Standard Motor Products Management Discusses Q3 2010 Results – Earnings Call Transcript
Standard Motor Products, Inc. (
)
Q3 2010 Earnings Call
November 2, 2010; 11:00 am ET
Executives
Lawrence Sills - Chief Executive Officer
James Burke - Chief Financial Officer
Analysts
Robert Smith - Center For Performance Investing
Steve Rudd - USIP
Sean Nicholson - Kennedy Capital
Efraim Levy - S&P
Presentation
Operator
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Standard Motor Products: The Wall Street Analyst Forum Presentation Transcript
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Dollar Thrifty Automotive CEO Discusses Q3 2010 Results – Earnings Call Transcript
Hello and welcome to the Standard Motor Products’ third quarter earnings call. At this time all participants are in a listen-only mode. (Operator Instructions) Please note that this call is being recorded.
It is now my pleasure to turn the conference over to Mr. Jim Burke. Please go ahead.
Jim Burke
Thank you. Good morning and welcome to Standard Motor Products’ third quarter 2010 conference call. In attendance from the company are Larry Sills, Chief Executive Officer, and myself, Jim Burke, Chief Financial Officer.
As a preliminary note, I would like to point out that some of the material we will be discussing today may include forward-looking statements regarding our business and expected financial results. When we use words like anticipate, believe, estimate or expect, these are generally forward-looking statements, although we believe that the expectations reflected in these forward-looking statements are reasonable. They are based on information currently available to us, and certain assumptions made by us and we cannot assure you that they will prove correct.
You should also read our filings with the Securities and Exchange Commission for a discussion of the risks and uncertainties that could cause our actual results to differ from our forward-looking statements.
I’ll begin with a review of the financial results and then turn it over to Larry followed by Q-&-A.
I’m very please to report another strong quarter with top-line revenue gains and continued earnings momentum. With most of our heavy lifting complete from past restructuring efforts, we reached an inflection point in the second quarter of 2009. Since then, we have produced improvements in gross margins, EBITDA and earnings per share quarter-over-quarter against the prior years.
I will review the highlights from our most recent third quarter. Our consolidated net sales in the third quarter were $227.5 million, up $22 million or 10.7%. Excluding $7.2 million in sales from the divestiture of our European segment last year, net sales were up $29.2 million or 14.2%.
Looking at it by segment Engine Management, net sales were up $16.6 million for the quarter or 12.1% and with the warmer temperatures this summer, our Temp Control net sales were up $12.3 million or 20.6%.
Our consolidated gross margin dollars improved $10.2 million to 26.4%, which was up 2.2 points. By segment, Engine Management gross margin was up $7 million to 25.9% for the quarter up 2 points. With the 2010 pricing fully implemented and favorable manufacturing efficiencies, our 2010 margins have improved sequentially throughout the year. In Q1, it was 24.2, improved to 24.5 in Q2 and up to 25.9 in the recent Q3 quarter.
Temp Control gross margin improved $4.1 million to 23.9%, up 2 points. Our Temp Control gross margin percent is benefiting from the favorable efficiencies in our Mexico manufacturing facility and increased production due to the stronger demand from the hot summer season.
Consolidated SG&A expenses increased $5.2 million, primarily related to the sales increase in the quarter. As a percentage of sales, SG&A expenses were 18.5% in Q3 2010 versus 17.9 last year. And for the nine months, a slight reduction at 18.9% in 2010 versus 19.1% last year.
Our AR draft fees accounted for a large portion of the increase. They were up $900,000 in the quarter and up $2.8 million year-to-date. Consolidated operating profit before restructuring and integration expenses improved $5 million to $18 million or 7.9% of net sales. This reflects a 38.3% improvement over Q3 last year from a 10.7 increase in revenues. Our year-to-date operating profit of $41.8 million, again excluding restructuring and integration expenses are up almost 52% from a 10.9% increase in revenues.
Restructuring and integration expenses were $1.4 million in Q3, down $1.9 million from last year. In 2010, we were primarily incurring cost associated with the closure of our Hong Kong manufacturing facility and our Hayden facility in California. In the quarter, other income includes roughly $1.5 million gain from the sale of our Reno distribution facility, which we exited in 2008. This gain has been excluded when we report our operational results.
Income tax expense in the quarter and year-to-date includes a benefit of $1.1 million from previous tax reserves primarily related to foreign transfer pricing. As a result of the expiration of the Statute of Limitations for 2006 and prior tax years similar to the Reno sale gain, we have excluded this benefit when we report our operational results. Our diluted earnings per share excluding non-operational gains and losses were $0.43 in the quarter versus $0.35 last year and for the nine months $0.96 versus $0.70 last year on a base of roughly 4 million more shares.
Looking at the balance sheet, our account receivable increased $46.4 million versus December ‘09 levels. This is due to our strong sales and seasonal nature of our Temp business. AR levels are essentially flat with September ’09 levels.
Inventory increased roughly $32 million since December ’09. This increase was in response to a very strong demand, both in Engine Management and our Temp business. We anticipate inventories decreasing slightly by year-end with further planned reductions in 2011.
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