Standard Motor Products, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed February 22, 2023. This is an annual report, not a standalone fourth-quarter report. The company manufactures and distributes automotive replacement parts and supplies original-equipment and other non-aftermarket customers. In 2022, it reported Engine Management and Temperature Control segments; it planned to report three segments beginning in 2023.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $1,371.8 million | $1,298.8 million |
| Gross profit / margin | $382.5 million / 27.9% | $376.9 million / 29.0% |
| Operating income / margin | $104.1 million / 7.6% | $129.0 million / 9.9% |
| Continuing-operations earnings | $73.1 million | $99.4 million |
| Net earnings attributable to SMP | $55.4 million; diluted EPS $2.50 | $90.9 million; diluted EPS $4.02 |
| Cash from operating activities | Used $27.5 million | Provided $85.6 million |
| Capital expenditures | $26.0 million | $25.9 million |
Sales increased 5.6%. Engine Management sales rose 4.0% to $975.2 million; Temperature Control sales rose 9.7% to $382.3 million. Growth reflected pricing, acquired businesses, and strong demand—especially for Temperature Control products amid record heat and customer inventory replenishment. Excluding acquired sales, Engine Management sales declined 0.8%.
Profitability weakened despite higher sales. Gross margin fell 1.1 percentage points and operating margin fell 2.3 points, with inflation, freight, lower fixed-cost absorption, and acquisition-related product mix among the cited pressures. SG&A rose to $276.6 million, including $32.0 million of costs for receivables-sale financing arrangements, a $7.0 million customer bankruptcy charge, and acquisition-related expenses.
Cash and cash equivalents were $21.2 million at year-end. Inventories were $528.7 million, up from $468.8 million; accounts payable fell to $89.2 million from $137.2 million. The company attributed the operating cash outflow in part to working-capital movements, including inventory growth and decreases in accounts payable and accrued expenses.
Total debt was $239.6 million, versus $128.4 million at year-end 2021. The June 2022 credit agreement provides a $100 million term loan and a $400 million revolving facility, maturing June 2027. Year-end borrowings included $97.5 million term debt and $142.0 million revolver debt; the weighted-average borrowing rate was 5.2%. A $100 million interest-rate swap fixed part of the exposure. Management said cash from operations, cash on hand, and borrowing availability should meet needs for at least 12 months, subject to stated assumptions and risks.
Material changes and notable items
- Discontinued-operations losses were $17.7 million, compared with $8.5 million in 2021. The 2022 loss included an $18.5 million pretax asbestos provision following an actuarial review.
- The actuarial estimate of undiscounted asbestos settlement and damage payments, excluding legal costs, ranged from $68.8 million to $111.6 million through 2065; estimated future legal costs ranged from $53.2 million to $105.7 million. The balance sheet reports accrued asbestos liabilities of $63.3 million. The company reported 1,530 outstanding cases and no insurance for related indemnity and defense costs.
- Receivables sold under supply-chain financing arrangements totaled $813.7 million in 2022, compared with $818.8 million in 2021. Related expense increased to $32.0 million from $11.5 million.
- A customer filed for bankruptcy in January 2023; SMP recorded a $7.0 million pretax charge in 2022 to reduce its receivable to estimated recovery value.
- Cash used for acquisitions and business investments fell to $1.9 million from $125.4 million in 2021. The 2022 acquisition of Kade Trading GmbH added a European temperature-control supplier.
- SMP repurchased $29.7 million of shares and paid $23.4 million in dividends in 2022. In February 2023, the board raised the quarterly dividend to $0.29 per share from $0.27.
Outlook, management commentary and risks
Management described core aftermarket demand as strong and anticipated continued inflation-related margin pressure, partly mitigated by cost initiatives and price increases. The company did not provide specific 2023 revenue or earnings guidance in the supplied filing text. Its planned 2023 reporting structure separates non-aftermarket business into Engineered Solutions, renames the aftermarket Engine Management business Vehicle Control, and retains Temperature Control.
The company announced a cost-reduction initiative in late 2022, including sales-force reductions and moving certain product lines from Kansas and Canada to Mexico. It incurred about $1.5 million of related costs in 2022, expected about $3.4 million of additional costs, and anticipated completion by the end of 2023.
Key risks include dependence on three customers, which generated about 59% of 2022 sales (O’Reilly 27%, AutoZone 17%, NAPA 15%); inflation and supply-chain disruption; seasonal demand and working-capital needs; interest rates and continued access to receivables-financing arrangements; customer credit exposure; asbestos and other litigation; and the effect of vehicle electrification and changing technologies on product demand. Management also cited Russia’s invasion of Ukraine, sanctions, macroeconomic uncertainty, and climate-related physical and transition risks.
Important facts for investors to verify
- Whether margins and operating cash flow recover as inflation, freight costs, inventory levels, and receivables-financing costs evolve.
- How much 2022 sales growth came from pricing and acquisitions versus underlying volume, including the performance of the legacy aftermarket business.
- The customer bankruptcy recovery and any resulting additional receivable provisions.
- Future asbestos claims, settlement costs, legal expenses, and actuarial reserve revisions; reconcile the reported balance-sheet liability with the actuarial estimate and related disclosures.
- Debt, borrowing rates, revolver availability, and covenant headroom under the new credit agreement.
- Execution costs and expected savings from the restructuring, and the performance of the new reporting segments.