Standard Motor Products, Inc. (SMP) Q3 2012 Earnings Report, Transcript and Summary

Welcome to today’s program. [Operator Instructions] Please note today’s call is being recorded. It’s now my pleasure to turn the program over to Jim Burke. Please begin.

Okay, thank you. Good morning, and welcome to Standard Motor Products’ Third Quarter 2012 Conference Call. Independents 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 used 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 will review the financial highlights and then turn it over to Larry, followed by Q&A. However, before we begin our highlights, we hope that our employees and the investor community have come through this storm fairly unscathed. It’s a devastating storm and we wish everyone good luck, getting things back to normal with minimal damages. Overall, we are very pleased with our results in the third quarter. Three key highlights from Q3 ‘12 were revenue growth, primarily from acquisitions; gross margin expansion; and solid cash flow performance. Each of these drivers bode well for future operational improvements. I will now walk through our financial results. Consolidated net sales in Q3 ‘12 with acquisitions were $276 million, up $39.8 million or 8%. Without acquisitions, $241.6 million, up $5.4 million or 2.3%, which is basically in line or favorable to sales results reported by many distributors. By segment, pension management net sales…

Okay. Good morning, everybody. Jim had reviewed the numbers. What I’d like to talk about for a minute are the 3 acquisitions we recently made, because they are a significant part of our result. We made 3 acquisitions in the last 18 months and they are all doing well. In April of last year, we acquired a company called BLD, which was a basic manufacturer of certain engine management product groups. We were buying these from them. We have relocated the factory to our locations mostly in Mexico and now we are a basic manufacturer of these important groups. And in October of last year, we acquired Forecast Trading Company. They were the leading supplier of engine management products to the industry. That segment is a growing part of the business, along with the aging of the car population. And that’s doing quite well. Then in April of this year, we acquired CompressorWorks, which was the leading manufacturer of new air conditioning compressors, which is the fastest-growing part of the Temp business. And we are in the process of relocating that manufacturing operation from Dallas to our air conditioning plant in Reynosa, Mexico. So all 3 are doing well. Sales are achieving expectations. We maintained all the major customers. The integration is proceeding on schedule. We have achieved certain savings in 2012 and we anticipate further savings in 2013. And all have been profitable in the first year. That’s all very good. What’s even more important, we think, in the long run is that they are all helping us to achieve long-term goals. BLD and CompressorWorks are helping us to become more of a basic manufacturer. Forecast trading is helping us with economy line sales. All of them are helping to strengthen us in different market channels and bringing in new customers. We think this is the model for future acquisitions, products we understand, markets we understand, customers we understand. We believe this provides the best synergies and least risk. I will continue to look for acquisitions of this type, but we will continue to be selective, we’re not doing any acquisitions for the sake of acquisition. But we will believe this is a good model for the future. So with that, that’s our story. We’re pleased with the results. And now we will open for questions.

[Operator instructions] You have a question in queue. We can go to the site of Bret Jordan with BB&T Capital Markets.

This is actually David Kelly in for Bret. Just a couple of quick questions, first looking at the Temperature Control business in--you said that if you take out the acquisition impact, it looks like sales were up 3%, but that’s including that major account that was lost. I mean, could you just help us think about a comparable revenue change year-over-year excluding that major account?

I’m not sure I understand your question. Could you rephrase it?

Yes, I’m just asking if you exclude that major account from the third quarter 2011, about what will the revenue increase on the comparable sales basis year-over-year?

So if we isolated this customer. Actually, because we’re out here at the industry show, I don’t have those numbers handily and we’re up 3%. Again, we said that account was in the neighborhood of 20 to 25. If it was about 4 or something, the bulk of it was in the first quarter and the second quarter. And what we said here in our last conference call, it would be less of an impact in the second half. So if I had to go from my memory, I would say probably there was another difference of it a maximum of $4 million.

And then just looking at the Engine Management side, I mean, going forward, any thoughts on what the potential weather impact would be. I know last year fourth quarter, there wasn’t much of a winter along most the East Coast. Any idea of what the potential impact would be if we have a normalized winter year-over-year and go back to normal temperatures, typically, on the East Coast?

The Engine Management business is not really weather-related as it was way back. It was traditional ignition. With most of the products being electronic and sensors, they’re just not that weather-related. Temp is obviously weather-related. So we don’t see the weather being a factor in the fourth quarter either this year or the past year.

[Operator instructions] And it appears to be you have no further questions at this time.

Okay, with that, I’d like to thank everybody for attending our conference call and, again, hopefully everyone is able to get through this storm unscathed. The best to everyone’s family and our employees. Thank you.

And this concludes today’s program. Have a great day. You may disconnect at this time.