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SMP Posts Gains In Q1 Sales, Earnings

For the first quarter of 2019, Standard Motor Products’ (SMP) net earnings rose 52.9% to $12.22 million. Excluding non-operational gains and losses, earnings from continuing operations came in at $13.10 million — up 24.4% from $10.53 million a year ago.

The company’s consolidated gross profit increased 7.4% to $77.96 million; however, its gross margin slipped from 27.7% to 27.5% on a year-over-year basis. Consolidated net sales increased 8.4% to $283.77 million.

ENGINE MANAGEMENT … Engine Management revenue increased 6.9% to $213.19 million. Wire and cable revenue declined 3.3% to $37.13 million. Ignition, emission control, fuel and safety-related system product revenue rose 9.3% to $176.06 million, which management pegged to pipeline orders, the pass-through of tariff costs, an uptick in OE business and a general improvement in market conditions.

“Customer sell-through, which tends to be a good indicator of things to come, started the quarter sluggish but improved month-over-month throughout,” President and CEO Eric Sills said on SMP’s April 30 conference call. “As we always state, customer purchase patterns can be somewhat lumpy quarter-to-quarter but balance out over time. We continue to project longer-term growth in the low- to mid-single digits.”

Engine Management gross margin declined 30 basis points to 28.0%, attributable to tariffs being passed through to customers at SMP’s cost. For the remainder of the year, management expects Engine Management gross margins to come in between 29% and 30%.

Segment operating income rose 10.6% to $22.35 million, with operating income margin improving from 10.1% to 10.5% on a year-over-year basis.

“Operationally, we’re pleased to say that our wire and cable assembly plant in Mexico — which has been causing us excess costs for the last several years — has begun operating at normal efficiencies,” Sills said. “As you are aware, we have been integrating the General Cable acquisition into this plant, which required hiring and training hundreds of employees. And, while it was a long journey, we have now arrived, and I thank all of our people who worked so hard on it.”

Analysts with Jefferies LLC wrote in an April 30 report that the Engine Management segment sales increase attributable to customer pipeline orders and increased OE business is not likely to remain in the near term; however, tariff-related inflation and improving market conditions should continue to be a tailwind.

“We also note that channel sell-through (customers’ POS sales) appears to be trending up low-single digits year-over-year — a ‘normal’ category growth rate,” Bret Jordan, Mark Jordan and Ethan Huntley wrote. “Accordingly, we expect engine management segment organic sales will increase in the low-to mid-single- digits throughout the remainder of full-year 2019, while additional pipeline orders and/or OE business increases could drive further upside.”

TEMPERATURE CONTROL … Temperature Control revenue rose 14.4% to $68.92 million in the first quarter of 2019, mainly due to strong pre-season orders. Tariff pass-through also was a factor.

Compressors revenue increased 33.2% to $39.81 million. Other climate control parts revenue declined 4.0% to $29.11 million.

“Last year’s selling season was robust, and our customers ended the year light on inventory. They, therefore, ordered heavily this year to replenish their shelves,” Sills pointed out. “But, it’s very important to note that this is merely preseason orders in preparation for the summer and is not a predictor of what the full year will look like. So, let’s all hope it gets hot.”

Temperature Control gross margin grew 80 basis points to 23.5%, despite tariffs being passed through at the company’s cost. Management forecasts Temperature Control gross margins to come in between 25% and 26% for 2019.

Segment operating income rose 114.6% to $2.05 million, with operating income margin improving from 1.4% to 3.0% on a year-over-year basis.

Given robust sell-in during the quarter, Jefferies’ analysts expect that channel inventory is relatively well stocked and expect a return to single-digit second quarter sales growth. “Going forward, we note that late Q2 and Q3 replenishment sales for the segment will depend heavily on retail POS during peak summer weather,” they wrote. “We also note that the segment faces a difficult bar in Q3 (Q3’18 sales +18%), as last year’s three-month period of July to September represented the fifth warmest on record, according to the [National Oceanic and Atmospheric Administration (NOAA)].”

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