Q4 2020 Stoneridge Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Stoneridge fourth quarter 2020 conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if you should require any further assistance during the conference.
Please press star zero on your Touchtone telephone.
And now I'd like to turn the conference over to your host Mr. Matt Horvath Executive director of Investor Relations and corporate strategy. Thank you. Please go ahead.
Great. Thank you Stacey and good morning, everyone and thank you for joining us to discuss our fourth quarter and full year 2020 results. The release and accompanying presentation was filed with the SEC yesterday evening and is posted on our website at www Dot stoneridge Dot com and the investors section under Webcasts and presentations joining me on todays call are Jonathan Gainer, our president.
And Chief Executive Officer, and Bob <unk>, our Chief Financial Officer.
Before we begin and I need to inform you that certain statements today may be forward looking statements forward. Looking statements include statements that are not historical in nature and include information concerning our future results or plans.
Here and our ability to adapt and respond to this crisis, both from a business perspective, but also as a team and a member of the global business community.
Before we discuss our earnings materials as you may have seen yesterday, we announced that banks color scheme has joined Stoneridge as board of directors. Frank Some tests impressive background includes being one of the and the CEO of several large multinational companies, including Conagra Eastman Kodak Tyco and most recently PPG.
And.
Frank was also a number of Harmon's International Board of directors.
Additionally, Frank has.
A significant amount of transportation and experienced as part of Chrysler for over 20 years and I can take a minute to wall complaint to the board and I look forward to working with him as we continue to transform stoneridge.
Let me begin on page three.
And 2020, we effectively navigated through the challenges brought on by the global pandemic.
We adopted our business to current market conditions and manage our cost structure efficiently throughout the year we've.
And we focused our efforts on continuous improvement throughout our manufacturing facilities, resulting and strong margin performance as global volumes recovered.
Or 2020, adjusted sales of $648 million resulted and and adjusted gross margin of 24, 4% transfer.
Translating too and adjusted operating margin of $2.1 million or 0.3% of sales and.
Adjusted EPS for the year was negative <unk>.
While managing through the crisis, we continued to transform our portfolio and footprint positioning the company for long term profitable growth.
And the second quarter, we announced our intention to exit the censor product line by the first half of 2021 and order to focus our engineering resources on the highest growth opportunities we remain on track to complete that exit.
We've secured a lease with a premium attendant for our vacated can't Massachusetts facility and have engaged a third party as advisor to assist us and reviewing strategic alternatives for the building, which could include a divestiture and the first half of the year.
Most importantly, despite the external challenges, we continued to invest and the resources necessary not only to support the significant number of program launches and 2021, but also to continue to develop and technologies and product platforms that will drive future growth.
We continued to expand our mirror platform preparing for OEM launches later and 2021, expanding a retrofit programs. Despite the challenges caused by Covid and continuing to invest and complementary technologies as we will discuss and additional detail later and the call.
Looking into 2021, and we expect continued strength on our end markets to help drive strong topline performance.
This morning, we are providing midpoint revenue guidance of approximately $780 million. This represents growth over market of approximately 5% and 2021, driven by significant program launches, including a large driver information systems program and our first two OEM murai programs.
This morning, we are getting to a midpoint and gross margin of 26.25% or approximately 185 basis points better than 2020.
We expect some additional expenses related to global supply chain disruptions, particularly and the first half of the year, which have been considered and our guidance.
As a result, we are getting operating margin to a midpoint of three 9%, resulting and and ETS mid point to 68.
And and EBITDA margin midpoint of eight 4% or 260 basis points better than 2020.
Excluding the impacts of currency, the global Sufficing disruption and and the discontinued should censor business are 2021 guidance implies contribution margin on incremental revenue of 32% relative to 2020.
Bob will provide additional detail on our revenue and adjusted EPS guidance and I will discuss some of the drivers of our improved margin later on the call.
And finally this morning, and we are updating our long term financial targets based on on a strong backlog of awarded business current market conditions and a continued focus on operational improvement.
We expect a five year compound annual growth rate of at least 10%, resulting and over $925 million of revenue and 2023 and at least $1.1 billion of revenue and 2025 base.
Based on our book business. We also expect that approximately 85% of our targeted revenue and 2025 will be drivetrain agnostic.
This highlights the continued importance of our portfolio rotation and focused investment and the engineering resources that have and will continue to align our growth strategy with industry Megatrends.
Based on continued strong contribution on incremental revenue as well as continued operational improvement and fixed cost leverage we expect and EBITDA margin of at least 15% by 2025 I will discuss the drivers of our long term financial targets and more detail later on the call.
Page four summarizes are key financial metrics quarterly for 2020 and for the full year compared to 2019.
Looking at the quarterly comparison, the global pandemic significantly impacted our strong our second quarter results due to prolonged shutdowns and significant reductions and production across our global and markets.
During the second half of the year, we experienced strong topline growth as a result, the broad recovery.
By continuing to focus on reducing material costs and the efficient ramp up production facilities, we're able to capture third and fourth quarter. Adjusted gross margins that were even better and the first quarter of the year, which created good momentum as we move into 2021.
The structural cost action is taken and the first half of the year position the company to improve adjusted operating margin and the second half of the year, resulting a strong incremental margins. This global production and returned to a more normalised state.
Turning to page five.
As a result of the global.
Pandemic, we took several actions temporarily reduced costs and and effort to drive 2020 financial performance and preserve cash. Additionally, we took actions to reduce our structural costs based on our current outlook into a line or resources with the greatest opportunities for growth.
And we continued to fully support the investments required to ensure the successful launch several a large program scheduled for 2021 and developed the technologies and platforms that will drive future growth.
These actions resulted in an efficient and and effective ramped down and the second quarter, followed by contribution margins and the third and the fourth quarters at or above the high end of our targeted range.
Due to the strong operating performance and our continued focus on working capital management and cash conservation were able to effectively manage our operating cash flow, resulting and a continued strong balance sheet.
Looking into 2021, and we expect continued strong production based on our current forecast and inspect at the base business will continue to deliver strong financial performance.
That said, we're starting to see the impacts of global supply chain disruptions and some of our customers have announced reduced production schedules I'll discuss and potential impacts from this global issue and additional detail later on the call.
And 2021, and we will focus on continuing to transform our global engineering footprint to increase our capabilities and engineering capacity without adding additional incremental costs over the long term.
This will be critical as we focus on reducing preprogram launch costs and increasing the capabilities and capacity to develop systems and technologies that will fuel our growth.
Moving to slide six.
Based on the most recent IHS and LNC forecasts are primary and markets are expected to increase significantly and 2021 as the global industry rebounds from the decline and 2020 production.
As we have previously noted on and market exposure on the passenger car side continues to be more heavily weighted towards Suvs, Cvs and light trucks versus traditional passenger cars.
Traditional passenger car platforms only comprise approximately 8% of our total revenue while light truck SUV and CVV platforms comprise 41% of our total revenue and older over 80% of our total passenger car vehicle exposure.
This is up significantly from prior years overall, we expect a weighted average OEM and markets to increase by approximately 15.3%.
Turning to slide seven.
As I mentioned previously several of our customers have recently announced reduced production schedules and response to global supply chain disruptions, primarily related to electronic component shortages and other raw materials.
We expect that once the supply chain disruption subside, the Oems will be able to make up production and these platforms based on current market demand.
We are not seeing the same type of reduced production schedules and our commercial vehicle and markets and due to OEM production capacity and expected demand. We do not expect a significant impact on commercial vehicle revenue and 2021 as a result of these disruptions.
That said, while we do not expect a significant revenue impact we do expect that increased material costs and increased expediting and cleanup great costs will create a gross margin headwind, particularly on the first half of the year that we do not expect to be able to make up his production normalizes and the second half we expect that these incremental costs will.
Impact on margin by two and $5 million focus and the first half of the year.
We continue to margin monitor the global supply chain and impact on our OEM customers to ensure that we respond efficiently and effectively any disruptions we remain committed to delivering on our commitments to our OEM partners. Despite the logistics challenges, we expect and the first half of the year.
Turning to page eight.
Despite the expected impact of global supply chain disruptions, we expect continued gross margin and operating margin improvement and 2021.
We expect continued manufacturing efficiencies particular on related to fixed cost leverage efficient direct labor utilization and reduction and quality related costs.
As a result, we are expecting gross margin to improve by 135 to 235 basis points and 2021.
That said there are several external factors unfavorably impacting our 2021 expectations based on current forecasted.
Exchange rates for the year, we expect foreign currency headwinds from material cost purchases and certain operating expenses that unfavourable impact of foreign currency on operating income is expected to be approximately $2.3 million.
We expect the actions that the actions, we took and 2020 to rights as a cost structure will continue to benefit us as revenue increases significantly and 2021.
As it relates to our design and development expenses with a number of large programs launch and 2021, and we are expecting some incremental engineering expenses to support these launches.
Similarly to capitalize on a strong market position and several key product areas, including nearby and adjacent technologies, we will continue to invest and advanced development and resources to support future technologies and platforms.
And I will discuss later on the call we remain focused not only on increasing our engineering capabilities and capacity, but also on on improving our global footprint and overall cost structure to more cost efficiently support these initiatives.
Turning to page nine.
We expect that our continued investment and engineering resources will accelerate the results that we are seeing already with mirror.
This morning, we are announcing that two additional fleets and indicated and our intention to roll mirror out across their fleet, bringing the total number of fleets and have initiated plans to fully adopt murai to three weeks.
We expect the peace Leitz will install murai systems on new vehicles as part of the regular fleet refreshment program.
The decision to expand mirror across their fleets was due in large part to data compiled by our fleet partners proving safety benefits of the system.
Although the analysis is still in the early stages, one of our fleet partners reduced expected incidence by more than 30% over 3 million mile test versus a comparable pool vehicles without and you're on.
Validation of the significant positive safety impact for our systems and our partners fleets is a critical step and the accelerated penetration we expect from our systems going forward.
We are and active fleet evaluations with 24 fleets that represent approximately 85000 trucks on the road and expect to announce expansion in both the number of fleets and the depth of adoption and current fleets over the coming months.
In addition to the success, we are having with our fleet partners. We're preparing for our first OEM program launches later this year.
We continue to get positive feedback from our customers are OEM partners are beginning to understand the increases and customer demand that we are seeing with the fleets due in large part to the safety data and we just outlined in addition to the demand and Europe, primarily driven by the notable fuel savings on murai equipped vehicles.
As a result, we are and discussions with one of our William customers to expand the expected volumes per mirror and European applications.
We believe that the work we're doing with the fleets this driving increased and customer demand, creating and expectation a stronger than expected pull through from the Oems.
As a reminder, our backlog only includes approximately $76 million and peek annual revenue for awarded OEM programs.
Increased penetration could result, and several hundred million dollars of additional revenue annually.
As we continue to work with our fleet partners, we believe that adding additional capabilities to the system will help the system apply to even more customers and a broader range of commercial vehicle applications. We.
We had to leave position and this commercialization of timber mirror systems, and we must continue to invest and this technology platform to take advantage of that position to recognize the potentially significant long term benefits of the system for stomach shareholders.
Page 10 provides an overview of our key areas of focus for advanced development and engineering and resources going forward.
As I have discussed on many calls and the past our most precious resource is our engineering capability and capacity.
While we continue to increase our capabilities as we go forward, we expect that the actions taken.
We will take and 2021 will allow us to expand our capacity without materially increasing our cost structure over the long term, we will accelerate the transformation of our engineering organization to focus on a more capable global footprint and add resources and lower cost countries to complement our existing resources.
And 2022, we expect that our engineering footprint will be more evenly split and between high medium and low cost countries versus our current split we've already begun this transformation and have increased our capabilities and our existing footprint. We've also partnered with existing engineering organizations and lower cost countries to bridge the gap, while we structure.
And we change our footprint.
These changes will result, and some short term incremental costs. However, we expect that once complete our capabilities will be better aligned with our growth objectives and strategic direction and our footprint will result, and a more efficient and improve cost structure.
As a result of this rotation, we will accelerate the development of advanced technologies and systems focused and several key areas and both our control devices segment and our global electronics business.
As we've discussed in the past Ah control devices segment has several actuation applications that position as well to take advantage of the continue the electrification on the drivetrain.
And 2021, we expect and approximately 30% of our actuation revenue will be on hybrid portfolio electric platforms.
And we continue to focus on product development and system's capabilities to expand and those areas are.
Our transmission and actual actual based actuation systems will provide the technical competencies to execute this expansion.
Additionally, as and adjacency to our core competencies, we have explored other electrified actuation applications or our capabilities may provide a competitive advantage, including electric park break applications, we believe that investments and these areas will drive strong growth opportunities.
And while we focus on continued portfolio rotation and control devices. We're focused on taking advantage of our all day strong market physicians throughout our electronics portfolio. This.
This includes increase and year I penetration and both the OEM and retrofit applications and expanding our connectivity capabilities to more closely integrate these systems.
Our continued investment and these advanced technologies will not only drive increased murai penetration, but and increase and overall content per vehicle across our product portfolio.
We remain focused on.
On our capabilities to connect our devices to the driver the fleet and the world around them.
For a company of our size. It is critical that we maintain our competitive advantage and but with.
With investments and the current and future technologies systems and platforms that will keep US ahead of the largest competitors and our space.
Stoneridge as well positioned and each of our core product platforms and our global transformation of the engineering organization will maintain and accelerate that advantage.
Turning the page a lot.
This morning, we are updating our long term revenue target to reflect current market conditions and updated expectations for the next several years based based on our strong backlog of awarded business our expectations of continued success and the market and our ability to build on the investments that we've made and advanced technologies.
From a mid point of $780 million. This year, we expect at least $925 million of revenue and 2023 and over $1.1 billion and revenue and 2025, which implies a compound annual growth rate of over 10% through 2025.
This compares to a market growth of approximately 2.1% over that same period, which implies five times market growth and almost 8% growth over market relative to a weighted average and markets are long term regiment and targets include OEM mirror programs at customer quote and take rates of 10% to 15% and a.
Tivoli modest amounts of annual retrofit systems by 2025, we.
We believe that our continued investment and advanced technologies will improve near itek rates and retrofit penetration, which could drive revenue up to $1.5 billion and 2025 based on full penetration of the system for the Oems that have currently on what it is programs.
While we do not expect 100% penetration across every platform and every OEM by 2025 that favorable feedback from both are OEM partners and our fleet partners suggest that it is not on a reasonable to expect take rates to exceed customer quarter rates.
As I discussed previously we are already seeing increases and adoption rates with certain of our fleet partners and expect that trend and continue is more fleets reach their testing hurdles similar.
Similarly, we believe that continued changes and the regulatory and seeking environment.
Tribute to take rates that exceed those currently considered and our backlog.
This opportunity highlights why it is so critical that we take advantage of our market, leading position with an airline and invest and the resources necessary to recognize these opportunities and drive long term value for our shareholders.
Turning to page 12.
This morning, we are also updating our long term EBIT target to reflect on long term revenue target and our expectation of continuous improvement and significant margin expansion through 2025.
As we have discussed in the past we remained focused on reducing material costs and expect these continuous improvement activities to offset typical annual price stones. Similarly, as we outlined on this call and we will continue to require investment and engineering and resources to launch a significant backlog and awarded programs and develop that technology and systems that will drive future growth.
We will work to offset these investments as we rotate a geographic footprint to complement our existing resources resources and lower cost countries.
We expect that this continued investment and our transformation on the global Engineering organization.
Will results and a compound annual growth rate related to incremental engineering expenses of less than 5% from 2021 to 2025 without limiting our ability to maintain our competitive advantage and several key technologies.
As it relates to our contribution margin, we expect to continue to leverage our existing SG&A structure and fixed overhead to significantly improve EBITDA margin through 20 by 2025.
By continuing to send our fixed costs, and focusing on reducing manufacturing and complexity and and improving manufacturing and efficiency, we expect to derive strong contribution on incremental revenue.
As a result of these drivers of long term margin expansion, we expect EBITDA margin and 2025 to be at least 15% relative to the midpoint of of 2021 guidance and approximately eight 4%.
Turning to page 13.
I'm pleased with the company's performance our leadership team was able to efficiently and effectively adapt to a challenging environment and 2020, resulting as strong financial performance. And addition, we managed cash during the year to maintaining strong balance sheet.
Looking forward to 2021, New program launches are expected to drive market outperformance, resulting and midpoint revenue guidance of $780 million.
We will continue to invest and the technical resources that will support a significant backlog of awarded programs and develop the technologies and systems that will drive future growth, while improving our cost structure and global footprint.
We remain committed to executing on our strategic priorities and continuously improving the business to grow strong financial performance and stable long term profitable growth will remain focused on on a mirror retrofit and free wire opportunities as well as our first two OEM program losses, and look forward to sharing more good news across our commercial paths to market and come.
And months with that and I will turn it over to Bob to discuss our financial results in more detail.
Thank you John Kerry and slide 15 sales and the fourth quarter, where approximately $190 million.
And increase of seven 9% relative to the third quarter.
Adjusted operating income was $7 million or three seven per cent of sales.
More specifically.
Stroll devices sales was approximately $100 million.
Which was a decrease of half half of a percent compared to the third quarter, resulting and adjusted operating income of $12 $6 million or $12, 6% of sales.
Electronic sales of $84 million increased by 19, and 5% compared to the third quarter, resulting and adjusted operating income on for $3 million or five 2% of sales.
Stoneridge, Brazil sales of $13.3 million and increase of three 4% compared to the third quarter resulted and adjusted operating income of $100000 or one 1% of sales.
This morning, we are providing guidance for our 2021 financial performance first it is important to note that are 2021 and guidance includes our current expectation of the potential impact of the global supply chain disruption that Jonathan discussed earlier.
I would also note that this is and evolving situation and our guidance and based on current market conditions and expectations.
We are guiding 2021 revenue to a midpoint of $780 million and flying and increase of approximately $132 million or 20% versus are 2020 revenue, including the discontinued censor product lines.
Our guidance assumes that the <unk> product line will contribute approximately $13 million and revenue and 2021 and a few pennies of adjusted EPS.
As discussed previously.
And we expect continued growth margin improvement and 2021.
Continued focus on material cost reductions and operational improvements.
Partially offset by the impact of continued supply chain disruptions.
In addition, we are expecting operating margin to increase compared to 2020 due to fixed cough leverage on incremental revenue.
Actually offset by incremental investment and engineering resources.
And the normalization of certain costs, primarily related to our wage and benefit programs relative to 2020.
We are guiding adjusted gross margin to a mid point of 26.25%.
Just did operating income to a mid quite a approximately three 9% and adjusted EBITDA margin to a mid point of eight 4%.
Finally, we have got into a midpoint effective tax rate of 25%, which is up slightly from prior years due to our current expectations of the geographical makeup of our expected earnings.
As a result, we are guided into a midpoint adjusted earnings per share of 68 cents per 2021.
I will provide additional car on the driver's are expected sales and adjusted earnings per share performance later and the call.
Page 16 summarizes are key financial metrics specific to control devices.
Control devices fourth quarter sales were $100 million and increase of seven 3% compared to Q4 2019 adjusted sales.
Fourth quarter sales slightly decreased versus the third quarter.
Flight decrease and sales versus the third quarter was primarily driven by typical fourthquarter seasonality offset by continued strong production demand a customer facilities and North America, particularly on light truck SUV and CVV platforms and.
Fourth quarter adjusted operating income increased by 190 basis points versus fourth quarter, 2019, which resulted and adjusted operating income of $12 $6 million for the quarter or 12.6% of sales.
This results and and incremental adjusted contribution margin of approximately approximately 38% and increase sales for that segment.
Adjusted operating margin decreased by 60 basis points compared to the third quarter, driven by slightly reduced sales as well as lower gross margin as a result of increased expedite and cost and.
<unk> with a significant ramp up and sales and the second half of the year.
As discussed earlier and the call.
And we continue to transform our manufacturing footprint and product portfolio to align with future growth opportunities.
2020, we completed the exit of the cat and facility and and John discussed previously we're in the process of evaluate and strategic alternatives from the building, which could include a divestiture.
During the second quarter of 2020, we announced our intention to exit the system's a product line. This was the result of our review of the product lines expected financial performance. The current market outlook for diesel passenger vehicles and a strategic decision to focus on the line or resources with the greatest opportunities for the company.
And 2020.
We ramped up and launched new programs and our powertrain actuation product lines, and North America and Asia.
Our existing parked by water programs continue to ramp up and 2020, and we'll expand into additional platforms and 2022.
We will launch a shift by where program and China and the first half of 2021 with respect to peek annual revenue of approximately $14 million with a second shift by White and program and China scheduled for launch and 2022.
And we look to 2021.
We expect controller bites of sales and operating margin to improve relative to 2022 continue to operational improvements and the manufacturing process driving manufacturing efficiencies. However, we also expect global supply chain disruptions can provide a margin headwind, particularly and the first half of this year.
Page 17 summarizes are key financial metrics specific to electronics.
Electronics for quarter sales were $84 million, which was an increase of 19 and 5% compared to the third quarter and four and 5% compared to the fourth quarter of 2019, primarily driven by continued strong commercial vehicle production volumes and both North America and Europe.
In addition to the fixed cost leverage benefit of incremental sales on overhead during the quarter material costs continue to decline as I focused on reducing electronic component costs with a segment.
Available product mix during the quarter also contributed to improve margin.
Fourth quarter SG&A costs as a percentage of sales decreased versus the third quarter of 2020 as a result of increased revenue and several one time COVID-19 related reductions offsetting the reinstatement of certain wage and benefit programs.
Fourth quarter SG&A costs as a percentage of sales decreased versus the fourth quarter of 2019 due to SG&A cost structure actions taken and the second quarter of 2020 on.
Decreased and travel and other discretionary spending due to COVID-19 as well and the other one time COVID-19 related cost reductions.
We incurred additional D&B costs and the fourth quarter as a result of our continued investment advanced engineering and preparations for program launches and 2021.
This resulted and and adjusted operating income of four $3 million or five 2% of sales and increase of 320 basis points relative to the third quarter and and increase of 390 basis points relative to the fourth quarter of 2019.
Looking forward, we expect electronics to drive substantial growth and 2041, driven by an increase and commercial vehicle production forecast in Europe, and North America as well as the launch of a large global instrument cluster platform. The continued roll out of our mirror retrofit and freeware application and the launch of our first few OEM mirror I systems.
And.
As discussed earlier during the call we expect additional engineering costs and 2021 as they continue to focus on advanced development and engineering and continue to ramp up support for the large programs that will launch during this year.
Page 18 summarize our key financial metrics specific to Stoneridge, Brazil.
Storage, Brazil fourth quarter sales pulled approximately $13 million and increase of a half million dollars or three 4% relative to the third quarter as a result of local and markets continuing to recover from the global pandemic.
Four quarter sales decreased three $7 million or 22% compared to Q4 2019, primarily due to the unfavorable impact of foreign exchange.
Fourth quarter adjusted operating income decreased by approximately three 9% or half a million dollars relative to the third quarter. This.
And this was primarily driven by and increase indirect material costs due to the impact of foreign currency and material purchases and global supply chain disruptions, partially offset by fixed cost leverage and overhead, resulting and and adjusted operating margin of 1.1%.
Fourth quarter, adjusted operating margin decreased by 100 basis points compared to the fourth quarter of 2019, primarily due to decreased leverage on operating expenses due to lower revenue, partially offset by higher adjusted gross margin as a result of cost reduction actions focused on reducing overhead costs to align with current market conditions.
Despite continued macroeconomic challenges and Brazil, we expect revenue and operating margin to remain approximately flat and 2021 based on current market conditions remain focused and utilizing local engineering resources to support our global electronic business and the ramp up of low local OEM business to offset challenging.
And the conditions.
Turning to page 19.
Net debt decreased by $35 million and the fourth quarter, resulting and net debt of $70 million or one eight times trail and 12 months adjusted EBITDA.
At the end of 2020, we had a cash balance of $74 million and $262 million of undrawn commitments, resulting and over $336 million of liquidity.
Our ability to manage the continued ramp up and production volume during the second half of the year growth strong operating performance, resulting and cash generation of over 26 $5 million and the second half of the year.
As a result of strong cash performance, we were able to reduce the balance on a credit facility and additional $8 million during the fourth quarter.
We will continue to take necessary actions to rightsize, our cost structure effectively manage our cash position and ensure a strong balance sheet based on evolving market conditions.
<unk> remains well positioned with relatively low average and significant available capital.
And turning the page 20.
We expect that several program launches and the forecasted recovery across our global and markets will contribute to strong top line growth and 2021.
As we have discussed previously.
Exit of our censor product line, we will create a $20 million revenue headwinds and 2021 relative to 2020.
Our guidance includes approximately $13 million related to Ah censor private clients with very little EPS contribution. We expect this to be offset by favorable currency rates. However, we expect overall unfavorable currents impacts on EPS and I will discuss on the file and slide.
Consistent with historical price down and we expect annual price styles of one or 2% and 2021.
Finally, we expect market our performance driven by the annual vision of a recently launched parked bywater programs as well as the launch of a large global driver driver information system program. Our first few mirror OEM launches and the continued ramp up of our mirror retrofit and freeware programs.
As a result, we are expecting $770 to $790 million and revenue and 2021 hour.
I would also note that our guidance assumes Ah relatively insignificant expected annual impact on revenue related to global supply chain disruptions based on current IHS and LFC forecast we.
We will continue to monitor the situation and update our guidance as necessary should market conditions change.
Due to the launch of several large programs and the second half of the year, a slight shift and passenger car volume from the first half to the second half as a result of current supply chain disruptions and the continued ramp up of our mirror retrofit program. We are expecting our first half second half revenue split of approximately 40.
9% first have 51% secondhand slightly different and our typical seasonality. Similarly, we're expecting that the first quarter will be our lowest revenue quarter of the year with our current estimate around $180 million, primarily due to the timing of production disruptions.
Page 21 summarizes our full year adjusted earnings per share guidance for the year.
Our mid point and guidance of $780 million implies incremental revenue of $132 million relative to 2020.
Although we have targeted contribution margins on incremental revenue of $25 and 30%. Historically, we are expecting the high end of that range and 2021, do and parts of continuous improvement initiatives and our facilities to improve operating and efficiency.
As John outlined previously we expect incremental DND during the year to create a 16 headwinds EPS.
And I discussed previously, while we expect a favorable impact of foreign currency rates on revenue due to our cost structure and geographical makeup of our expenses, we expect forecasted foreign currency rates to negatively impact 2021, adjusted EPS by approximately success and.
In addition, although we don't expect a significant impact on annual revenue related to the global supply chain disruptions, we do expect incremental material and logistics costs and the first half of the year, resulting and and EPS headwind of approximately seven.
Finally, due to the expected makeup of our earnings we're guiding our 2041 tax rate to a mid point of 25%, which results and the <unk> headwind relative to a recent historical tax rate guidance of 22 and 5%.
These factors are expected to adversely impact 2021 adjusted earnings per share by approximately 16.
Resulting and our 2021 mid point and adjusted EPS guidance of 68.
Similar to revenue performance, we are expecting stronger margin and EPS performance and the second half of the year, driven and part by the expectations of revenue ramp up and the second half and also the reduction of material and logistics related costs due to the global supply chain disruption.
Due to the expected revenue performance and the first quarter as well as the expectation that a significant portion of our incremental material and logistics costs will be incurred during the first quarter.
We are expecting breakeven adjusted EPS performance and the first quarter.
We expect that this will be followed by contribution margin performance at the high end of the targeted range and a relative reduction and material and logistics costs.
And our guidance this would imply a split of approximately one third of our guided adjusted EPS performance and the first half of the year and two thirds and the second half.
Turning to page 22.
And we continue to maintain a strong five year backlog at the end of 2020.
Even with the global pandemic, creating delays and customer decisions for new programs.
And communications with our customers lay program decisions are expected to be awarded and 2021 and as such we expect strong business awards this year and.
Excluding the discontinued censor product line, the favorable impacts of foreign currency and the estimated 5% impact of changes and production forecast IHS and LLC our backlog remain consistent in 2020 at approximately $3 billion and five four times are 2020 Oem's sales.
And is also important to note again that our backlog assumes only awarded programs our customers and would take rates were applicable constant currency and IHS are LNC production volume forecast.
As we have outlined several times and passed calls and during the discussion of our long term targets on this call incremental mirror penetration rates could have a significant positive impact on our backlog.
And the industry continues to migrate to more electrification and vehicles. It is important to understand that a significant portion of our backlog and either drivetrain agnostic are focused on hybrid are fully electric applications. We estimate that 85% of our 2025 sales will be drivetrain agnostics.
Overall, we are strong platform for growth a robust backlog align with industry Megatrends and a clear path to sustainable and insignificant growth over the next five years.
We remain focused on positioning the business for long term profitable growth through a portfolio focused on industry Megatrends and effective management of the variables that we can control.
We expect us to result, and strong interest incremental contribution margins as we recognize the growth supported by our strong backlog.
We are well positioned to dramatically increase our earnings power with our expected growth over the next several years.
To better understand the impact of our portfolio location and the adverse impact of certain external factors slide 23, adjusted our guidance to reflect on our expectations from the base business performance and 2021.
And help quantify expect the contribution margins as we move forward, we have normalized 2041 to exclude the impact of certain external factors, including currency headwinds and the average impact of the global supply chain issues. We have previously discussed.
Additionally, we have removed the revenue and earnings related from just continued sit censor business to better reflect the expense of contribution of our go forward portfolio and structure.
Excluding these factors are 2021 guidance and price approximately 30 per cent contribution margin on incremental revenue, which is at the high end of our historically targeted range. Despite the incremental investment and engineering the John outlined previously.
We remained focused on the factors within our control and positioning the business for sustainable longterm profitable growth.
The business awards over the last several years has positioned us to significantly outperformed the market with a robust five year backlog, while the cost structure and footprint actions. We have taken have positioned us to take advantage of that growth too strong contribution margins on incremental revenue.
Does this put us and the physician to be able to invest the engineering resources, we believe necessary to outperform the long term targets, we outlined today.
Moving to slide 24.
And closing I want to reiterate we are pleased with how the company navigated through the global pandemic as we continue to make progress on our transformational initiatives and strategic priorities to drive long term profitable and sustainable growth.
Storage is committed to driving shareholder value and that focus remains at the forefront of all of our strategic initiatives with that I will open call the questions.
Ladies and gentlemen, if you have a question at this time, please price to start and the number one on your touch town and telephone. If your question has been answered are you wish to remove yourself from the key please press the pound key.
Our first question comes from Scott Stenberg from CL King.
Good morning, guys and and thanks for taking my questions.
Good morning, Scott.
Given the commentary about I guess sales and a quarter and.
Guess effectively brachium results from the first quarter can maybe dig it and to that a little bit deeper it seems like the.
Supply chain is going to have obviously and meaningful impact and then just give us a little bit more.
Color on that talk about incrementals and and things like that.
Sure I'd be happy to Scott. Thank you so much for the question, so Israeli b and driven by and it'll be talked about.
There were expecting about two and a half million dollars of of incremental costs right now based upon the current IHS and LNC.
Forecast and.
Forecast and disruptions a good portion of that about two thirds of that is going to be our view on the bus worker about two thirds of that and the first quarter and.
And then in addition to that we're seeing now.
We are seeing some some pressure on revenue relative to the fourth quarter and I talked about and and my comments that you'll receive sales of about $180 million for the quarter right now based upon based upon our current outlook. So if you look at our contribution margins on that detrimental revenue plus the incremental plus.
Incremental hygiene costs and some of the currency headwinds that we're seeing that's basically how you get to the how you work your way to the breakeven per coupon.
Okay got it and.
And regards to mirror.
Seems like a lot of.
Good support on the ground level here, but can you just maybe frame out and within your guidance of this year work cut and run right, we should be looking for and.
And contribution by the end of the year and maybe and.
Within your 2025 guidance just maybe.
At $1.1 billion.
Rough number and what that includes.
Is disgusting thanks for your question so.
As we said our OEM programs launch later this year. So in our 2021 guidance are OEM revenue expectation is actually quite law around $5 million and a retrofit revenue is somewhere between five and $10 million. So we.
When when we talk about the additional penetration and additional fleets.
And deepening and expanding their take rates, we expect that to be continuing her more of that over the year, but our guidance and 2021 has a very limited OEM level from here.
And and Scott, that's primarily due to the timing of of the launch, it's obviously escalated and the year.
Okay and.
This last question I'll jump back from it too about the footprint on Google.
Lower cost areas.
I know you guys are working on them up and it seemed to the ships that those efforts are accelerating are we talking.
Building facilities and and other places are we talking and outsourcing a little bit more just can you break with our first of all though.
Yes, Scott we.
We were talking about partnering rather than adding bricks and mortar.
You are correct and it is accelerating it's part of when we talked about continuing to invest and advanced technology and continuing to invest in our team. We made a significant number of organizational changes within 2020 that allowed us to really position best to accelerate this transformation and.
And the actions are not only accelerating but there are ongoing and they're happening right now and 2021.
And it that's all I have for now thank you.
And same Scott.
Okay, and ladies and gentlemen, and if you have a question at this time. Please press the stock and the number one on your Touchtone telephone. If your question has been answered are you wish to remove yourself from the queue. Please press the pound key.
Your next question comes from chest and long.
And and good morning.
Good morning, Jeremy and Justin.
So I wanted to start with a question on and.
So this year and there's going to be a pretty significant kind of pick up and and spending there.
Change fairly unique and.
The guidance beyond 2021, net D&B would grow and less than 5% and and revenue is going to be growing at 10% apply so HM nice leverage there can you just talk a little bit more about why there is such a significant step up and DND. This year and what gives you confidence.
And and.
D&B growing at a rate that's less than 5% beyond 2021.
Just and thanks for the question there is a series of aspects to it.
The first one is the magnitude and a number of launches that we're working on both in the control devices and on on the electronic side of the business, which means you have to have those resources and there's there's a peak load of resources that are and manage their the second is as we look at transitioning our capabilities.
Is an overlap and capabilities.
Can't make step function changes and the organization. So is there is a period of overlap where as we're as we're changing our our footprint mix, there's an overlap and engineering cost structure and.
And the third piece is.
The importance of speed and continue to make our investments and and and what's next and how do we expand the mirror platform as an example, but our connectivity platform and and other other of these advanced platforms. We see right now is the time to make those investments to continue to move far.
Word and take advantage of the position that we have on the marketplace. So.
We we worked as an organization to be is optimal as possible book. We believe this is the prudent spend.
Spend those capital R prudent spend the resources and this year.
Okay, and that's helpful perspective, and then I wanted to follow up with a couple of quick questions on that and the longer term guidance. So you gave the 2023 revenue guide is it fair to say that the market outgrowth between now and and it is already secured and and a backlog.
Curious if you could comment on the level of visibility you have.
Yes, just on the highest Bob I'm happy to comment on that as you are aware adjusted and we.
Generally when programs two to three years and advanced production. So and you look at that revenue number. So I think it's really important to talk about the way that we do it we basically take the IHS and the LLC protection. So the third party projection, they're not internal projections from stoneridge, and we take it and we get that information by platform by region and rebuild it up and a very.
Granular level, so that number that we have that midterm guidance on that we talked about today.
And it is the vast majority of that 80% of our backlog.
On the 880% of our total revenue is OEM based on that and that backlog is also a business. So we're we're more conservative and a lot of other companies. When we talk about a backlog because we only talk about book business and our backlog a number of our competitors and and number of people and the industry. If they have over 80% confidence that they're going to win a program or.
They're on and existing program they include and and the backlog we do not so we have we've got we've got light is like to to that.
And the numbers that we provided and it's a 1 billion one and the 925.
And the 945.
Lion's share that already basically ready and the bag for us.
Okay. That's great and then on that 2025 revenue target I wanted to clarify and at the mirror contribution only include the 76 million and peek revenue from the contracts you've you've one and is that correct.
That is correct, yes, and yes.
So anything and credit and all that.
And and there is there is some retrofitted there as well yes.
Can you comment on that significance and that retrofit revenue.
I would say it's not.
It's a modest amount.
Okay.
And that's helpful. That's all and I appreciate the time day. Thanks.
Justin.
I'm showing no further questions at this time I would now like to turn the conference back to John Day Gainer for closing comment.
Yes, Thank you and I want to thank everybody for Ya.
Participation on today's call.
And closing I can assure you that our company is committed to continuing to drive shareholder value through our strong operating results through our Windsor profitable new business and our focus deployment of our available resources. This management team will respond efficiently and effectively to manage and control the variables that we can impact and can you continue to drive strong financial.
Performance on <unk>.
Confident that our actions will results and continued success and 2021 and beyond and we look forward to talking to you and the next quarter. Thank you.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may I'll disconnect.
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