Standard Motor Products (SMP) 22 Feb 242023 Q4 Earnings call transcript

Good day, everyone, and welcome to today's Standard Motor Products Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] Also, today's call is being recorded. [Operator Instructions]

Now at this time, I will turn things over to Mr. Tony Cristello, Vice President, Investor Relations. sir. ahead, go Please

Chairman good Iles, our and Quarter Standard With Operating Larry Conference and CEO; President joining Burke, Financial Jim XXXX appreciate Officer. us Call. Chief Sills, are today for Motor and me Eric morning, you, Sills, we and Nathan everyone, Officer; you Earnings Emeritus; Chief Thank Products Fourth

will will will discuss Q&A. our performance DC, quarter. Jim provide On our on Eric of and financial annual our and call in will some our overview open Nathan call results and then for give an up the today, concluding Shawnee update Eric we'll our guidance. the remarks, provide

like and like anticipate, Before When include today are that remind words may you the expected we statements. statements use or be estimate we generally morning, some our regarding financial forward-looking discussing begin forward-looking I'd results. business to these expect, material this believe, of that we'll

statements expectations certain Although they assumptions we and correct. cannot the us, on that made us are assure believe these by reflected will and are currently to prove they based we reasonable, information available that forward-looking in

could of You and Exchange discussion the should with and to the from actual our Securities risks statements. read uncertainties a for also results Commission our that differ cause forward-looking filings our

to I'll Sills, now our the call Eric turn over CEO.

whose call. globally, quarter Thank employees open you, all Tony, who and commitment our the we and I'd makes like us SMP earnings to welcome good fourth morning, everyone, to thanking are. of to SMP by tireless

for capped fairly year SMP. was a quarter fourth what The challenging

versus our trajectories different saw nuances business in Engineered throughout. aftermarket our with noted As we our some release, Solutions business for

segment, into it starting Vehicle So with let me Control. by get

year as Vehicle XXXX's X.X%. fourth roughly down we the the quarter, finished demand softened Entering to record quarter progressed, and fourth the year, flat Control

we the largely previously As are events. year impacted throughout X nonrecurring by discussed,

activity from softness a the the beyond latter continue customers larger our dynamics declined we some we market progressed. pipeline as throughout to see we the the marketplace to in a a of this previously year. nature underway. impact by have as in general seen extent, saw bankruptcy, saw strong, as in customer believe the gets modest and we That our fourth less off, of But temporary and First announced is resurgence evidenced POS the quarter remain as largely results, said, quarter a customer we XXXX that, which

Next, our business. Temperature I'll discuss Control

for XXXX It As it making It year set business. you records of the difficult weather-related the tied know, X%, important to seasonal since an conditioning, is throughout XXXX more to to than the it's Not nature, is influences only got can in the sales all business the beating our year. by of parts impact note of context over subjected hot majority that patterns timing the air other early was an long, market. and is summer comparison. outsized a weather

up a did quarter. XXXX well the was make X.X%. lost the yet ground too quarter, third amount too a start in country, sales get We we're to were and down differently. and third it hot much we fair selling and season, the entering able we year the the behaved late, quite of finished on It little to had behind finally in of slow

that still that lastly, could have period a while past customers with fourth to decisions our would with quarter. small are consistent orders light, appears too note it on lowest I our read by that preseason early, influence it's for big years. fourth not lot, a making quarter The a certain And XXXX stocking we people always was into quarter very is itself caution The much but it.

up sums the aftermarket. that So

Engineered Meanwhile, our segment. we're Solutions with very pleased

own for it and growing split out strong multiple beginning product both also chose this that its Not demonstrate truly segment posted of sales XXXX. in opening various years focused made stakeholders, and this respectively, global the of the this has on up After dedicated being clarity tailored better to the it business has fronts. acquisitions and and resources, full only X.X% into strategy, sales on a year, believe various we end product at We business doors. committed is genuinely into markets. customers to to development, this both through several nonaftermarket with a the we are we quarter and Our helped X.X%, space in provided broad with progress organic portfolio

it sales as actually while globally, often well ones. takes pipeline begin, as seeing headed. awarded new a with and excited customers about and between being very is where the we're We're time And business it's existing gains the when robust

pricing our but profitability. cost reduction us present to and gross with soft of basis, year our costs, caused made the long, stubbornly we will to we Turning of provide his Nathan proud of progress have $XX XXXX. our high factoring headline that a deleveraging details furthermore, headwind, year fixed continue inflation both our to in on a facing a host And expenses to line, bottom initiatives during which cost million full more and as across margins hurt sales All retain remarks. compared I'm actions, is been customer allowing the turn inputs. up

up distribution turn over new me exciting bring will to on who you center. date our it let to first, Jim, But

you, plans. an Thank I'm Good Eric. distribution update happy on network expansion morning. strategy share our to

Fort Texas. announced in Shawnee, at ships our To Kansas Lauderdale, forecast second U.S. distribution footprint Edwardsville, located is Control million Temperature We footprint, our release. Kansas; center centers Lewisville, your and from memory, This X.X X Control XXXX approximately feet. quarter square Vehicle and Virginia; Florida, distribution our combined refresh Disputanta, new earnings excluding distribution previously our primary distribution trading currently from products for

feet million DC facility a existing The is square DC. miles Shawnee within incremental for will replace plan combined XXX,XXX-square-foot new which add add XXX,XXX Our X.X Edwardsville to X existing of our to Shawnee new our is new Edwardsville the facility, footprint.

network many existing are distribution us our addition existing our we single-point the X will strategy. from believe We for DCs. products Today, our Shawnee benefits over offer

SKUs A carried will Our Shawnee strategy to are in new into that high-volume Virginia be add also Lewisville. B and and popular

For Shawnee popular that to will the Control, will were from to SKUs Mississippi from previously totally Virginia. and Vehicle country. the shipped Slower-moving ship A customers across continue B of west Virginia SKUs ship

strategic For this transportation SKUs; overcapacity the with Temperature and -- the Lewisville retaining the the in and risk turnaround Control states. multi-point provide ship of distribution Virginia high-volume and half Shawnee There savings distribution growth of efficiency us will for to upper and cost existing Lewisville; on packing ship orders for will of and avoidance capacity our our shipping incremental reduce capacity team half SKUs, due U.S., labor will opportunities. pulling, while from existing our faster Edwardsville savings; lastly, constraints many popular and benefits: XXX% will associates facility; future experienced time seasoned within DCs; southern management

Our initially January transition schedule this on plan plan is year. disclosed. basically essentially construction completed Shawnee The in as build-out and of was interior

XXXX. X installation called X manual for picking with the launch automated operational consolidation, completion for early plan April Phase Phase this scheduled XXXX, entail will a RF in racking of soft Our automated of year. modules commencing and picking installed continue and

in added of end from be Overall, over distribution implemented, of Costs XXXX inclusive standpoint, incremental while 'XX net the of be by a expense and approximately and and be of incurring incremental achieved for this and incurred will fully of from to million. once expansion costs $X will costs, depreciation fully savings million years. savings offset 'XX, and By an we cost, transportation be ongoing will per we 'XX. see multiple $X property operational. will expect $X savings lease million, year efficiency approximately 'XX capacity,

fully XXXX of anticipate position our of proceeds the our in Edwardsville much $XX land and the plus XXXX. be sale added importantly, owned for from In by we addition, we the customers expect with to a future service better to end stronger capacity million in cash growth. exit will Most and facility building

for you call the I'll turn attention. Thank your to over now Nathan.

Jim. Thank you, right. All

of XXXX we provide full on and key give results numbers, XXXX. outlook first financial in update for then year the color the an some I'll the go on more and full through of year for As quarter drivers our our

sales lower number both orders pipeline of last EBITDA bankruptcy Control's of general the quarter was and periods year, slowness the to the full both for sales sales decrease in net by including year. with in segment, QX. in from X.X%, of X.X%, the driven things sales and the year, which at see in full Vehicle occurred were during down we year, First, looking million net with that QX year, across our Vehicle softness were can general on down the you Vehicle a Control owing $XXX.X of for decline in early the the saw slide Control the a adjusted a XX.X% But down impact industry. the with customer

due distribution drivers was to down the for lower that, EBITDA Vehicle due quarter, in QX new lost of gross margin lower center, of and with about primarily additional lower Further, expense resulted the partly the to $X start-up the a million the sales related to to adjusted leverage of volumes. coupled in sales, in Control due rate EBITDA. Looking in SG&A Vehicle expenses increased quarter, Control at for

the Looking point. the Control rate at Vehicle EBITDA full margin year, EBITDA for X decreased

higher a of this factoring margin than gross percentage more as the higher offset sales. of benefited initiatives, by savings and pricing was While combination from and rate a costs SG&A

$X about For additional million for the SG&A of expense new included warehouse. full year, our

we've programs a adjusted the While of point our lot the progress EBITDA factoring Vehicle offsetting improvements recently for gross is we've full down as the margin I would cost year. out of offset made Control's rising faced year-over-year, that headwinds

we were and the ended. in Control. Temperature selling saw down as that $XX.X the XX%, X.X% sales segment to of by Turning a quarter were year after million primary season quarter very full for the Net sales fourth for soft down

operating and of put loss but driven from EBITDA on in Temperature of than higher operating margin lower was of as sales down cost lower to factoring expenses, a which on leverage last sales sales in to lower volume, primarily which to X.X% Control's was net was year. a led primarily EBITDA last the quarter. and Temp pressure leverage for adjusted gross of also by the it the during year, result Control's of of due was the adjusted QX rate programs the led expenses year year volumes, full lower customer

down in quarter quarter segment. new lower continue customers. sales for the full gross the year the result X.X%, Engineered new during of was a were demand to our there business we as Solutions Engineered in wins for and as mix see existing the quarter segment last in our and increase Solutions from X.X% this pleased year resulted to for sales the for were of were strong up with change up both in and margin Adjusted EBITDA as Sales sales

widely a can and customers, has segment gross vary the this quarter-to-quarter. therefore, diversified portfolio margin reminder, rate of a As products and

our quarter the While significantly. fourth was down, was up QX rate

for important look So year margin the it's at this rate to full segment.

up and year, points Engineered margin gross year. for sales was adjusted a was rate. the the X.X Solutions EBITDA full For XX.X% improved The the for from improvement result strong of and year slightly last growth

Turning were to in in our consolidated to results. lower Net due down X.X% aftermarket. quarter sales sales the the

For growth the the by aftermarket Solutions. X% were lower offset were sales as down year, sales in full Engineered only partly

The consolidated lower ] quarter, [ the margin gross for declined volumes. sales rate the to owing

gross volumes our headwinds pricing savings X.X overcame faced. we rate finished as year margin However, for full lower initiatives points our the other up and and

we're timing volumes. higher QX the SG&A, between to and to center some in year were up due up controlled. due cost related programs factoring overall of begin SG&A come some The well costs Regarding down and as we're cost sales XXXX, million costs year. later to of costs $XX you overall, for were full and leveled a rates lower inflation mainly distribution out the in in were this increased costs and new customer will start-up fourth percentage see our hopeful the but in quarters. sales But due expenses DC net can by quarter, to to

costs in consolidated income bottom led only sales offset to year, and volumes factoring gross EBITDA lower the operating operating But last EBITDA were lower margin. costs and lower quarter were profits. higher year in the the higher full income by as improvements partly factoring for were adjusted and Looking our down and lower than as Consolidated adjusted line. at sales

flows. item sheet to the and million finished million, which inventory The $XX.X here December now balance is $XXX.X from at level, down year year. Turning last key cash the our

million flow generated cash a reflects a compared used improvement from of statement flow payable year cash cash for year. million improvement last and accounts in Our inventory year, during the the operations million $XX.X operations as of cash for $XX to with in from million driven normalized $XX.X $XXX.X improvement used the by as cash

as made by cash progress significant $XX.X of shows facilities a flows. our down credit activity our million operating result paying improved in Financing

during also paid year. dividends the We million $XX.X of

$XXX.X XX% lower ratio. QX we year, finished at borrowings lower last the Our leverage ratio and were million a of Xx EBITDA, with the quarter of much than end last year's of than

Before profit an full to I our give finish, I year on of and update want the for expectations sales XXXX.

our an XXXX estimate sales largely million single-digit to range high distribution to Shawnee, and XXXX X.X% before. full includes flat Regarding expect is uncertain as low essentially release initiatives noted percentage and flat X% This some will profit additional morning. and with factoring year new flat we a XXXX. line pricing in flat inflation, capabilities EBITDA growth as of related this Jim we sales, environment rate highlighted our top as to rate the expected million Adjusted show in XXXX the be a in in operating to expansion costs in with savings expenses as interest of of warehouse $XX and $XX remain Kansas to offset with

In expected average, to our U.S. saw be expect debt by key rates, note Borrowings quarter be, about we to our we tax remained on XXXX. million income has XXXX, rate flat against XXXX. remain currencies and million December lower we EBITDA outstanding also adjusted to $X outlook, connection XX%. in I levels given to the at on interest those flat dollar it and our expense interest that with $X would each weakened expect start to are

normalize, flows via to new shareholders look our As approximately million in cash we and cash return invest $XX to DC dividends.

make notes items me To cadence wrap the of year. let the these up outlook, X regarding our across

costs slightly impacted higher things, regarding we lap X be several across including programs year-over-year to earnings the headwinds costs new will customer from from of First, expect higher the finally XXXX, quarters we as the cadence and related start-up in QX increases. the of factoring by the rate DC

ratably in and expenses, mind in top costs, approximately are incurred keep will do across And Second, the anticipate to total $XX our sales. $XX we line operating with including million be expenses million quarter operating XXXX. not factoring vary year each

To gross pleased improvements in segments wrap year improve turning up, margin rates while very than across all our slower we hoped, well we to as the flow. our with ended significant as were efforts cash

team very are efforts members meeting of all We the of objectives. appreciative in of these our much

final Thank back the you your attention. comments. for I'll now turn call to Eric for some

a Nathan. be we Well, was about. downs. thank In proud and year of ups to And terms pressures you, numbers heard, lot closing, and and in the to market challenges excited have cost faced of of you've while temporary dynamics, the some be as XXXX of reflect a

balance, year, during of is nondiscretionary short-term it of especially a our We XXXX aftermarket economic on tends some both remain outperform long extremely end history be bullish difficult a stable industry on categories was ours. to times, like lows. always disappointing and The while in extremely And There highs markets. has can and resilience. an

remains Our position within strong. aftermarket the also

We trading have us as we awards recognize win. supplier our that a leading continue who excellent the through with partners relationships to numerous

market a continue itself excited aftermarket we about are Engineered dynamics as so strong here, on known not with strong the winning We business. business. much from of on very to diverse Solutions capabilities Quite are be market getting we our the enjoy rising the share, different new and we as where supplier

we're construction operations take to commercial in the customer North have furthermore, vehicle and able Asia. global, Here, opportunities and adjacencies advantage sports. potential. power are and agricultural Europe of believe to There from end I with tremendous America, multiple markets equipment are we to And

and do well to forward. we pricing pursue to forward as do work actions cost as initiatives our reduction profitability have We recognize to on throughout progress continue organization look moving and

So while are excited challenges, very about we XXXX future. had its the

open the it concludes back At moderator remarks. to questions. this and that So our point, it we'll turn up for prepared

go We'll Stephens. first at Daniel Instructions] to Imbro [Operator today

Daniel. Enderlin Joe for on is This

it customers say you will to Looking slowed expect through safe Control, volatility if at customer how you the seeing sales of activity long continue? you're this patterns. quarter, so, ordering noted Is point do in Vehicle And destocking? some and

matter you quarter. they've for at And the a course their it's no, Thank not basically the Yes. as really, been the fourth of look flat over And inventories, question. of we destocking.

it more in So really, a had with demand. to softening end their do of just the marketplace

their things the And out as I think quarter of earnings you're for kind calls that traded distributors big on progressed, publicly that softened there. that hearing the

want that Don't As did in encouraged by week a but a encouraged we're judge seen seen do what I bit recently. recently, we things see mention we've remarks, are more rebound. -- to to prepared my week, we we've to of more

Got it.

I that was orders? seeing parts As before you're there a guess, any rebound, defer categories follow-up, customers or particular

across really was board. It the

we many Vehicle of You different that to individual track are within have to in ones categories recognize so really such that diverse categories that Control, extent. don't we hundreds

it. could ask If one more. Got I

relatively seems guidance EBITDA maybe EBITDA you bucket Or about to the here? margin? maybe the returning double-digit flat 'XX. is of with a for expectation long-term in Could margin talk to XXXX, it more conviction margin why can out Looking [indiscernible] for you this your

Yes.

will noted. And in putting about be XXXX. So One, to DC we the costs keep that Jim some higher new did of flat, talked to in a as things mind. couple in, guide related you and we're that there

remain elevated. also factoring that We have costs

a on in in And as We working out, flat. bit going little year, initiatives to talk term, XX on. bottom sometimes incrementally depending pricing will we're expect, the improve would maybe about the line so year long each what's on be certainly and basis savings and continue year while that XXXX always points, more we XX,

long is but 'XX expect term, flat. would we So to improve that

Jefferies. to now Bret next go Jordan We of

'XX your contribution in little maybe growth any specifically? of the a relief what sort you're for expense, price bit Are 'XX? Could factoring you I you getting guess, to expecting for and about price talk

Yes.

to were push in So some XXXX. pricing through we able

And nothing that some specific to the you're that's so more as of heading XXXX, where report. yes, into we we And it. with see was growth did than so that units, head

We are pricing opportunities. to continuing a out look market competitive is for It there.

understand continuing closely we the everybody get the accounts to it. we what's to so work but to on have are to happening cost do to work structure, And with

that -- share is is Or is I last guess that face picked And then the Was Auto up that's the year. market Okay. who talked the guess their issue bankruptcy a about mix? I basis? -- yes, or underperforming in your Plus year-over-year that on the those you But you just -- question. channel

Yes.

that I think you when for I'd that it's There's of been lot worked It's inventory. a to Bret. There's package distributor while they're of differently it take have channel that but lot absorb duplicate not a to locations a that, underperforming, out, goes through. are of a store been being that lot than going closures. the

so was And basically half. in of big were the revenue hurt unwinding a the I first XXXX that a position spent months X at bankruptcy, they the first and zero as

many second get hard it went switch, a you to because locations that that, wasn't have the while could to that to take it really mix. of light it out flipping really like had we to was as a get of lost see There consumption recovered, kind that shake in to a owners, need for needed track we and it it that But new its business it It's as no, has that not when just and The absorbed. fully it now and once lot happen, does continuing. a half, to see normal. went back

guess, in between, market or mean you health changes? far as other sort larger there spread other potential distribution customer of of out I see general any issues are versus as there WD Do I the players? the

going that different still question, are we in them -- a if the of very investing it's healthy, well. capitalized, the there -- accounts I your and to to of warehouse out regional have a are from national business the you well distributors. Yes, do retailers understand believe Many very more lot large

news natural us over whether Will being they're big ongoing that the to do other in the I guess a last think mature all progression years, tend business We've that's with to market. that a be seen I several acquiring there is acquired do good or that continue of the in them. for space? by consolidation guys. each And we

consolidations to we So as happen, okay. those tend fare

last went still that label. question, any you a and seen Okay. Or Have are And large then label? I volume -- engine retailer return they management national guess private volume there? private the primarily

that have they And is largely them believe what all private guess label. marketplace. we to We say still I and about that's strategy in their watch that. I the are And

you was shift that as a Did for that of -- a it share give market gain you? result

that arm quite our there were it that for I that did confident when ago pick really share of that our these with that. at happened, point few and -- brands We market. go after partners looking trading was available years were when installers that in because arm level. up the installer and to we believe first just them to to lot they a needed a that the other we it went We're in were

pretty able and believe I customers share retain. have that So that there we've or that been able shift to share a time was substantial been to shift at retain market do a our

appears have I'd you, to any it turn like Mr. today. we [Operator comments. closing gentlemen, to Cristello, no further questions conference And Instructions] for back the

you. today. want We everyone conference for our in to Okay. participating Thank thank call

happy be will to may any follow-up answer We questions have. you

Investor Relations Hope you website. available is great or a information press release on have contact day. our Our

you. Thank

you you. conclude Standard gentleman, Conference thank the day. so We'd Quarter and to for Earnings all us joining XXXX much wish Call. Goodbye. that Again, Fourth all you a Thank ladies and Products will great like Motor