Stoneridge Reports Strong Third-Quarter 2019 Results

NOVI, Mich., Oct. 30, 2019 /PRNewswire/ --

2019 Third-Quarter Results

• Earnings per diluted share ("EPS") of $0.24
• Adjusted EPS of $0.37
• Sales of $203.4 million
• Gross profit of $51.9 million
• Adjusted gross profit of $54.4 million (26.7% of sales)
• Operating income of $9.3 million
• Adjusted operating income of $13.7 million (6.7% of sales)
• Adjusted EBITDA of $21.5 million (10.6% of sales)

Adjusted Full-Year Guidance Update

• Adjusted revenue guidance midpoint of $817.5 million, a decrease of $22.5 million to reflect the impact of reduced production volumes in the North American passenger car and European commercial vehicle markets, the General Motors (GM) strike and unfavorable currency impacts in the second half of the year
• Adjusted gross margin guidance midpoint of 27.5%, a decrease of 175 basis points
• Adjusted operating margin guidance midpoint of 6.5%, a decrease of 62.5 basis points
• Adjusted tax rate guidance midpoint of 16.25%, a decrease of 375 basis points
• Adjusted EPS guidance midpoint of $1.55, a decrease of $0.11
• Reduced production volumes forecasted to impact second half adjusted EPS by $0.15
• GM strike forecasted to impact second half adjusted EPS by $0.07
• Currency forecasted to impact second half adjusted EPS by $0.04
• Reducing full-year adjusted EPS guidance by adverse impacts of GM strike and currency ($0.11).  Expecting to offset all other adverse external factors ($0.15).
• Adjusted EBITDA margin guidance of 10.5%, a decrease of 50 basis points

Stoneridge, Inc. SRI today announced financial results for the third quarter ended September 30, 2019, with sales of $203.4 million and earnings per diluted share of $0.24. Adjusted EPS was $0.37 for the third quarter, considering normalizing adjustments primarily related to fair value adjustments and restructuring expenses.  The exhibits attached hereto provide additional detail on the normalizing adjustments.       

For the third quarter of 2019, Stoneridge reported gross profit of $51.9 million and adjusted gross profit of $54.4 million (26.7% of sales). Operating income was $9.3 million and adjusted operating income was $13.7 million (6.7% of sales). Adjusted EBITDA was $21.5 million (10.6% of sales).       

"In the third quarter, and particularly near the end of the quarter, we experienced stronger-than-expected external headwinds related to production volumes, the GM strike and the continued unfavorable impact of foreign currency," said Jon DeGaynor, president and chief executive officer. "Despite these externalities we were able to deliver another quarter of strong financial performance while continuing to drive our long-term strategy.  During the quarter we announced our second OEM MirrorEye^® camera monitor system (CMS) award and continued to make progress toward a broader rollout of our retrofit solution.  In addition to the traditional retrofit market we have discussed previously, we also expect a major, global commercial vehicle OEM to start offering a pre-wire option direct from the factory, beginning in early 2020.  The pre-wiring will be specific to the MirrorEye^® CMS and will reduce installation time and costs for the end customer." 

DeGaynor continued, "In addition to the progress we are making with MirrorEye^®, we continue to evaluate our portfolio and the ability to utilize our global footprint to drive growth and improved financial performance.  As a result, we have completed our strategic review of the switches and controls business within Electronics and plan to move that business to our new facility in Suzhou, China.  We plan to move the business in two phases with the first phase, and majority of the business, targeted for completion mid-2021, and the second phase targeted for completion mid-2022.  We anticipate the planned move of those products to generate an additional 50 to 100 basis points of consolidated EBITDA margin improvement.  The planned move will allow us to not only generate a reasonable financial return for the portfolio, but it will also allow us to retain the core competencies within the product group that we expect will drive top-line growth and additional opportunities with our customers moving forward.  We remain focused on both driving performance to offset external headwinds and continuing to execute on our long-term strategic plan."      

Third Quarter in Review

Control Devices sales, excluding the impact of recently divested non-core product lines, totaled $99.1 million, a slight increase relative to the third quarter of 2018. The increase is due to higher sales volume in our China automotive market and North American and European commercial vehicle markets, which were offset by decreased sales volume in the North American automotive market, primarily due to the continued ramp-down of legacy Shift-by-Wire programs. Control Devices gross margin decreased primarily due to increased overhead and direct material costs due to increased expediting and tariff costs compared to the third quarter of 2018.  The segment's adjusted operating income decreased due to a lower gross margin, partially offset by reduced SG&A and D&D costs, resulting in adjusted operating margin of 12.4%, excluding the impact of recently divested non-core product lines. 

Electronics' sales of $87.0 million decreased by 4.0% relative to the third quarter of 2018, primarily due to unfavorable currency translation partially offset by an increase in sales volume in our North American commercial vehicle market. Electronics segment gross margin decreased due to lower sales, an unfavorable product mix and increased costs related to electronic component shortages resulting in increased direct material costs. The segment's adjusted operating income decreased as a result of a lower gross margin, partially offset by reduced SG&A and D&D costs.  

PST sales of $16.5 million decreased due to lower volumes in the Company's Argentina aftermarket channel, alarm and audio products, as well as lower monitoring products and service revenues. The segment's gross margin declined due to the reduction in sales and higher labor and overhead costs as a percent of revenue.  PST adjusted operating margin decreased to 3.0% due to a lower gross margin and higher SG&A and D&D costs as a percentage of sales.

Cash and Debt Balances

As of September 30, 2019, Stoneridge had cash and cash equivalent balances totaling $55.3 million. Total debt as of September 30, 2019, was $111.8 million. Total debt less cash and cash equivalents yielded a current net debt to trailing-twelve-month adjusted EBITDA ratio of approximately 0.6x.

2019 Outlook

Bob Krakowiak, executive vice president and chief financial officer, commented: "For the full-year 2019, we are adjusting our guidance to reflect current market conditions as well as the offsetting actions we took during the third quarter.  We forecast a revenue impact of approximately $26 million for the second half of the year as a result of the GM strike, reduced production volumes and the unfavorable impact of foreign currency.  As a result of these externalities, we are reducing the midpoint of our revenue guidance by $22.5 million to $817.5 million.  These factors are expected to reduce second half adjusted EPS by $0.26 relative to our prior guidance.  We have taken aggressive actions and expect to offset a significant portion of these externalities and as a result we are reducing the midpoint of our full-year adjusted EPS guidance by $0.11 to $1.55."

Conference Call on the Web

A live internet broadcast of Stoneridge's conference call regarding 2019 third-quarter results can be accessed at 9:00 a.m. Eastern Standard Time on Thursday, October 31, 2019, at www.stoneridge.com. A webcast replay will also be offered.

About Stoneridge, Inc.

Stoneridge, Inc., headquartered in Novi, Michigan, is an independent designer and manufacturer of highly engineered electrical and electronic components, modules and systems principally for the automotive, commercial, motorcycle, off-highway and agricultural vehicle markets. Additional information about Stoneridge can be found at www.stoneridge.com.

Forward-Looking Statements

Statements in this release contain "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this report and may include statements regarding the intent, belief or current expectations of the Company, with respect to, among other things, our (i) future product and facility expansion, (ii) acquisition strategy, (iii) investments and new product development, (iv) growth opportunities related to awarded business and (v) operational expectations.  Forward-looking statements may be identified by the words "will," "may," "should," "designed to," "believes," "plans," "projects," "intends," "expects," "estimates," "anticipates," "continue" and similar words and expressions.  The forward-looking statements are subject to risks and uncertainties that could cause actual events or results to differ materially from those expressed in or implied by the statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, among other factors:

• the reduced purchases, loss or bankruptcy of a major customer or supplier;
• the costs and timing of business realignment, facility closures or similar actions;
• a significant change in automotive, commercial, off-highway, motorcycle or agricultural vehicle production;
• competitive market conditions and resulting effects on sales and pricing;
• the impact of changes in foreign currency exchange rates on sales, costs and results, particularly the Argentinian peso, Brazilian real, Chinese renminbi, euro, Mexican peso and Swedish krona;
• our ability to achieve cost reductions that offset or exceed customer-mandated selling price reductions;
• customer acceptance of new products;
• our ability to successfully launch/produce products for awarded business;
• adverse changes in laws, government regulations or market conditions, including tariffs, affecting our products or our customers' products;
• our ability to protect our intellectual property and successfully defend against assertions made against us;
• liabilities arising from warranty claims, product recall or field actions, product liability and legal proceedings to which we are or may become a party, or the impact of product recall or field actions on our customers;
• labor disruptions at our facilities or at any of our significant customers or suppliers;
• the ability of our suppliers to supply us with parts and components at competitive prices on a timely basis, including the impact of potential tariffs and trade considerations on their operations and output;
• the amount of our indebtedness and the restrictive covenants contained in the agreements governing our indebtedness, including our revolving credit facility;
• capital availability or costs, including changes in interest rates or market perceptions;
• the failure to achieve the successful integration of any acquired company or business;
• risks related to a failure of our information technology systems and networks, and risks associated with current and emerging technology threats and damage from computer viruses, unauthorized access, cyber-attack and other similar disruptions; and
• the items described in Part I, Item IA ("Risk Factors") of our 2018 10-K filed with the SEC.

The forward-looking statements contained herein represent our estimates only as of the date of this release and should not be relied upon as representing our estimates as of any subsequent date.  While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, whether to reflect actual results, changes in assumptions, changes in other factors affecting such forward-looking statements or otherwise.

Use of Non-GAAP Financial Information

This press release contains information about Stoneridge's financial results which is not presented in accordance with accounting principles generally accepted in the United States ("GAAP"). Such non-GAAP financial measures are reconciled to their closest GAAP financial measures at the end of this press release. The provision of these non-GAAP financial measures for 2018 and 2019 is not intended to indicate that Stoneridge is explicitly or implicitly providing projections on those non-GAAP financial measures, and actual results for such measures are likely to vary from those presented. The reconciliations include all information reasonably available to the Company at the date of this press release and the adjustments that management can reasonably predict.

Management believes the non-GAAP financial measures used in this press release are useful to both management and investors in their analysis of the Company's financial position and results of operations.  In particular, management believes that adjusted sales, adjusted gross profit, adjusted operating income, adjusted net income, adjusted earnings per share and adjusted EBITDA, and associated margins, are useful measures in assessing the Company's financial performance by excluding certain items that are not indicative of the Company's core operating performance or that may obscure trends useful in evaluating the Company's continuing operating activities.  Management also believes that these measures are useful to both management and investors in their analysis of the Company's results of operations and provide improved comparability between fiscal periods.

Adjusted sales, adjusted sales excluding divested non-core product lines, Adjusted gross profit, adjusted operating income, adjusted operating income excluding divested non-core product lines, adjusted net income, adjusted earnings per diluted share and adjusted EBITDA should not be considered in isolation or as a substitute for gross profit, operating income, net income, earnings per diluted share, cash provided by operating activities or other income statement or cash flow statement data prepared in accordance with GAAP.

 

 

 

 

 

Regulation G Non-GAAP Financial Measure Reconciliations

Reconciliation to US GAAP

Exhibit 1 - Adjusted EPS

 

 

Exhibit 2 – Adjusted Operating Income by Segment

 

 

 

 

 

Exhibit 3 – Adjusted Operating Income

 

 

Exhibit 4 – Adjusted EBITDA

 

 

Exhibit 5 – Adjusted Gross Profit

 

 

Exhibit 6 –Sales Control Devices

 

 

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SOURCE Stoneridge, Inc.