Cooper-Standard Holdings Inc. — Form 10-Q Summary
Period discrepancy: The request metadata says 2017 Q2, but the supplied filing is for the quarter and six months ended June 30, 2018. This summary covers the filing provided.
Business context and reporting period
Cooper-Standard manufactures sealing, fuel and brake delivery, fluid transfer, and anti-vibration systems, primarily for global automotive OEMs. Results are reported across North America, Europe, Asia Pacific, and South America. The interim financial statements are unaudited.
Key financial results
Amounts below are in millions of U.S. dollars, except per-share data and margins.
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Sales | $928.3 | $909.1 | $1,895.7 | $1,811.2 |
| Gross profit / margin | $151.4 / 16.3% | $172.2 / 18.9% | $322.2 / 17.0% | $342.2 / 18.9% |
| Operating profit | $61.6 | $74.8 | $141.5 | $139.9 |
| Net income attributable to Cooper-Standard | $41.9 | $40.5 | $98.7 | $82.2 |
| Diluted EPS | $2.28 | $2.14 | $5.36 | $4.34 |
| Adjusted EBITDA | $107.9 | $113.8 | $230.5 | $224.8 |
- Q2 sales increased 2.1%; the filing attributes $29.0 million of the increase to foreign exchange, while volume/mix net of customer price reductions declined $4.9 million. First-half sales rose 4.7%, including an $81.8 million favorable foreign-exchange impact.
- Q2 gross profit fell $20.8 million year over year as volume/mix, customer price reductions, inflation, and material-cost pressure outweighed efficiency gains. The company cited $21.8 million of net operating efficiencies in Q2 and $46.8 million for the first half.
- Q2 operating profit declined $13.2 million; first-half operating profit increased $1.6 million. Lower taxes helped lift net income: the effective tax rate was 17% for both 2018 periods, versus 33% in Q2 2017 and 28% in the first half of 2017.
- Six-month operating cash flow was $98.3 million versus $64.7 million. Capital expenditures were $106.7 million, leaving cash flow after capital expenditures of approximately negative $8.4 million. Cash and cash equivalents were $440.2 million at June 30, down from $516.0 million at year-end.
- Total debt was $757.2 million, including $34.2 million current debt; cash less total debt was approximately negative $317.0 million. The company reported no ABL borrowings and approximately $208.0 million of availability, subject to borrowing-base limits and outstanding letters of credit. It was in compliance with debt covenants.
- Current assets were $1,388.5 million and current liabilities were $781.3 million. Off-balance-sheet receivables sold under factoring arrangements outstanding at quarter-end were $118.7 million.
Material changes and operating developments
- Q2 sales increased in Europe and Asia Pacific, but declined in North America and South America. First-half sales rose in all regions, with foreign exchange a substantial contributor, particularly in Europe.
- Segment pretax income in Q2 was $59.7 million in North America, a loss of $5.4 million in Europe, $1.4 million in Asia Pacific, and a loss of $3.4 million in South America. Europe and South America remained loss-making for the first half.
- The company repurchased $43.5 million of common stock in the first half, including a $35 million accelerated share repurchase payment. A new $150 million authorization was approved, effective November 2018.
- Acquisitions included AMI China, acquired for $4.1 million, and the purchase of the remaining interest in Cooper-Standard INOAC for $2.5 million. On August 1, 2018, after quarter-end, the company acquired Lauren Manufacturing and Lauren Plastics for a base purchase price of $92.7 million.
Outlook, risks, and unusual items
- Management expected 2018 capital expenditures of approximately $205 million to $225 million. It stated that cash on hand, operating cash flow, ABL availability, and receivables factoring were expected to cover funding needs for the next 12 months; this depends on operating performance, cash flow, and borrowing-base availability.
- The European restructuring initiative was expected to be substantially complete by December 31, 2018. Estimated total costs were $121 million to $125 million, of which approximately $113 million had been incurred by June 30.
- Management cited trade tensions, interest rates, vehicle demand and production, customer pricing pressure, raw-material and wage inflation, foreign-exchange movements, supply disruptions, and international-market uncertainty as risks. It noted that North American vehicle production declined modestly in Q2, while production grew in Europe and Asia Pacific.
- The filing gives no specific full-year earnings or revenue guidance. The company noted uncertainty around the 2018 tax rate as it continued analyzing provisions of the Tax Cuts and Jobs Act; it expected to incur tax related to GILTI in 2018.
- Other notable items include $10.0 million of Q2 restructuring charges, a $0.8 million first-half debt-refinancing loss, and substantial currency-related other comprehensive loss: $38.5 million for Q2, chiefly reflecting translation adjustments.
- Environmental reserves were approximately $6.6 million. The company did not believe material additional losses from litigation or environmental matters were reasonably possible, but noted outcomes could adversely affect results. It expected adoption of lease accounting guidance in 2019 to materially increase balance-sheet assets and liabilities, without a material income-statement or cash-flow impact.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing is Q2 2018, not Q2 2017.
- Assess whether operating efficiencies can offset ongoing inflation, material costs, customer price reductions, and weaker gross margins.
- Review cash conversion and funding needs alongside capital expenditure plans, receivables factoring, share repurchases, and the subsequent $92.7 million Lauren acquisition.
- Monitor Europe’s restructuring completion and profitability, as well as losses in Europe and South America.
- Track currency exposure, tax-rate assumptions, and the effects of trade and vehicle-production conditions on sales and margins.