Stoneridge, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. Financial statements are unaudited. Stoneridge designs and manufactures electrical and electronic components and systems for vehicle markets. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Financial results and liquidity
| Metric | Q1 2013 | Q1 2012 / prior balance-sheet date |
|---|---|---|
| Net sales | $235.7 | $262.3 |
| Gross margin | 24.9% | 24.8% |
| Operating income / margin | $10.3 / 4.4% | $11.8 / 4.5% |
| Income before taxes | $5.3 | $7.0 |
| Net income attributable to Stoneridge | $4.1 | $5.9 |
| Diluted earnings per share | $0.15 | $0.22 |
| Cash from operating activities | $(0.6) | $5.9 |
| Capital expenditures | $5.8 | $6.8 |
| Cash and cash equivalents at period-end | $46.7 | $44.6 at Dec. 31, 2012 |
| Total debt | $211.2 | $200.2 at Dec. 31, 2012 |
Cash from investing activities was $(5.8) million and cash from financing activities was $8.9 million. The company ended the quarter with $85.1 million of undrawn capacity on its asset-based credit facility and no borrowings under that facility. The company reported compliance with its credit-facility and PST loan covenants.
Material changes versus Q1 2012
- Sales fell 10.1%, primarily due to lower commercial-vehicle and agricultural-vehicle volumes and lower PST sales. North American and South American sales declined; Europe and other increased.
- Wiring sales declined 18.9% to $76.8 million, and the segment moved from $2.6 million pretax income to a $0.4 million loss. Management cited lower commercial-vehicle volume, including a significant customer, weaker agricultural sales, lower labor productivity and higher premium freight.
- PST sales fell 21.0% to $42.4 million, while pretax results improved to $0.5 million from a $0.3 million loss, helped by lower operating costs and the absence of a prior-year $1.8 million inventory purchase-accounting charge.
- Control Devices sales rose 2.2% to $71.9 million and pretax income increased 53.9% to $6.3 million, supported by automotive-market volume and favorable product mix. Electronics sales rose 2.5%, but pretax income declined 6.5% to $3.8 million.
- SG&A decreased $4.9 million to $48.4 million, partly offsetting weaker sales. Net interest expense decreased $0.8 million. Other expense shifted to $0.6 million from $0.3 million of income, reflecting foreign-exchange volatility.
- Operating cash flow decreased by $6.5 million year over year and was negative, with working-capital outflows including higher receivables and inventory. Debt rose by about $10.9 million from year-end, including a new PST loan.
Outlook, risks and contingencies
- Management expected near-term softness in North American commercial vehicles, followed by a modest second-half 2013 recovery; lower-than-forecast production could affect Wiring and Electronics. It also anticipated improvement in European commercial vehicles and agricultural vehicles during 2013, and modestly improved PST revenue as Brazil’s economy improved. These are management expectations, not formal numerical guidance.
- Management cited customer pricing pressure, production-volume uncertainty, commodity-price exposure (particularly copper), foreign-exchange exposure, customer concentration, supplier and labor risks, and indebtedness and restrictive covenants. Hedging included copper contracts, foreign-currency forwards and a $45 million interest-rate swap.
- Debt included $175 million face value of 9.5% senior secured notes due October 2017, plus PST and other subsidiary borrowings. The company reported $46.7 million cash, including $27.7 million held abroad.
- Environmental remediation at the former Sarasota site remained the company’s responsibility; the accrued liability was $1.34 million, and a $2 million letter of credit was required for the property buyer. Groundwater remediation was expected to begin in Q3 2013, subject to regulatory approval.
- PST had civil, labor and tax contingencies of $12.3 million deemed reasonably possible but not probable; no accrual was recorded. The company said ordinary-course legal matters were not expected to have a material adverse effect. Product warranty and recall liability was $6.2 million at quarter-end.
- Management said disclosure controls were effective as of March 31, 2013, and reported no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether commercial and agricultural vehicle volumes recover as management expected, particularly given the Wiring segment’s quarterly loss and customer concentration.
- Whether operating cash flow improves as inventory, receivables and other working-capital balances change.
- Debt maturities, PST borrowing and refinancing needs, facility availability, and continued covenant compliance.
- Progress, timing and eventual cost of Sarasota groundwater remediation, and developments in PST’s unaccrued contingencies and product claims.
- Effects of copper prices, foreign exchange, customer pricing and product mix on margins and earnings.