Cooper-Standard Holdings Inc. (CPS) Q4 2012 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Cooper Standard Fourth Quarter and Full Year 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded this morning, and the webcast will be available for replay later today. I would now like to turn the call over to Glenn Dong, Treasurer of Cooper Standard. Please go ahead.

Thank you. Good morning and welcome. I will be acting as the moderator for today's call. Speaking on behalf of the company are Jeff Edwards, our President and Chief Executive Officer; and Allen Campbell, our Chief Financial Officer. As usual, we will conduct a question-and-answer session after providing an update on our business, review our fourth quarter and full year performance and discussing our outlook for 2013. The presentation we'll be using for this morning call is available under the presentation section of our Investor Relations website on www.cooperstandard.com. Please note that certain information in this call may be forward-looking and contains statements based on current plans, expectations, events and market trends that may affect the company's future operating results and financial position. Such statements involve risks and uncertainties that cannot be predicted or quantified, and that may cause future activities and results of operations to differ materially from those discussed. For additional information, we ask that you refer to the company's filing with the Securities and Exchange Commission. This call is also intended to be in compliance with Reg FD and is open to institutional investors, security analysts, media representatives and other interested parties. A reconciliation of certain non-GAAP financial measures used during the call can be found in the appendix of this presentation and in our press release dated February 25, 2013, which has been posted on our website and furnished on our Form 8-K with the SEC. At this time, I'd like to turn the call over to Jeff Edwards, Cooper-Standard's President and Chief Executive Officer.

Okay, thank you, Glenn. Good morning, everyone. The executive overview that I'll go through with you this morning is going to start with an update on our Strategic Plan construction that I began to introduce during last quarter's call. I'll also give you some updated information on the European restructuring and the timing there. And then finally some details, about emerging market expansions as well as key leadership appointments to facilitate the growth. The first 120-day plan that we've put in place in middle of October is here for your update. Really, the first 0 to 145 days was evaluating the as is of -- at Cooper Standard. During that time, we had an opportunity to meet with a number of our top leadership around the world. In addition, visited 9 countries as well as a dozen customers and a number of our business partners to help gain an understanding of what was working and what was not working, what needed to be invested and what needed to not be part of the strategy going forward. So it was really an opportunity for me to listen and learn to people that -- from people that had been part of our history for quite some time. During the next 45 to 120 days, this is really about defining the vision and the path forward, so the BB at Cooper Standard. So we've been evaluating with the management team, our capabilities, what our strengths are, what the opportunities are for improvement. We've spent a lot of time analyzing the current product portfolio and the overall performance. Really, everywhere in the world across all 5 of our product groups. We've also spent considerable amount of time looking at the organization model that was in place, and we have redesigned that, and we'll be…

Thank you, Jeff. Turning to Page 9, we show our fourth quarter and full year 2012 revenue as compared to the prior year. In the fourth quarter, Cooper Standard generated sales of $697 million, relatively flat when compared to the same quarter previous year. For the quarter, sales were up in all regions except Europe, which is impacted by the effects of weak automotive demand and negative foreign exchange. For the full year, sales were $2,880,900,000, an increase of $27.4 million from 2011. Excluding $129 million of unfavorable foreign exchange during the year, sales were up 5.5% from a year ago. North American operations generated sales of $364.5 million for the quarter, up 6.1%, a little below the industry which was up 8%. Cooper Standard's European sales in the quarter were $235.8 million, down $35.6 million or 13.1% from the previous year, including $9 million of unfavorable foreign currency movement. Typical [ph] demand continues to be weak in Europe, affecting almost all the OEMs. Production levels in the quarter falling over 11% when compared to the same quarter a year ago and 5.8% on a full year basis. Europe is the major focus within the company as we address the region's overcapacity issues and fixed cost as weak demand is expected to continue. Our Asian operations are improving as reported sales of $56.7 million in the quarter, up 10.1% from the previous year as production volumes improve. In Brazil, we generated sales for the quarter of $40.1 million, up from $29 million or up 38% in the same period a year ago. Even with unfavorable foreign currency movement -- this was in spite of unfavorable foreign currency movement as production improves significantly related to customer confidence and government incentives. Turning to Page 10. Gross profit in the quarter was $99.7…

Thank you, Allen. This concludes the formal portion of the conference call. The purpose of this conference call is also to answer questions from our stakeholders. We would ask that media inquiries be handled separately from the call. Such calls should be directed to our corporate communications group whose contact information is available on our website and on the earnings press release. We will now open the call for questions. Operator?

[Operator Instructions] Your first question comes from the line of David Hidalgo, private investor.

I'm just trying to understand. You have sales growth for 2013 of 1% to 2%, capital expenditures to $150 million to $170 million, plus restructuring of $40 million to $50 million. It just sounds like we're burning through a lot of cash without a lot of sales growth. Can you help explain the logic behind those numbers?

Sure. What you're seeing is some of the remnant of our restructuring that came through in 2010, which tempered our ability to gain new business, which you're now seeing in our '12 and '13 numbers. But what the company's done is put themselves in the position from here on out for a great growth platform. Including in that is a need to make sure we have the right cost structure to balance the European volume that you see has been down significantly, and to basically move into the areas we should have been in the past like Thailand, like expanding significantly more in India and China, as Jeff mentioned, Turkey and Russia that we're looking at. So the capital that you see for '13 is simply higher than historical. But it's related to 2 things, the footprint improvement and the new business that launches in the future years.

With that being the last question, we will turn the call back to Jeff Edwards for final comments.

Okay, thank you. Just a summary on what we've discussed and what we will be focused on going forward here. The completion of the 120-day plan, this is really our intent to go live with our 5-year strategic plan by the end of March. We'll also roll out a new organization model. At the same time, we'll clearly establish what our new strategic objectives are for Cooper Standard and certainly, we'll be executing on the 2013 business plan that we've introduced. The second point is really aligning our organization to support the global customers. The fourth point below is really something we're excited about, we've identified both our Asia and European presidents, new positions, new people within the company that are really being put in place to execute within those regions, but also to ensure that we have the right level of leadership supporting the customer in Asia and in Europe. Finally, the new organization rollout will have some changes that ensure customer alignment. And then after that, we will go directly to our customers and clearly describe the product strategies that we plan on investing in the future and frankly, some that we will not. The third point is, leveraging the footprint and capabilities to win our global platform. This is really about restructuring Europe by the end of 2014, which is a year pull ahead to the plan in launching Serbia that I spoke of before. We'll also make significant investments in SAP and PLM, again, to ensure that we have a global organization that can execute, communicate and run the business with the best tools available. The other thing that we've done is launched a new global innovation team. We're excited about that. We've invested in that business and we believe, based on the early indications that we will have innovative products ready for market from that group for the 2014 year. And then finally, we're working on a new business model for China that we hope to conclude by the middle of this year, and that will provide a platform for growth in the future in China. I mentioned the point about attracting and retaining key talent. We've recruited the Asian president, the European president, and we've also appointed an executive to oversee the emerging markets. So those are 3 critical functions within the company that we're excited about their contributions moving forward. And then finally, continuing our relentless focus on our customers, really, through global support and innovation. From a leadership perspective at Cooper Standard, this is a key responsibility that we all have, we all understand and look forward to supporting our customers around the world. Thank you very much.

Thank you, ladies and gentlemen. You may now disconnect.