August 02, 2023 | Download PDF
SMP, a leading automotive parts manufacturer and distributor, reported today its consolidated financial results for the three and six months ended June 30, 2023.
Net sales for the second quarter of 2023 were $353.1 million, compared to consolidated net sales of $359.4 million during the comparable quarter in 2022. Earnings from continuing operations for the second quarter of 2023 were $18.4 million or $0.83 per diluted share, compared to $20.8 million or $0.93 per diluted share in the second quarter of 2022. Excluding non-operational gains and losses identified on the attached reconciliation of GAAP and non-GAAP measures, earnings from continuing operations for the second quarter of 2023 were $18.6 million or $0.84 per diluted share, compared to $20.8 million or $0.93 per diluted share in the second quarter of 2022.
Consolidated net sales for the six months ended June 30, 2023, were $681.1 million, compared to consolidated net sales of $682.2 million during the comparable period in 2022. Earnings from continuing operations for the six months ended June 30, 2023, were $31.1 million or $1.40 per diluted share, compared to $41.4 million or $1.85 per diluted share in the comparable period of 2022. Excluding non-operational gains and losses identified on the attached reconciliation of GAAP and non-GAAP measures, earnings from continuing operations for the six months ended June 30, 2023 and 2022 were $31.9 million or $1.44 per diluted share and $41.4 million or $1.85 per diluted share, respectively.
Mr. Eric Sills, Standard Motor Products’ Chief Executive Officer and President stated, “Overall, sales decreased 1.8% versus last year’s strong second quarter, while year-to-date we were roughly flat to 2022. The cooler and wetter conditions in the quarter had a negative impact on our aftermarket business, particularly on our Temperature Control segment. Additionally, we continue to experience the impact of a recent bankruptcy of a large aftermarket customer, negatively impacting our quarterly sales by 1.6%. While we believe in the long run that volume will return, as the business has either been acquired or will be absorbed by other accounts, in the near term it will continue to be a headwind.”
By segment, Vehicle Control sales were down 1.1% in the quarter, though remain 1.5% favorable on a year-to-date basis. This segment was the most impacted by the customer bankruptcy, reflecting a 2.2% negative impact in the quarter, which again, we believe will eventually be recovered. Meanwhile, we continue to see favorable customer sell-through, suggesting general market stability.
Temperature Control sales declined 8.1% versus the strong 6.4% growth experienced during the same quarter last year, and down 5.2% in the first half. As noted above, a cooler and wetter spring negatively impacted demand for this seasonal product category against an already difficult prior year comparison. That said, after a slow start, the heat has picked up across the country, with many areas hitting record temperatures, and that should bode well for the third quarter.
Our Engineered Solutions segment sales increased 6.2% in the quarter due to strong demand from our existing customers as well as new business wins. We continue to be bullish on long-term sales growth in this segment as we gain traction with our expanded customer base, though revenue growth is not necessarily linear.
Looking at profitability, consolidated non-GAAP operating margins were 7.8% in the quarter, flat with the 7.8% in the second quarter last year. We are pleased with our ability to largely overcome the impact of inflation through a combination of pricing actions and cost reduction initiatives. While Temperature Control operating margins, down 390 basis points from last year, came under pressure due to sales performance, the Vehicle Control and Engineered Solutions segments improved operating margin by 190 basis points and 100 basis points, respectively. During the quarter, our operating income was impacted by a $4.8 million increase in customer factoring program expense over last year from elevated interest rates. On the bottom line, Adjusted EBITDA and earnings per share were down primarily due to the lower sales performance in Temp Control, lower overhead absorption from inventory reduction efforts, and the impact of interest rates both on our customer factoring programs and our borrowings.
From a cash flow perspective, we continue to make progress with respect to initiatives on reducing both our inventory and our debt. At quarter-end, our inventory was $499.1 million, down from $528.7 million at year-end 2022 and $551.4 million at last year’s second quarter. Additionally, our total debt at quarter-end stood at $223.2 million as we paid down $50 million in the second quarter.
We are excited to announce our plans to open a new distribution center in Shawnee, KS, which eventually will replace our existing smaller DC in nearby Edwardsville, KS. This 575,000 sq.ft. facility, scheduled to have a phased opening beginning early 2025, will provide capacity expansion for all aftermarket product categories with improved logistics capabilities, though in the near term we will incur additional costs while we operate two facilities.
Regarding our full year expectations for 2023, we anticipate top line sales growth to be in the low single digits. We are updating our Adjusted EBITDA expectations to approximately 9.5% of revenue for the full year 2023 from our prior estimate of approximately 10%. This outlook considers higher expense related to customer factoring programs that will fall between $48-$50 million at current rates, the impact of startup costs and duplicate overhead expense associated with the new distribution center discussed above, an exchange rate headwind from the weakening of the U.S. Dollar on our international operations, and the impact from softer than expected sales in our second quarter.
The Board of Directors has approved payment of a quarterly dividend of 29 cents per share on the common stock outstanding, which will be paid on September 1, 2023 to stockholders of record on August 15, 2023.
The Company has been involved in a legal proceeding with a third party since March 2019. This lawsuit arose from a breach of contract claim associated with a discontinued operation of SMP. SMP has vigorously defended itself but, on May 11, 2023, we were found liable for approximately $11 million in damages. Although it is expected that the Court will not finalize its judgment until the end of the third quarter of 2023, we incurred a charge to SMP’s discontinued operation in the second quarter of 2023.
In closing, Mr. Sills commented “As we start to look into the second half of the year, we are optimistic that the return of hotter summer weather patterns should help normalize aftermarket demand trends where fundamental industry dynamics remain favorable. Our Engineered Solutions business, which can be lumpy quarter to quarter, is on a very nice trajectory. And our initiatives of reducing inventory levels and improving working capital have us on track to return to healthy levels of operating cash flow consistent with years past. We recognize that macro pressures are lingering, but we will continue to invest in our business and people to be well-positioned to take advantage of the strength of the industries in which we operate once these near-term headwinds subside. We want to thank all our employees for our current success and helping us achieve our goals for the future.”
View Consolidated Financial Statements
Standard Motor Products, Inc. will hold a conference call at 11:00 AM, Eastern Time, on Wednesday, August 2, 2023. This call will be webcast and can be accessed on the Investor Relations page of our website at www.smpcorp.com and clicking on the SMP 2Q 2023 Earnings Webcast link. Investors may also listen to the call by dialing 800-274-8461 (domestic) or 203-518-9814 (international). Our playback will be made available for dial in immediately following the call. For those choosing to listen to the replay by webcast, the link should be active on our website within 24 hours after the call. The playback number is 888-562-0905 (domestic) or 402-220-7347 (international). The participant passcode is 94640.
Under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Standard Motor Products cautions investors that any forward-looking statements made by the company, including those that may be made in this press release, are based on management’s expectations at the time they are made, but they are subject to risks and uncertainties that may cause actual results, events or performance to differ materially from those contemplated by such forward looking statements. Among the factors that could cause actual results, events or performance to differ materially from those risks and uncertainties discussed in this press release are those detailed from time-to-time in prior press releases and in the company’s filings with the Securities and Exchange Commission, including the company’s annual report on Form 10-K and quarterly reports on Form 10-Q. By making these forward-looking statements, Standard Motor Products undertakes no obligation or intention to update these statements after the date of this release.