capacities being added, I can't speak really for Asia. We know there has been capacity added for aluminum wheel production, and that's a mix I'm sure of opportunities that are in that region as well as local opportunities that are out there.

Okay. Thank you. And will there be any unusual charges related to executive changes that we should be modeling going forward?

I'm sorry, will there be -- could you repeat that again?

Yes. Will there be any unusual charges related to executive changes that we should be modeling going forward?

On an ongoing basis, there will be some differences in compensation. I am not sure about the initial accounting for everything involved at this stage, so I guess I'm just not prepared to be able to give you anything specific there, Richard.

Okay. And my last question is, what is your full year tax rate expectation?

I knew that question would come up. Again, we ran 40% for the first quarter. I think there's a couple things that are sort of lurking. The R&D credits I mentioned, and I think there is talk about possibly even renewing that change permanently going forward. It's been sort of handled on an annual basis lately, and over the last few years, and we're not allowed to reflect any of those credits in our tax rate until the law is actually there to support that. So possibly there's going to be an impact there going forward. If they do enact the continuation of that credit, it will lower our current run rate maybe 100 basis points.

Another thing lurking out there that I'm just not prepared to speak specifically too publicly that could have a positive impact on our tax rate, but it's going to take us a little bit of time to see whether or not that actually surfaces. At this stage, to be conservative, I'd stay at the very high 30s for the year. I'm hoping that that turns out to be a couple hundred basis points on the conservative side, but our best guidance is at the very high 30s for now.

Okay. Appreciate it. Thank you very much.

(Operator Instructions). We'll take our next question from Jeff Linroth with Leaving It Better.

Good morning.

Good morning, Jeff.

I just have two questions about the new plant that's coming online next year and one is, if you took approximately -- substantially the same set of production that is going on in the current -- in the Chihuahua plant, can you put it into the new plant, what level of efficiency improvement would you anticipate? I'm just looking for some sort of comparison. I anticipate there's going to be -- it's going to be the best thing that you've got going in terms of efficiency.

Let me make sure I understand your question, Jeff. Are you saying compared to how we currently operate at our older facilities in Chihuahua, what we'll be -- what we expect to achieve in the new one?

That's exactly the comparison I'm looking for.

Yes. I'm going to kind of hedge on this one a little bit because, for competitive reasons, we choose to not disclose economics of any of our plants individually. Directionally, I think there's going to be a change that's going to occur over time. We will absolutely have some inefficiencies in the start-up period. I think you can appreciate that. And as volumes ramp up, that start at a lower level of capacity, clearly there's going to be less fixed cost absorption at the new facility than at the older ones. The third difference, which is just on a pure cost perspective, we're going to obviously have a much higher depreciable base to start with when the new plant becomes commissioned compared to, for example, our oldest plant in Mexico, which was started up in 1994 or in that range and has quite a bit of older equipment that's fully depreciated. So, those are some directional comparisons just on the pure numbers and how it's going to transition through the 2015 time frame.

When it comes to operational efficiency, however, and therefore if you're looking longer term at the benefit of the investment, I think there are many areas in the plant where we have taken what we would say has been our most tried and true technology and process approach, some of which has been developed over time, some of which we've suffered the at throes of inefficiencies , trying to improve things along the way, and we've taken the best of those approaches and we've installed them or are installing them in the new plant. A good example is in the casting process and now we're going to be running our casting machines. The heat treat process is another example of that and it kind of goes on and on and on. So if you take out the depreciation and look at it more on an EBITDA basis and you allow us inefficiency during the start-up period, we're clearly think this plant should be our best one. I'm sorry I can't give you a specific comparison but we're going to choose not to do that.

That's understandable. But thank you for that answer. A related question, I mean, it's been hard on everybody, but necessary to talk about the inefficiencies that are introduced because of the capacity constraints that everybody's been enduring the last few quarters. When that plant, maybe say in the beginning of 2016, when take plant is up and running , do you think you're going to be able to look back and see -- and talk at that time about at that time about how the overall system has benefited from the relief that that plant provides? Because I'm really looking forward to hearing something and hopefully I'll be able to hear something about that benefit as well.

I think directionally the answer is yes, Jeff. We put the new plant into place, it's obviously in our low cost location, ultimately when we get all the bugs shaken out of it, it should be our most efficient facility. So we in agreeing are clearly going to push ourselves down in the cost curve once we get up to running at efficient levels. So in 2016, we expect to be able to look back and say, are we performing better on an aggregate basis, I think the answer is yes, number one. Number two, I think an aspect of your question was, by having a more sane operating rate overall, more sane capacity utilization rate, do we think that we will benefit from that? I think the answer is yes. Running at the very, very high utilization rates we have in 2010, 2011, and 2012, as we've been candid about, rubber bands started to break along the way and it was a very, very difficult environment to operate in.

Okay. Well, I -- that's all I had for today. I guess I'm giving you a scent ahead of the question I'm going to be asking you at the beginning of 2016. Thanks very much.

Okay.

(Operator Instructions). We'll take our next question from Brian Sponheimer with Gabelli and Company.

Hey, Kerry, how are you?

Hi, Brian. how are you today?

Good. Good. Just a question that obviously you guys announced Don Stebbins being hired on Wednesday. Why not push the call back to have him on the call just for introductory purposes?

Well, part of it, Brian, is just trying to be fair to him, quite honestly, individually. We didn't want to push things like -- keep in mind the filing which we would have pushed back if we pushed the earnings call back. And I guess put yourself in Don's seat. If you walk in the door to a brand new company, a day before, if you will, the 10-Q's being filed, how do you feel about putting your signature on a SEC filing? I think that would have put him in an unfair position, and so that had some impact.

I know Don is going to be anxious to be introduced and to have an opportunity to meet both the analysts who follow us as well as obviously our major investors, and we're going to look forward to being out there to talk about his views of the Company they crystallize over the next few weeks and few months. So without -- it's unfair for me to speak for him but I'm very confident in saying he'll be very excited to get out there and meet people, but it was just very early.

Okay. Can you talk about the decision, at least as it relates to bringing on a President and CEO, changes on the Board that have taken place specifically, Mr. Borick stepping down, was that a prerequisite for Don to take the job?

Well, I will speak to that latter question first. And was it a prerequisite for Don to take the job? No.

We didn't have a desire to expand the size of the Board at this stage. I think Steve very graciously recognized that -- and the Board, obviously, recognized it's appropriate to have a seat at the table for Don. And in Steve's case, personally, it's also unfair for me to put words in his mouth but I feel pretty confident in saying that he's very happy in his retirement. The chances I've had to talk to him since March 31, I have kind of seen the weight of the world start to lift off his shoulders. I think this is just his stepping down offer the Board is just a continuation of his desire to focus on some other things in his life as he honestly mentioned before. He wants to spend a lot of time focus on philanthropic activities, something he's had very little time to devote to when he was here at Superior, and he has an oil business he runs out of Texas which he's always -- his eyes light up whenever he talks about it. And so I think him stepping down offer the Board was just a reflection of another step in that direction.

Okay. Very fair. I'm thinking about next which was nice for you guys in the quarter and just on a historical basis, from the capacity con straighten to be struggled with in the course of the last couple years, should we expect now Superior getting the benefit of becoming more choosey as it relates to some of the programs on which you bid, and mix being kind of a more permanent positive as we start thinking about the next four to six quarters?

I'll offer you my view and Mike very well is going to have a comment here also, Brian. But as Mike had just -- had just addressed for a question on pricing, I think the thing to remember is that, in the broad context, the industry remains, I would characterize it generally as still being very, very competitive from a pricing perspective. So being choosey, the degrees of freedom you have to move your margins by being choosey still have some pretty narrow upward and downward boundaries on them, if you want to stay in business, basically.

So as you've seen over the last year and a half at this point in time, we have continually been moving our product mix upwards, and that has helped us bit by bit on the sales and margin line. We have some capabilities in our plant that exist today and we'll keep focusing on tomorrow that we'll do our best to stay focused on the higher end of the product mix and take advantage competitively of better margins there whenever we can. But I don't want you standing back, saying, there's like an inflection point that we're hitting here with regard to our pricing, because it's still a really -- a really challenging industry. Mike, I don't know if there's anything to add there.

The only thing I would add is the complexity of the offerings on platforms today versus five years ago, a lot more wheel offerings, not just differentiated by trimlines, so you have a range of quotation opportunities, sure, something's working for us, we want to take advantage of that but we have to be competitive. And there's tradeoffs between volume versus a more specialty type focus, and that's going to continue. The good thing about aluminum wheels, it makes a vehicle look great. They always want to take full advantage of that product when differentiating their products.

All right. Well, thank you very much.

Okay.

Mr. Shiba, we have no further questions in the queue at this time.

All righty. Once again, thank you everyone for joining us today, and we'll look forward to talking to you, all of you in about three months. Thank you, Ryan.

And that does conclude today's conference. Thank you for your participation.