Superior Industries reports lower profits amid higher expenses

Superior Industries disappointed Wall Street Thursday (July 31) as it missed earnings predictions for the second quarter and indicated a softer back half of 2014. The Van Nuys, Calif.,-based wheel maker posted $5.039 million in net income, down 20% from the prior year profits of $6.324 million. 

On a per-share basis Superior earned 18 cents, missing Wall Street’s 23-cent consensus which was also the reported earnings per share in the second quarter of last year. 

Revenue for the second quarter of 2014 was unchanged when compared with the second quarter of 2013, totaling $199 million for both periods. Superior saw a 1% increase in the number of shipments in the quarter, and production totaled 3 million wheels.

Gross profit decreased to $15.7 million versus $16.2 million for the same period a year ago. The gross profit decline reflects a modestly higher increase in factory costs when compared to the small increase in unit sales volume.

“Results for the quarter helped to clarify many of the challenges Superior faces,” said new CEO Don Stebbins, who joined Superior in May. “Despite a small increase over last year, we continue to experience relative unit volume softness. Our results highlight the need to reduce factory costs to improve margins and also to bolster our longer-term competitive position. Accordingly, we announced yesterday the closing of our Rogers, Arkansas facility by the end of this year, as we implement steps toward addressing our more immediate challenges.”

Stebbins and Superior management said the closure will take place before the end of the year and is timed accordingly with Ford’s production shift in its popular F-Series trucks, the largest contract at Superior.

He said Ford will be shuttering production in the back half of the year as the model is revamped for 2015. As Ford truck wheels represent the largest volume for Superior, Stebbins warned that softer company sales are expected for the back half of this year.

SHIFTING PRODUCTION
“Our decision to close the plant in Rogers was based on the fact that older location —Circa 1989 — is highly unlikely to reach necessary competitiveness even with additional investment,” Stebbins said during the companies earnings call Thursday afternoon.

He said a production transition is already under way to the company’s other facilities. 

“In the meantime, we expect to run the Rogers plant hard to build up some added supplies before the we turn off the lights sometime later this year. The new plant in Mexico will be finished by the end of the year and some of the newest equipment in Rogers will be moved to the new facility. We will have a light startup in early 2015 and expect that plant to run an average 60% capacity during the full year. All of the other Superior plants will be running at 100% during that time to keep pace with demand,” Stebbins said during the call.

He reiterated that the closure of the Rogers plant is expected to generate about $15 million in year-over-year labor cost savings, resulting for the workforce reduction of 500 workers.

Superior expects to incur severance costs of approximately $2 to $2.5 million in the back half of this year. Asset related charges in connection with the closing have yet to be determined. As of June 29 the net book value of fixed assets at the Rogers facility was approximately $21.9 million, the company said.

The Rogers plant has a total capacity to produce about 1.75 million wheels a year, the newer plants in Mexico can turn out 2.25 million, with less labor costs. 

In the recent quarter, Superior noted that a $2.7 million loss related to operational cost performance, most of that was attributed to the Rogers location from high scrap rates and low production levels. 

Superior noted that Fayetteville efficiencies improved on lower scrap rates, benefits of 
upgraded equipment plus more manageable volumes and mix. The company’s  Mexican production is running smoothly overall, but demand volatility has pressured cost performance, the company said.

Alloy costs — a byproduct of aluminum — rose in the quarter to the tune of $1.7 million which can not be passed along to customers, the company said.

AUTO PRODUCTION
Stebbins said the overall auto production across North America is robust up 4% in the second quarter, the second strongest for the industry since 2002. During the quarter Superior shipments increased 1%, behind capacity restraints which left the company unable to bid on new customer contracts.

Ford is Superior’s largest customer and this automaker saw a 2.8% dip in production levels compared to the year-ago quarter. The decline was in Ford passenger cars down 48,000 units, while light trucks rose by 28,000 units. Superior said the majority of its business with Ford is for the light trucks which includes SUVs. Superior’s shipments to Ford rose 4.6% from the year-ago period.

General Motors produced 6.3% more vehicles in the quarter, light trucks rose by 50,000 units, while passenger car production was flat. Superior’s shipments to GM increased 4% from a year ago.

Chrysler reported an 11.2% gain in auto production in the quarter, led by 112,000 more Dodge Trucks and Jeep SUVs. Despite the added production, Superior shipments to Chrysler were down 13.5% from the prior-year period. The loss in production on the Dodge Challenger, Dodge Journey and Caravan were offset by more units sold for Town & Country and Durango models.