Superior Industries (SUP) Beats On Q3 Earnings & Revenues

Superior Industries International, Inc. (NYSE:SUP) saw its stock price fall 12.5% to $24.70 on Oct 27 due to projected operating inefficiencies in second-half 2016 that led to the lowering of the adjusted EBITDA guidance for 2016. The company’s adjusted earnings were 50 cents per share in third-quarter 2016, which surpassed the Zacks Consensus Estimate of 38 cents. Including the impact of operating inefficiencies at one of the company’s facilities, Superior Industries reported earnings of 23 cents per share in the quarter. Moreover, reported earnings per share surged 17.4% from earnings of 19 cents recorded in the third quarter of 2015.

Earnings in the reported quarter benefited from higher shipment volume and market share gains due to an increase in higher value-added products. However, equipment reliability problems, along with power interruption at one of the company’s facilities led to lower production which negatively impacted earnings.

Revenues were almost flat year over year at $175.6 million in the reported quarter but outpaced the Zacks Consensus Estimate of $166 million. The top line was primarily affected by lower aluminum price, partly offset by higher unit shipments. Wheel unit shipments rose 4.8% to 2.9 million from 2.8 million units in the prior-year quarter.

Gross profit fell 33.3% to $11 million (6.3% of net sales) from $16.5 million (9.4%) in the prior-year quarter. Gross margin as of value-added sales declined 11.1% from 18.7% a year ago. The decrease was due to higher freight costs as well as higher labor and maintenance expenses, more than offsetting gains from higher unit shipments.

Selling, general and administrative expenses decreased to $5.7 million in third-quarter 2016 from $8.4 million in the prior-year quarter. Operating income was $5.3 million (3% of sales) compared with $8.1 million (4.6% of sales) a year ago. Operating margin as a percentage of value-added sales fell to 5.3% from 9.2% in the year-ago quarter.

Capital Deployment

From Dec 28, 2015 through Oct 26, 2016, the company repurchased 740,657 shares for $13.5 million. It has $46.7 million remaining under its share repurchase authorization of $50 million.

In the reported quarter, the company paid a quarterly dividend of 18 cents per share.

Financial Details

For the first nine months of 2016, Superior Industries’ cash flow from operations was $39.3 million compared with $39.2 million in the year-ago period. The marginal increase in cash flow resulted from better earnings in the first nine months of the year, largely offset by higher working capital.

Outlook

Superior Industries raised its 2016 outlook for net sales, value-added sales and unit volume growth. The company reaffirmed its outlook for working capital, dividends and capital expenditure. However, the outlook for adjusted EBITDA was lowered. The effective tax rate for the company was also lowered. Management expects net sales in 2016 to range from $715–$725 million, raising the lower end of the previous guidance range of $710–$725 million. Unit shipments growth is expected to be 7%−8%, compared with the previous projection of 6%−8%.

Superior Industries expects value-added sales to be in the range of $398–$403 million, raising the lower end of the previous guidance range of $395–$403 million.

The company reduced its expectation for adjusted EBITDA to $80−$88 million from the prior forecast of $102−$108 million. This is primarily due to the higher costs related to operating inefficiencies in the second half of 2016.

The company continues to project capital expenditures of around $40 million for 2016. The effective tax rate is estimated to be in the range of 21%−23%, lower than the previous expectation of 27%–29%.

SUPERIOR INDS Price, Consensus and EPS Surprise

SUPERIOR INDS Price, Consensus and EPS Surprise | SUPERIOR INDS Quote

Stocks that Warrant a Look

Superior Industries currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the auto space include Spartan Motors Inc. (NASDAQ:SPAR) , Gentex Corp. (NASDAQ:GNTX) and Standard Motor Products Inc. (NYSE:SMP) .

Standard Motor has a long-term expected growth rate of 15% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Spartan Motors, carrying a Zacks Rank #2 (Buy), has a long-term expected growth rate of 15%.

Gentex, also a Zacks Rank #2 stock, has a long-term expected growth rate of 10%..

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>