Standard Motor Products, Inc. announces fourth quarter, 2018 year end results
Consolidated net sales for the fourth quarter of 2018 were $247 million, compared to consolidated net sales of $240 million during the comparable quarter in 2017. Earnings (loss) from continuing operations for the fourth quarter of 2018 were $12.2 million or 53 cents per diluted share, compared to ($8.1) million or (36) cents per diluted share in the fourth quarter of 2017. Excluding non-operational gains and losses identified on the attached reconciliation of GAAP and non-GAAP measures, earnings from continuing operations for the fourth quarter of 2018 were $11.8 million or 52 cents per diluted share, compared to $12.4 million or 54 cents per diluted share in the fourth quarter of 2017. Consolidated net sales for 2018 were $1,092.1 million, compared to consolidated net sales of $1,116.1 million during the comparable period in 2017. Earnings from continuing operations for 2018 were $56.9 million or $2.48 per diluted share, compared to $43.6 million or $1.88 per diluted share in the comparable period of 2017. Excluding non-operational gains and losses identified on the attached reconciliation of GAAP and non-GAAP measures, earnings from continuing operations for the year ended December 31, 2018, and 2017 were $58.5 million or $2.55 per diluted share and $65.6 million or $2.83 per diluted share, respectively. Mr. Eric P. Sills, Standard Motor Products’ Chief Executive Officer and President, stated, “We were generally pleased with the fourth quarter, as sales and gross margin for the company as a whole were slightly ahead of the prior year. Operating profit was down, excluding the gain on the sale of the Grapevine, Texas facility, primarily as a result of the costs associated with the installation of a new automated distribution system for our Temperature Control Division in Lewisville, Texas. We anticipate significant savings in this area in 2019. “Turning to the divisions, Engine Management sales were up 2.5% for the quarter. Excluding our wire and cable business, which, as we have discussed, is a product line in general decline, Engine Management sales were ahead 4.5% for the quarter. Full year Engine Management sales, excluding wire, were slightly behind 2017, entirely the result of a few large pipeline orders in 2017 that were not repeated this year. More significantly, our customers reported Engine Management POS up approximately 4% in both the quarter and full year, in line with our long-term forecast. “Engine Management gross margin was up 40 basis points over the same quarter last year but slightly down for the year. A major contributing factor was the startup costs incurred in our wire assembly plant in Reynosa, Mexico, as we continue to integrate General Cable’s assembly operation. We are already seeing improvement in productivity there, as our newly hired employees gain experience, and we move towards historic levels of efficiency. We have also been slightly impacted by the timing of tariffs incurred with Chinese sourced products in 2018. “2018 was a warm summer, and our customers reported Temperature Control POS sales increases in the 6-7% range. However, they began the year with heavier inventories, the result of the previous year’s cool summer, and therefore their purchases in the first half were soft. Our second half Temperature Control sales were strong, and we finished 2018 essentially flat in sales. We believe our customers’ inventories at the end of 2018 were at lower levels than the prior year, and we are anticipating stronger pre-season orders in the months ahead. “Temperature Control gross margin was down slightly for the year. However, this was due to a carryforward of unfavorable variances from the weak season of 2017. As sales and production in the second half of 2018 were stronger, we will begin 2019 in a healthier position.
“Temperature Control SG&A for the year was impacted by higher distribution expenses mentioned above. As stated, we are anticipating significantly improved results this year.”
In December 2018, the Company completed the sale of the Grapevine, Texas, property for net proceeds of $4.8 million, and recorded a one-time gain of $3.9 million. This was the final step in relocating the Temperature Control operations to Reynosa, Mexico. The move went smoothly, was completed on time and within budget, and Reynosa is achieving all of its operational targets.
In December 2018, the Company amended its Credit Agreement with JPMorgan Chase Bank, N.A., as agent, and a syndicate of lenders. The amended Credit Agreement provides for a senior secured revolving credit facility with a line of credit of up to $250 million (with an additional $50 million accordion feature) and extends the maturity date to December 2023.
In the fourth quarter of 2018, the Company increased its asbestos liability to $46.7 million, with a full year pre-tax charge of $13.6 million in loss from discontinued operations. The increase in the asbestos liability was due primarily to a California asbestos lawsuit, in which a jury returned a verdict in the fourth quarter of 2018 in favor of the plaintiff for the gross amount of $8.6 million in compensatory damages, of which the Company was held responsible for approximately $7.4 million. We strongly disagree with the jury verdict and will vigorously pursue all rights to appeal. We anticipate that the appeals process will take approximately two to three years to be resolved.
There were also two personnel changes. As previously announced, James Burke has been promoted from Chief Financial Officer to Chief Operating Officer. In addition to his new assignment, Mr. Burke will continue to serve as CFO until a replacement is identified. We are confident that Mr. Burke will make significant contributions to the Company in his new position.
Secondly, Frederick D. Sturdivant announced that he will retire from the Board, at the conclusion of his term, in May. Mr. Lawrence I. Sills, Executive Chairman of the Board, said “Fred has been a tremendous contributor to the Board, especially in the area of strategic planning, since he joined us in 2001. We wish him the best of luck in his retirement.”
In conjunction with Mr. Sturdivant’s retirement, the Board of Directors has voted to reduce the total number of Board seats from eleven to ten, effective on May 16, 2019.
As announced previously, our Board has approved an increase in our quarterly dividend from 21 cents per share to 23 cents per share payable on March 1, 2019. This represents our tenth consecutive year of dividend increases.
Mr. Eric Sills concluded, “While we realize that there is still a great deal to be done, we are pleased with the trends going forward. Our customers continue to show solid sales increases in our lines, and we anticipate significant cost improvements in our two major initiatives in Reynosa and Lewisville. Our position in our industry, where the demographics remain positive, has never been stronger. We are optimistic heading into 2019, our centennial year.”
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.
