Superior Industries’ profit slides amid capacity constraints

by The City Wire staff ([email protected]) 89 views 

Van Nuys, Calif.-based Superior Industries, one of Northwest Arkansas' largest manufacturers, reports a challenging start to 2014, as its biggest customers Ford, General Motors, Chrysler and Toyota work through unsold inventories on the heels of back-to-back record years.

Superior makes aluminum wheels for the auto industry and operates plants in Fayetteville and Rogers, employing about 1,400. There also are three plants in Mexico, with a fourth slated for completion early next year.

Superior reported 2013 net profits of $22.8 million, or 83 cents per diluted share. Profits declined 26% from the prior year as the wheel maker faced a $10.4 million increased tax provision. Profits were $30.9 million, or $1.13 per diluted share in 2012.

Consolidated net sales slid 4% in 2013 to $789.6 million as the company faced production downtime for plant improvements in Rogers and Fayetteville. Unit shipments decreased 5% in 2013 from last year, the company noted in the release on Friday, March 7.

While total sales were down, the capital improvements and more select product mix did help to raise the manufacturer’s gross margin — meaning the company kept more of the money it made than in the prior year. Superior’s gross profit for 2013 increased to $64.1 million, or 8% of net sales for 2013, from $60.6 million, or 7% of net sales for 2012.

“I continue to be pleased with the year-over-year gross margin growth being achieved, demonstrating that the ongoing investments being made in our existing manufacturing facilities have contributed important efficiency gains,” said Steven Borick, chairman and CEO.

He said the company still has opportunities to further improve its manufacturing performance and flexibility, citing the actions being taken at existing manufacturing facilities, particularly in the U.S., that are resulting in lower operating costs and productivity improvements.

“We are making excellent progress with the construction of our new, state-of-the-art manufacturing plant in Chihuahua, Mexico, which will add needed capacity, further enhance efficiencies and complement our three existing Mexico-based facilities. The project is on plan and scheduled for completion and initial testing by the end of this year, with commercial production anticipated for the first half of 2015,” Borick said.

The company ran at 99% capacity during 2013, and turned away business to become more selective on program bidding because of its capacity constraints.

Superior’s shipments to Ford totaled 5.055 million wheels, a 9% gain from the prior year. Trucks comprised the majority of those sales for the F-Series, Explorer, Flex and Edge models. Roughly 1.140 million of the wheels sold to Ford were for passenger cars. Superior said the Fiesta and MKZ models sold better than Fusion and Mustang which suffered losses.

Shipments to General Motors declined 11% from the prior year, as Malibu orders plummeted 57%. Superior shipped a total 2.935 million wheels to General Motors last year, the vast majority were for light trucks. Superior said shipments to Chrysler fell 17% in 2013, led by a 19% decline in light trucks overall. The majority of losses were related to the Jeep Grand Cherokee, Dodge Caravan and Journey. Dodge Ram shipments rose.

Borick said Superior made up for some of the declines from General Motors and Chrysler with a 21% gain in sales to Toyota. He said sales to Toyota were for largely for passenger cars. However, the biggest seller for Toyota last year was the Corolla, which is not among the models in Superior’s wheel portfolio.

Shipments to Nissan plummeted 41% last year as Superior walked away from the Sentra model. Total shipments to Nissan last year were 663,000 wheels, down from 1.117 million shipped in 2012.

Borick said deflationary pressures in aluminum also contributed to lower overall sales in 2013. But prices have risen 7.5 cents a pound since the start of 2014. He said for every 1 cent move up in aluminum prices another $1 million is needing working capital.

He said there are some immediate negative issues being felt by the auto sector supply chain, as dealers work through higher than wanted inventory levels, in part from weaker sales at the tail end of 2013 and start of 2014. Borick attributes this to harsh winter weather and shorter downtime for the automakers themselves.

Shares of Superior Industries (NYSE: SUP) rose 3.16% to $19.49 on Friday, following the earnings release. For the past 52-weeks the share price has ranged from a $16.89 low to $20.75 high.