SRI
$30.17
Stoneridge
$.17
.57%
Earnings Details
3rd Quarter September 2019
Wednesday, October 30, 2019 6:01:00 PM
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Summary

Stoneridge Lowers Guidance Below Estimates

Stoneridge (SRI) reported 3rd Quarter September 2019 earnings of $0.37 per share on revenue of $203.4 million. The consensus earnings estimate was $0.38 per share on revenue of $204.2 million. Revenue fell 2.6% compared to the same quarter a year ago.

The company said it expects 2019 earnings of approximately $1.55 per share on revenue of approximately $817.5 million. The company's previous guidance was earnings of approximately $1.66 per share on revenue of approximately $840.0 million and the current consensus earnings estimate is $1.62 per share on revenue of $848.4 million for the year ending December 31, 2019.

Stoneridge, Inc., is a designers and manufacturers of engineered electrical and electronic components, modules and systems for the commercial vehicle, automotive, agricultural, motorcycle and off-highway vehicle markets.

Results
Reported Earnings
$0.37
Earnings Whisper
-
Consensus Estimate
$0.38
Reported Revenue
$203.4 Mil
Revenue Estimate
$204.2 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Stoneridge Reports Strong Third-Quarter 2019 Results

NOVI, Mich., Oct. 30, 2019 /PRNewswire/ --

Stoneridge, Inc. logo (PRNewsFoto/Stoneridge, Inc.) (PRNewsfoto/Stoneridge, Inc.)

2019 Third-Quarter Results

  • Earnings per diluted share ("EPS") of $0.24
  • Adjusted EPS of $0.37
  • Sales of $203.4 million
  • Gross profit of $51.9 million
  • Adjusted gross profit of $54.4 million (26.7% of sales)
  • Operating income of $9.3 million
  • Adjusted operating income of $13.7 million (6.7% of sales)
  • Adjusted EBITDA of $21.5 million (10.6% of sales)

Adjusted Full-Year Guidance Update

  • Adjusted revenue guidance midpoint of $817.5 million, a decrease of $22.5 million to reflect the impact of reduced production volumes in the North American passenger car and European commercial vehicle markets, the General Motors (GM) strike and unfavorable currency impacts in the second half of the year
  • Adjusted gross margin guidance midpoint of 27.5%, a decrease of 175 basis points
  • Adjusted operating margin guidance midpoint of 6.5%, a decrease of 62.5 basis points
  • Adjusted tax rate guidance midpoint of 16.25%, a decrease of 375 basis points
  • Adjusted EPS guidance midpoint of $1.55, a decrease of $0.11
    • Reduced production volumes forecasted to impact second half adjusted EPS by $0.15
    • GM strike forecasted to impact second half adjusted EPS by $0.07
    • Currency forecasted to impact second half adjusted EPS by $0.04
    • Reducing full-year adjusted EPS guidance by adverse impacts of GM strike and currency ($0.11).  Expecting to offset all other adverse external factors ($0.15).
  • Adjusted EBITDA margin guidance of 10.5%, a decrease of 50 basis points

Stoneridge, Inc. (NYSE: SRI) today announced financial results for the third quarter ended September 30, 2019, with sales of $203.4 million and earnings per diluted share of $0.24. Adjusted EPS was $0.37 for the third quarter, considering normalizing adjustments primarily related to fair value adjustments and restructuring expenses.  The exhibits attached hereto provide additional detail on the normalizing adjustments.       

For the third quarter of 2019, Stoneridge reported gross profit of $51.9 million and adjusted gross profit of $54.4 million (26.7% of sales). Operating income was $9.3 million and adjusted operating income was $13.7 million (6.7% of sales). Adjusted EBITDA was $21.5 million (10.6% of sales).       

"In the third quarter, and particularly near the end of the quarter, we experienced stronger-than-expected external headwinds related to production volumes, the GM strike and the continued unfavorable impact of foreign currency," said Jon DeGaynor, president and chief executive officer. "Despite these externalities we were able to deliver another quarter of strong financial performance while continuing to drive our long-term strategy.  During the quarter we announced our second OEM MirrorEye® camera monitor system (CMS) award and continued to make progress toward a broader rollout of our retrofit solution.  In addition to the traditional retrofit market we have discussed previously, we also expect a major, global commercial vehicle OEM to start offering a pre-wire option direct from the factory, beginning in early 2020.  The pre-wiring will be specific to the MirrorEye® CMS and will reduce installation time and costs for the end customer." 

DeGaynor continued, "In addition to the progress we are making with MirrorEye®, we continue to evaluate our portfolio and the ability to utilize our global footprint to drive growth and improved financial performance.  As a result, we have completed our strategic review of the switches and controls business within Electronics and plan to move that business to our new facility in Suzhou, China.  We plan to move the business in two phases with the first phase, and majority of the business, targeted for completion mid-2021, and the second phase targeted for completion mid-2022.  We anticipate the planned move of those products to generate an additional 50 to 100 basis points of consolidated EBITDA margin improvement.  The planned move will allow us to not only generate a reasonable financial return for the portfolio, but it will also allow us to retain the core competencies within the product group that we expect will drive top-line growth and additional opportunities with our customers moving forward.  We remain focused on both driving performance to offset external headwinds and continuing to execute on our long-term strategic plan."      

Third Quarter in Review
Control Devices sales, excluding the impact of recently divested non-core product lines, totaled $99.1 million, a slight increase relative to the third quarter of 2018. The increase is due to higher sales volume in our China automotive market and North American and European commercial vehicle markets, which were offset by decreased sales volume in the North American automotive market, primarily due to the continued ramp-down of legacy Shift-by-Wire programs. Control Devices gross margin decreased primarily due to increased overhead and direct material costs due to increased expediting and tariff costs compared to the third quarter of 2018.  The segment's adjusted operating income decreased due to a lower gross margin, partially offset by reduced SG&A and D&D costs, resulting in adjusted operating margin of 12.4%, excluding the impact of recently divested non-core product lines. 

Electronics' sales of $87.0 million decreased by 4.0% relative to the third quarter of 2018, primarily due to unfavorable currency translation partially offset by an increase in sales volume in our North American commercial vehicle market. Electronics segment gross margin decreased due to lower sales, an unfavorable product mix and increased costs related to electronic component shortages resulting in increased direct material costs. The segment's adjusted operating income decreased as a result of a lower gross margin, partially offset by reduced SG&A and D&D costs.  

PST sales of $16.5 million decreased due to lower volumes in the Company's Argentina aftermarket channel, alarm and audio products, as well as lower monitoring products and service revenues. The segment's gross margin declined due to the reduction in sales and higher labor and overhead costs as a percent of revenue.  PST adjusted operating margin decreased to 3.0% due to a lower gross margin and higher SG&A and D&D costs as a percentage of sales.

Cash and Debt Balances
As of September 30, 2019, Stoneridge had cash and cash equivalent balances totaling $55.3 million. Total debt as of September 30, 2019, was $111.8 million. Total debt less cash and cash equivalents yielded a current net debt to trailing-twelve-month adjusted EBITDA ratio of approximately 0.6x.

2019 Outlook
Bob Krakowiak, executive vice president and chief financial officer, commented: "For the full-year 2019, we are adjusting our guidance to reflect current market conditions as well as the offsetting actions we took during the third quarter.  We forecast a revenue impact of approximately $26 million for the second half of the year as a result of the GM strike, reduced production volumes and the unfavorable impact of foreign currency.  As a result of these externalities, we are reducing the midpoint of our revenue guidance by $22.5 million to $817.5 million.  These factors are expected to reduce second half adjusted EPS by $0.26 relative to our prior guidance.  We have taken aggressive actions and expect to offset a significant portion of these externalities and as a result we are reducing the midpoint of our full-year adjusted EPS guidance by $0.11 to $1.55."

Conference Call on the Web
A live internet broadcast of Stoneridge's conference call regarding 2019 third-quarter results can be accessed at 9:00 a.m. Eastern Standard Time on Thursday, October 31, 2019, at www.stoneridge.com. A webcast replay will also be offered.

About Stoneridge, Inc.
Stoneridge, Inc., headquartered in Novi, Michigan, is an independent designer and manufacturer of highly engineered electrical and electronic components, modules and systems principally for the automotive, commercial, motorcycle, off-highway and agricultural vehicle markets. Additional information about Stoneridge can be found at www.stoneridge.com.

Forward-Looking Statements
Statements in this release contain "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this report and may include statements regarding the intent, belief or current expectations of the Company, with respect to, among other things, our (i) future product and facility expansion, (ii) acquisition strategy, (iii) investments and new product development, (iv) growth opportunities related to awarded business and (v) operational expectations.  Forward-looking statements may be identified by the words "will," "may," "should," "designed to," "believes," "plans," "projects," "intends," "expects," "estimates," "anticipates," "continue" and similar words and expressions.  The forward-looking statements are subject to risks and uncertainties that could cause actual events or results to differ materially from those expressed in or implied by the statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, among other factors:

  • the reduced purchases, loss or bankruptcy of a major customer or supplier;
  • the costs and timing of business realignment, facility closures or similar actions;
  • a significant change in automotive, commercial, off-highway, motorcycle or agricultural vehicle production;
  • competitive market conditions and resulting effects on sales and pricing;
  • the impact of changes in foreign currency exchange rates on sales, costs and results, particularly the Argentinian peso, Brazilian real, Chinese renminbi, euro, Mexican peso and Swedish krona;
  • our ability to achieve cost reductions that offset or exceed customer-mandated selling price reductions;
  • customer acceptance of new products;
  • our ability to successfully launch/produce products for awarded business;
  • adverse changes in laws, government regulations or market conditions, including tariffs, affecting our products or our customers' products;
  • our ability to protect our intellectual property and successfully defend against assertions made against us;
  • liabilities arising from warranty claims, product recall or field actions, product liability and legal proceedings to which we are or may become a party, or the impact of product recall or field actions on our customers;
  • labor disruptions at our facilities or at any of our significant customers or suppliers;
  • the ability of our suppliers to supply us with parts and components at competitive prices on a timely basis, including the impact of potential tariffs and trade considerations on their operations and output;
  • the amount of our indebtedness and the restrictive covenants contained in the agreements governing our indebtedness, including our revolving credit facility;
  • capital availability or costs, including changes in interest rates or market perceptions;
  • the failure to achieve the successful integration of any acquired company or business;
  • risks related to a failure of our information technology systems and networks, and risks associated with current and emerging technology threats and damage from computer viruses, unauthorized access, cyber-attack and other similar disruptions; and
  • the items described in Part I, Item IA ("Risk Factors") of our 2018 10-K filed with the SEC.

The forward-looking statements contained herein represent our estimates only as of the date of this release and should not be relied upon as representing our estimates as of any subsequent date.  While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, whether to reflect actual results, changes in assumptions, changes in other factors affecting such forward-looking statements or otherwise.

Use of Non-GAAP Financial Information
This press release contains information about Stoneridge's financial results which is not presented in accordance with accounting principles generally accepted in the United States ("GAAP"). Such non-GAAP financial measures are reconciled to their closest GAAP financial measures at the end of this press release. The provision of these non-GAAP financial measures for 2018 and 2019 is not intended to indicate that Stoneridge is explicitly or implicitly providing projections on those non-GAAP financial measures, and actual results for such measures are likely to vary from those presented. The reconciliations include all information reasonably available to the Company at the date of this press release and the adjustments that management can reasonably predict.

Management believes the non-GAAP financial measures used in this press release are useful to both management and investors in their analysis of the Company's financial position and results of operations.  In particular, management believes that adjusted sales, adjusted gross profit, adjusted operating income, adjusted net income, adjusted earnings per share and adjusted EBITDA, and associated margins, are useful measures in assessing the Company's financial performance by excluding certain items that are not indicative of the Company's core operating performance or that may obscure trends useful in evaluating the Company's continuing operating activities.  Management also believes that these measures are useful to both management and investors in their analysis of the Company's results of operations and provide improved comparability between fiscal periods.

Adjusted sales, adjusted sales excluding divested non-core product lines, Adjusted gross profit, adjusted operating income, adjusted operating income excluding divested non-core product lines, adjusted net income, adjusted earnings per diluted share and adjusted EBITDA should not be considered in isolation or as a substitute for gross profit, operating income, net income, earnings per diluted share, cash provided by operating activities or other income statement or cash flow statement data prepared in accordance with GAAP.

 CONSOLIDATED STATEMENTS OF OPERATIONS 























































Three months ended


Nine months ended




September 30,


September 30,

(in thousands, except per share data)



2019


2018


2019


2018















Net sales



$

203,386


$

208,853


$

643,924


$

655,385

Costs and expenses:














Cost of goods sold




151,531



145,568



474,389



456,713

Selling, general and administrative




30,978



32,589



94,088



105,106

Gain on disposal of non-core products, net




-



-



(33,599)



-

Design and development




11,554



12,384



38,838



39,226

Operating income




9,323



18,312



70,208



54,340

Interest expense, net




1,149



1,155



3,153



3,679

Equity in earnings of investee




(318)



(249)



(1,230)



(1,435)

Other income (loss), net




381



647



(148)



(216)

Income before income taxes




8,111



16,759



68,433



52,312

Provision for income taxes




1,450



3,467



12,351



10,520

Net income



$

6,661


$

13,292


$

56,082


$

41,792

Earnings per share:














Basic



$

0.24


$

0.47


$

2.01


$

1.47

Diluted



$

0.24


$

0.46


$

1.97


$

1.44

Weighted-average shares outstanding:














Basic




27,370



28,453



27,929



28,384

Diluted




27,796



29,065



28,425



29,073

 

 

 CONSOLIDATED BALANCE SHEETS 
















September 30,


December 31,

(in thousands)


2019


2018




 (Unaudited) 




ASSETS







Current assets:







Cash and cash equivalents


$

55,263


$

81,092

Accounts receivable, less reserves of $1,752 and $1,243, respectively



143,628



139,076

Inventories, net



103,597



79,278

Prepaid expenses and other current assets



28,754



20,731

Total current assets



331,242



320,177

Long-term assets:







Property, plant and equipment, net



118,062



112,213

Intangible assets, net



56,926



62,032

Goodwill



34,867



36,717

Operating lease right-of-use asset



20,899



-

Investments and other long-term assets, net



32,008



28,380

Total long-term assets



262,762



239,342

Total assets


$

594,004


$

559,519








LIABILITIES AND SHAREHOLDERS' EQUITY







Current liabilities:







Current portion of debt


$

2,752


$

1,533

Accounts payable



95,804



87,894

Accrued expenses and other current liabilities



62,092



57,880

Total current liabilities



160,648



147,307

Long-term liabilities:







Revolving credit facility



108,500



96,000

Long-term debt, net



559



983

Deferred income taxes



13,374



14,895

Operating lease long-term liability



17,059



-

Other long-term liabilities



17,284



17,068

Total long-term liabilities



156,776



128,946

Shareholders' equity:







Preferred Shares, without par value, 5,000 shares authorized, none issued



-



-

Common Shares, without par value, 60,000 shares authorized, 28,966 and 28,966 shares issued and 27,402 and 28,488 shares outstanding at September 30, 2019 and December 31, 2018, respectively, with no stated value



-



-

Additional paid-in capital



224,251



231,647

Common Shares held in treasury, 1,564 and 478 shares at September 30, 2019 and December 31, 2018, respectively, at cost



(50,836)



(8,880)

Retained earnings



202,333



146,251

Accumulated other comprehensive loss



(99,168)



(85,752)

Total shareholders' equity



276,580



283,266

Total liabilities and shareholders' equity


$

594,004


$

559,519

 

 

 CONSOLIDATED STATEMENTS OF CASH FLOWS 















Nine months ended September 30,  (in thousands)


2019


2018








OPERATING ACTIVITIES:







Net income


$

56,082


$

41,792

Adjustments to reconcile net income to net cash provided by (used for) operating activities:







Depreciation



18,227



17,073

Amortization, including accretion and write-off of deferred financing costs 



5,035



5,112

Deferred income taxes



4,374



2,399

Earnings of equity method investee



(1,230)



(1,435)

Gain on sale of fixed assets



(132)



(21)

Share-based compensation expense



4,699



4,214

Tax benefit related to share-based compensation expense



(655)



(879)

Gain on disposal of non-core products, net



(33,599)



-

Change in fair value of earn-out contingent consideration



1,862



1,918

Changes in operating assets and liabilities, net of effect of business combination:







Accounts receivable, net



(8,864)



(15,145)

Inventories, net



(27,333)



(18,041)

Prepaid expenses and other assets



(11,232)



(1,086)

Accounts payable



12,011



15,280

Accrued expenses and other liabilities



1,277



(3,543)

Net cash provided by operating activities



20,522



47,638








INVESTING ACTIVITIES:







Capital expenditures, including intangibles



(30,771)



(22,816)

Proceeds from sale of fixed assets



329



44

Insurance proceeds for fixed assets



-



1,403

Proceeds from disposal of non-core products



34,386



-

Investment in venture capital fund



(1,200)



-

Net cash provided by (used for) investing activities



2,744



(21,369)








FINANCING ACTIVITIES:







Revolving credit facility borrowings



81,500



27,500

Revolving credit facility payments



(69,000)



(47,500)

Proceeds from issuance of debt



2,195



369

Repayments of debt



(1,300)



(4,372)

Earn-out consideration cash payment



(3,394)



-

Other financing costs



(1,346)



-

Common Share repurchase program



(50,000)



-

Repurchase of Common Shares to satisfy employee tax withholding



(4,037)



(4,206)

Net cash used for financing activities



(45,382)



(28,209)








Effect of exchange rate changes on cash and cash equivalents



(3,713)



(3,408)

Net change in cash and cash equivalents



(25,829)



(5,348)

Cash and cash equivalents at beginning of period



81,092



66,003








Cash and cash equivalents at end of period


$

55,263


$

60,655








Supplemental disclosure of cash flow information:







Cash paid for interest


$

3,210


$

3,899

Cash paid for income taxes, net


$

11,858


$

14,899








Supplemental disclosure of non-cash operating and financing activities:







Bank payment of vendor payables under short-term debt obligations


$

-


$

-

 

Regulation G Non-GAAP Financial Measure Reconciliations

Reconciliation to US GAAP

Exhibit 1 - Adjusted EPS

 

Reconciliation of Q3 2019 Adjusted EPS




(USD in millions)

Q3 2019

Q3 2019 EPS

Net Income Attributable to Stoneridge

$                        6.7

$                     0.24




Add: After-Tax Step-Up in Fair Value of Earn-Out (PST)

0.9

0.03

Add: After-Tax Restructuring Costs

2.8

0.10

Add: After-Tax Share-Based Comp Accelerated Vesting

0.1

0.00

Less: After-Tax Capitalized Software Development Expensed in Q1 and Q2

(0.7)

(0.02)

Add: After-Tax Business Realignment Costs

0.3

0.01

Adjusted Net Income

$                      10.2

$                     0.37

 

Exhibit 2 – Adjusted Operating Income by Segment

 

Reconciliation of Control Devices Adjusted Operating Income



(USD in millions)

Q3 2019

Control Devices Operating Income

$                        9.8



Add: Pre-Tax Restructuring Costs

3.6

Control Devices Adjusted Operating Income

$                      13.3

 

Reconciliation of Control Devices Adjusted Operating Income Excluding Disposed Non-Core Products



(USD in millions)

Q3 2019

Adjusted Operating Income

$                      13.3



Less: Pre-Tax Gain from Disposed Non-Core Products

(1.1)

Adjusted Operating Income Excluding Disposed Non-Core Products

$                      12.3

 

Reconciliation of Electronics Adjusted Operating Income



(USD in millions)

Q3 2019

Electronics Operating Income

$                     7.7



Add: Pre-Tax Restructuring Costs

0.1

Less: Pre-Tax Capitalized Software Development Expensed in Q1 and Q2

(0.8)

Electronics Adjusted Operating Income

$                     6.9

 

Reconciliation of PST Adjusted Operating Income



(USD in millions)

Q3 2019

PST Operating Income

$                      (0.5)



Add: Pre-Tax Step-Up in Fair Value of Earn-Out (PST)

0.9

PST Adjusted Operating Income

$                        0.5

 

Exhibit 3 – Adjusted Operating Income

 

Reconciliation of Adjusted Operating Income



(USD in millions)

Q3 2019

Operating Income

$                        9.3



Add: Pre-Tax Step-Up in Fair Value of Earn-Out (PST)

0.9

Add: Pre-Tax Restructuring Costs

3.7

Add: Pre-Tax Share-Based Comp Accelerated Vesting

0.2

Add: Pre-Tax Business Realignment Costs

0.4

Less: Pre-Tax Capitalized Software Development Expensed in Q1 and Q2

(0.8)

Adjusted Operating Income

$                      13.7

 

Exhibit 4 – Adjusted EBITDA

 

Reconciliation of Adjusted EBITDA






(USD in millions)

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Income Before Tax

$                      12.7

$                     11.5

$                  48.8

$                     8.1

Interest expense, net

1.0

1.0

1.0

1.1

Depreciation and amortization

7.4

7.2

7.6

7.9

EBITDA

$                      21.2

$                     19.7

$                  57.4

$                   17.1

Add: Pre-Tax Step-Up in Fair Value of Earn-Out (PST)

(1.7)

0.5

0.5

0.9

Less: Pre-Tax Gain in Fair Value of Equity Investment


(0.0)



Add: Pre-Tax Restructuring Costs


2.8

3.6

3.7

Add: Pre-Tax Business Realignment Costs

3.4

1.1


0.4

Less: Pre-Tax Gain from Disposal of Non-Core Products



(33.9)


Less: Pre-Tax Recovery of Brazilian Indirect Taxes



(6.5)


Add: Pre-Tax Share-Based Comp Accelerated Vesting



0.5

0.2

Less: Pre-Tax Capitalized Software Development Expensed in Q1 and Q2




(0.8)

Add: Pre-Tax Capitalized Software Development Capitalized in Q3


0.2

0.7


Less: Pre-Tax One-Time Sale of Non-Core Product Inventory



(1.4)


Adjusted EBITDA

$                      22.9

$                     24.2

$                  20.9

$                   21.5

 

Exhibit 5 – Adjusted Gross Profit

 

Reconciliation of Adjusted Gross Profit



(USD in millions)

Q3 2019

Gross Profit

$                      51.9



Add: Pre-Tax Restructuring Costs

2.5

Adjusted Gross Profit

$                      54.4

 

Exhibit 6 –Sales Control Devices

 

Reconciliation of Control Devices Adjusted Sales Excluding Disposed Non-Core Products



(USD in millions)

Q3 2019

Adjusted Control Devices Sales

$                   109.9



Less: Sales from Disposed Non-Core Products

(10.8)

Adjusted Control Devices Sales Excluding Disposed Non-Core Products

$                      99.1

 

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SOURCE Stoneridge, Inc.