Q2 2023 Standard Motor Products Inc Earnings Call
Good day, everyone and welcome to the standard motor products second quarter 2023 earnings call and webcast.
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It is now my pleasure to turn the conference over to Tony Christy Lowe Vice President of Investor Relations. Please go ahead.
Thank you and good morning, everyone and thank you for joining us on standard motor products second quarter 2023 earnings Conference call I'm, Tony Krista Muhr, Vice President of Investor Relations and with me today are Larry shelf Eric.
Eric Sills, President and CEO , Jim Burke, Chief operating Officer, and Nathan Iles, Chief Financial Officer.
On our call today, Eric will give an overview of our performance in the quarter, Jim will comment on our new distribution and supply chain efforts and Nathan will then discuss our financial results with an update on our annual guidance Eric.
Eric will provide some concluding remarks and open up the call for Q&A.
Before we begin this morning, I'd like to remind you that some of the material that we'll be discussing today may include forward looking statements regarding our business and expected financial results. When we use words like anticipate believe estimate or expect these are generally forward looking statements. Although we believe that the expectations reflected.
And these forward looking statements are reasonable they are based on information currently available to us and certain assumptions made by us and we cannot assure you that they will prove correct you.
You should also read our filings with the Securities and Exchange Commission for a discussion of the risks and uncertainties that could cause our actual results to differ from our forward looking statements.
Now I'll turn the call over to Eric Sills, our CEO .
Thank you Tony and good morning, everyone and welcome to our second quarter earnings call.
Overall, our revenues were down slightly in the quarter, while we remain essentially flat year to date.
Importantly, there were certain short term factors influencing sales softness in the quarter, which we believe will be overcome in time.
For the quarter was unseasonably cooler.
Especially as compared to 2022, and this had an adverse effect on our air conditioning business and second one of our largest aftermarket customers declared bankruptcy in January and we essentially sold them nothing throughout the entire first half of.
This business has now been sold at auction to other existing accounts and we expect to rebound as they replenish their depleted shelves I'll address these issues further in discussing the impact of <unk>.
So let me review each division separately as each has slightly different dynamics.
To remind you we entered the year realigning our reporting segments carving out our non aftermarket business into its own segment called engineered solutions, leaving the other two solely reflective of the aftermarket.
I'll first speak to the aftermarket starting with vehicle control, which as a reminder, was previously called engine management.
We renamed it vehicle control entering this year to better reflect the breadth of categories within the offering, especially as it relates to powertrain neutral products.
Vehicle control was down one 1% in the quarter, but remains up one 5% year to date.
Noted in the release the sales drop related to the customer bankruptcy was two 2% and so excluding that we would've been up and thankfully. This is now in our rearview mirror.
Furthermore, we are seeing an overall favorability in our large customer sell through and we believe this reflects ongoing health in the marketplace.
Turning to temperature control sales were down 8.1% in the quarter, bringing first half results five 2% lower than 2022.
As Youre well aware this is a highly weather dependent seasonal business 2022 was an exceptionally strong early season in the second quarter was up six 4% over 2021, making for difficult comparisons.
<unk> 2023 saw an unseasonably cool and wet start to the season.
That said weather trends changed dramatically entering July which has now been declared the hottest single month on record with customer Pos up double digits over last year and the heat continues.
Next I'll speak to our engineered solutions segment, our non aftermarket business focused on selling to manufacturers of vehicles and equipment across various end markets globally.
Sales in engineered solutions were up six 2% in the quarter, reflecting a combination of generally strong demand from key accounts the impact of a smaller acquisition late last year and the benefit of new business works. We're very pleased with how this business is going.
After several years working towards achieving critical mass. We believe we are now well positioned to take advantage of the combined strengths of the different pieces that we have assembled and are now achieving the cross selling opportunities we have anticipated.
Turning to profitability there are a lot of moving pieces and Nathan will get into the details in a few minutes, but from a high level. We are pleased to have been able to retain our margins, though the sales shortfall in temperature control of drops to the bottom line in terms of earnings.
Inflation persists with costs remaining elevated across materials labor rent and so on and we are now dealing with a relatively new issue of the weakening U S. Dollar in countries, where we have manufacturing most notably Mexico.
And the single biggest cost increase continues to come from interest rates impacting both our customer factoring programs and our borrowings.
Through a combination of initiatives, we have largely been able to recover these cost increases and I'm very proud of all of our People's efforts in this regard.
So with that let me turn it over to Jim Burke, who will bring you up to speed on what's going on in our operations. Okay. Good morning, and thank you Eric as we disclosed in our earnings release, we are excited to share our aftermarket distribution network strategy expansion plants, we signed a new lease in Shawnee, Kansas commencing on July one.
2023.
So why do your expansion efforts now and why Shawnee, Kansas.
Service, our U S aftermarket customers, excluding forecast trading distribution, which is in Fort Lauderdale, Florida with vehicle control and temperature control products from three primary distribution centers located in dispute onto Virginia, Lewisville, Texas in Edwardsville, Kansas the existing footprint of these <unk>.
Facilities is roughly $1 2 million square feet.
The new Sean EDC is roughly 575000 square feet, which adds an additional 211000 feet, bringing our new footprint to one 4 million square feet. Once we exit the edwardsville facility.
Currently we are approaching capacity in our existing footprint and this addition will expand our throughput turnaround times, our customers require the right part in the right place at the right time, we will be able to turn around customer orders in three days or less and shipped thousands of emergency orders daily.
This is an investment in our S&P value proposition to be the best full line full service supplier of premium products.
Other benefits include risk avoidance from our current single point distribution model to a modified multi point distribution strategy for high volume fast moving skus.
So why Shawnee, Kansas, we were very fortunate to find the new shiny D. C located less than five miles from our existing Edwardsville DC, we will be able to retain our existing well trained associates and management team, which minimizes any risk from a new greenfield startups.
Our planned timeline launch for the new DC will be to install some racking and equipment by the end of the first quarter 2024, which will provide relief to our other D. CS This will be on a small scale basis, while the largest scale automation picking lines are being installed during 2000.
24, beginning.
Beginning at the start of 2025, we will phase in various product categories and brands and anticipate being fully operational by the end of 2025.
Obviously this will add some redundant costs during the transition and some incremental costs once complete for the additional capacity.
We estimate $2 5 million added cost in 2023, a partial year and.
Seven to 8 million added costs in 2024 on an annualized basis.
However, we also anticipate some offsetting savings due to carbon inefficiencies.
Exiting edwardsville redundant cost and transportation cost savings over time with added sales growth. We anticipate we can delever. Some of these net added costs.
We will have incremental capex spending in 'twenty four 'twenty five to outfit the new DC.
Fortunately, we only existing edwardsville location and anticipate putting this facility up for sale in late 2025, which should help offset a large portion of the Shawnee investment.
Overall, we are very excited about bringing this new surely D C onboard, adding capacity minimizing risk maintaining well trained existing workforce and most importantly, better servicing our customers.
I will also hit on a couple of supply chain topics overall supply chain bottlenecks and delays have subsided with more reliable deliveries and lower transportation cost, while some commodities like copper and aluminum have decreased over the first half of 2022, we have seen increases in copper.
Or and steel based products from 22 year end levels. Overall, we are seeing inflationary costs persist primarily for electronics and labor cost, but at a slower pace than in 2022.
The more reliable supply chain has allowed us to accelerate our inventory reduction efforts in the first half of 2020.
This has been a tremendous benefit to our cash flow generated this year, but also we had a slight drag on gross margins from under absorbed overhead, which Nathan will highlight shortly.
Over the second half of the year I see a slight build in inventory levels as we level load our manufacturing facilities and begin our seasonal build for temperature control products.
Want to thank all of our SMP employees dedicated to servicing our customers. Thank you for your attention and I will turn the call over to Nathan.
Alright, Thank you Jim as Eric noted earlier, our sales were down in the second quarter with lower temp control sales impacting our bottom line, but we did see improvement in our gross margin rates, which at the consolidated level offset factoring costs to continue to increase.
We also made great progress reducing inventory levels as Jim noted.
As we go through the numbers I'll give some more color on these items and other key drivers for the quarter and year, so far as well as provide an update on our financial outlook for the full year in 2023.
First looking at a vehicle control segment you can see on this slide the net sales of $183 8 million in Q2 were down one 1% versus the same quarter last year with the decrease driven by a two 2% decline from the impact of a bankrupt customer partly offset by increases with other customers as we continue to see favorable sell through trends.
For the first six months of vehicle control sales were up one 5%. Despite the impact of a bankrupt customer which was also a two 2% drag on sales year to date with the growth for the year. So far are result of continued demand for our products and favorable sell through.
Vehicle controls adjusted EBITDA was 12, 6% of net sales and up two points from Q2 last year.
But it is important to note that we were up against an easy comparison as this segment saw a large impact from cost inflation and factory expenses in Q2 last year and this year's quarter showed profits at a more normal level.
Vehicle controls adjusted EBIT in the quarter. It was driven by gross margin rate expansion as a result of pricing and savings initiatives, which overcame cost inflation unfavorable overhead absorption from reducing inventories into.
And a $3 million or one seven point increase in the cost of customer factoring programs.
Vehicle controls adjusted EBITDA for the first six months was 12, 1% basically flat with 12, 2% last year, mainly as a result of the margin expansion. This segment saw in the second quarter, which offset higher factoring expenses.
Turning to temperature control net sales in the quarter for that segment of $97 $1 million were down eight 1% and sales for the first six months were down five 2% as we saw a slow start to the selling season as Eric pointed out <unk>.
Temperature control as adjusted EBITDA was seven 2% of net sales in the quarter and six 1% of net sales for the first six months with both periods down from last year, mainly due to lower sales and higher factoring expenses.
Looking at it more closely temp control gross margin rate was down <unk> five points in the quarter nine four.
Four points for the first six months as lower sales and lower production related to inventory reductions more than offset pricing and savings actions for this segment.
And with margin rates down slightly the combination of significantly higher costs from customer factoring programs and lower SG&A leverage led to a reduction in adjusted EBITDA.
Sales for our engineered solutions segment in the quarter of $72 $2 million were up six 2% and sales for the first six months of $143 3 million were up 2%.
While we said sales can be lumpy for this new segment as it begins to grow we were pleased to see our sales increase as a result of strong demand and new business wins.
Adjusted EBITDA for engineered solutions in the quarter came in at 13% an increase of two one points from last year as strong sales growth and good channel and customer mix improve both the gross margin rate and SG&A leverage for.
For the first six months adjusted EBITDA for engineered solutions was 12, 3% and up <unk> five points from last year, mainly as a result of higher sales and improved SG&A leverage.
Turning to our consolidated results net sales in the quarter declined one 8%.
For the first six months were basically flat with both periods being impacted by a decline of one 6% related to a customer bankruptcy.
When excluded shows growth in sales that essentially offset a slow start to the season and temp control.
While net sales were lower overall, our consolidated gross margin rate improved for both the quarter and first six months due to our initiatives that overcame other headwinds and resulted in gross margin dollar increases of five 1% and three 4% for the quarter and first six months respectively.
Regarding SG&A expenses, excluding the cost of customer factoring programs, which are shown separately on the page expenses were well controlled in the quarter at 17, 4% of net sales and in line with last year.
Looking at the bottom line consolidated operating income of seven 8% and adjusted EBIT of 10% in the quarter were flat with last year as an improved gross margin rate was offset by $4 8 million of higher factoring costs for.
For the first six months consolidated operating income and adjusted EBITDA were down as higher factory costs were only partly offset by improvements in gross margin.
As for diluted earnings per share you can see our performance resulted in earnings of 84 cents for the quarter and $1 44 for the first six months lower EPS was mainly due to lower temp control sales, which dropped through to the bottom line, but also interest expense that was higher by $1 5 million in the quarter and $4 5 million in the first six months, mainly due to higher interest rates.
Finally, one last point on our results as you know we report the results of the discontinued operation each quarter, which relates to a business thought in 1986 and subsequently sold a 1998.
As noted in our press release. This morning since March of 2019. The company was involved in a legal proceeding in connection with a breach of contract claim for this discontinued operation.
In July the court ruled in favor of the other party and we were found liable for approximately $11 million in damages and as such we incurred a charge for this amount during the quarter.
Turning now to the balance sheet. The key item here is our inventory level, which finished Q2 at $499 1 million down $29 6 million from December last year and down $52 3 million from June last year as we continued to focus on reductions in this area.
Note that we typically build inventories during the first half of the year in anticipation of the temp control selling season, and when viewed against average increases of $15 million in the first half of the year. This reduction of inventory represents a significant improvement in cash flow of almost $45 million in the first six months of this year.
Looking at cash flows our cash flow statement reflects cash generated from operations in the first six months of $39 4 million as compared to cash use of $95 3 million last year with the improvement driven by a $118 6 million improvement in cash flows from inventory in the first six months.
Our financing activity show significant progress made in paying down our revolving credit facilities by $16 5 million as a result of improved operating cash flows and $50 million of repayments made in the quarter.
We also paid $12 5 million of dividends during the first six months.
Our borrowings of $223 million at the end of Q2 were much lower than last year, and we finished the quarter with a leverage ratio of 1.4 lower than both June and December of last year.
Before I finish I want to give an update on our sales and profit expectations for the full year of 2023.
Regarding our top line sales, we expect full year 2023 sales growth in percentage terms will be in the low single digits, which includes the first half that was flat to last year in the second half that will see low single digit growth rates difficult for the business.
Adjusted EBITDA is expected to be approximately nine 5% and lower than our prior estimate of 10% as we noted in our release this morning.
The lower estimate as a result of four things.
First as I, just said our second quarter sales were softer than expected, leaving us flat to last year through six months and this will hurt our full year sales performance.
Additional interest rate increases announced by the Federal Reserve in June we'll now put factoring expenses at the top end of our prior range and these costs are expected to be $48 million to $50 million using the current outlook for rates.
Also we anticipate anticipate the expansion of distribution capabilities and a new warehouse in Shawnee, Kansas will result in duplicate overhead and start up costs beginning in the second half of the year and finally, we've recently seen the U S dollar significantly weakened where the majority of our international operations are located we can get against both the Mexican peso in Polish zloty and in turn increasing our costs.
Production and inventory in those locations.
In connection with adjusted EBITDA, we expect depreciation and amortization expenses and our income tax rate to be in line with 2022.
Further we expect our interest expense on outstanding debt to be on average about 4 million each quarter given higher interest rates.
Looking at operating cash flows in 2023, you can see we are well on track for operating cash flows to return to healthy full year levels consistent with years past.
To wrap up while sales were slower than we like we were very pleased to report improved gross margin rates for the quarter and the year as well as the significant improvement in cash flow and very much appreciate the efforts of all of our team members and improving our business. Thank you for your attention and I'll now turn the call back to Eric for some final comments.
Thank you Nathan to conclude let me spend a minute talking about current trends and how we're thinking about the future.
Our aftermarket business, which makes up 80% of our total sales continues to March forward stable and strong.
Addressable market continues to show a far more favorable trends than unfavorable car population continues to grow and to age with more vehicles entering the sweet spot in coming years.
Combination of difficult economic times elevated new vehicle pricing and high interest rates have car owners retaining their existing vehicles, thus requiring necessary repairs and non discretionary categories like ours.
Our relationship with distributors have never been stronger as they seek capable committed suppliers like us who execute at a high level for them and while external factors like the weather can have short term impacts the long view as favorable.
Our engineering solutions business is now in the fast Lane, we're getting ourselves known by the Blue Chip accounts in these various end markets and the doors that are opening to us are very encouraging.
We are receiving more quoting opportunities than we could have hoped for and expect to get our fair share.
We're now back to generating solid cash flow after a period of intentionally increasing our inventory to accommodate supply chain instability. We are now successfully working it down, allowing us to pay down debt return value to shareholders through dividends and reinvest in the company's manufacturing and distribution capabilities to prepare us for the future.
And we're tackling it with the strongest team we've ever had and so I think all of our employees worldwide.
So that concludes our prepared remarks with that I'll turn it over to the moderator and we'll open it up for questions.
Thank you at this time, we'll open the floor for questions.
I'd like to ask a question. Please press star one on your Touchtone phone.
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We will take our first question from Bret Jordan with Jefferies.
Hey, good morning, guys.
Good morning, Good morning, when you look at the one 6% impact from that auto plus bankruptcy does that abate in the second half with those assets Havent been acquired by somebody else or they are they back to being a customer.
So that's a great question Brett.
So yes those are all the pieces of the business have now been acquired and as I said in the prepared remarks had been acquired by existing SMP accounts.
We believe that in the long run all of that volume should return, but this bankruptcy was really very disruptive as you can imagine to the whole marketplace and I think it could take a little while for all of the dust to settle.
As as the new <unk>.
Acquirers SaaS, what they have and look at the inventory that they have acquired and look at it.
Within their own existing inventories I think there could still be some period of absorption of that inventory and reconciling what they have so we think it could take a little while but first we're definitely very encouraged that the business is now back in business and by existing accounts that we have good relationships with and so we are expecting to see a bounce back I also think that there was.
Certain amount of that business that just over that period.
Was absorbed by other accounts that kind of gets lost in the mix.
The mix in terms of being able to track it but in the long run the end.
Market.
True demand is what it is we will get it back as the inventory works itself through the system.
Okay, and then on the redundant costs from the shiny Kansas D. C. I think you called out seven to eight in 2004, but there would be some offset could you give us a feeling for what the net impact might be.
Yeah, Brett this is Jim Burke.
Seven to eight is on an annualized basis because.
Where it will be staffing up and bring it on different costs that are in there. So.
I think that'll be on an annualized basis versus a full year impact.
Savings that we have are inefficiencies that are there in our existing facility.
We will exit Kansas fully it'll be in stages, but will exit it in 2025, so there'll be savings coming from that in transportation, one when all said and done on a run rate basis, we believe that we could be incremental costs from new DC thats there.
$3 million range net $3 million to $4 million range, but again, we're talking by the end of 2025 and we'll be updating.
Our estimates as we proceed through to that period.
Okay, and then one last question on inventory levels for AC product.
<unk> commented on the soft start to the season could you talk about what retail inventories look like now on a maybe year over year basis.
Yes.
We looked at it for those we have visibility into an important to note that we only have that through June so not sure what happened to their inventories in July and then demand was very strong sell through in July was very strong but at the end of June .
What we saw was that it was essentially flat throughout the course of the entire year little bit of noise month to month, but the big players kept their inventory roughly flat throughout.
And so now it's just a matter of that sell through.
Turning itself into replenishment orders too, but yes, they didn't enter this quarter Pat.
Okay, great. Thank you.
Thank you we'll take our next question from Daniel <unk> with Stephens.
Yeah, Hey, good morning, guys. Thanks, I had a question.
Good morning, good morning.
Maybe on Brent Bloss question, just around maybe some more near term trends we've heard some varying commentary on kind of how <unk> progressed can you talk about any notable trend shifts you saw in your sales results from April through June and then could we dig into July a little bit more we've had some pretty big heat waves coming through is that been a tailwind have trends accelerated here in third quarters any color on the monthly.
Cadence would be great.
Okay.
The monthly cadence within the second quarter was nothing exceptional in sorry.
Anything can happen in a given month I think when you look at the cadence for our distributors that's going to be more about true end market demand cadence for us is youre going to have the influence of their reorder patterns. So we didn't see anything.
Notable in the quarter.
Entering July .
The books are not closed yet on that but what we have seen is a nice uptick certainly on the temperature control side on their orders to us as would be expected and you mentioned the heat.
And.
But I think it's too early to make any real strong observations of how that plays out for the balance of the summer.
Got it that's helpful and then maybe shifting to the guidance Nathan as you look at the back half, obviously guide implies renewable ramp and op margin, maybe I'd call us to alleviate and to Eric's point topline gets a little bit better.
How do you think about the sustainability of this high singles operating margin or low double as we look at 24 25, obviously, Jim just mentioned that a few savings coming but.
What do you think the right intermediate term margins should be for those are we can we get back to 10% next year.
Yes, Daniel So as I mentioned in my remarks, we do have some headwinds coming at us in the second half of the year.
At least one of those was related to currency and as you know those markets can can swing around and you don't know exactly when those return and so we.
We can't be sure when headwinds will abate that said were always working on on savings programs continuous improvement projects and so as we go into 2024 and from there we'll still look to have those projects in place and improve our margins like we've always said, we would by 10 to 20 basis points as those programs come through successfully.
Got it and last one from me Eric I think you mentioned in your prepared remarks, you are starting to realize the cross selling within engineered solutions any more color or quantification you can provide on just how you're going about we're capturing that opportunity.
Yeah.
I can't get into specific business wins or specific accounts, but what we have really started to see over these last few quarters is that as we've talked about in the past we've assembled a bunch of smaller companies into one in each of those have their own customer lost their own product category.
These in some cases, even their own geography, and so they were fairly good but they were limited in what they were able to do now one entities.
Customer loss gets opened up to the broader portfolio and it gives our people something to sell so for example, I'll just give you. One example.
There was a large.
Con AG accounts that came with an acquisition a couple of years ago that we had never done any business with now or selling them air conditioning, because that was something that we had that customer needed in their previous supplier before we acquired them, Obviously Clinton service that type of product. So so we see those types of opportunities and.
We're new in this space. So we're really just getting our name out there and as we have these meetings with these accounts and they are able to see all of our capabilities and narrow assessing their supply base. They are asking us to quote on quite a lot of product.
It's a pretty long cycle from being asked to quote to getting the award to actually seeing it start to show up in production and revenue but.
Even just over the course of this year the number of new opportunities that we have on our plate to work on has grown dramatically so were.
Pretty excited.
Okay I appreciate it thanks.
Thank you we'll take our next question from Scott <unk> with Roth.
And Scott you may be muted.
Okay.
And Scott Your line is open.
Please on mute on your end.
We'll go next to Robert Smith, with the center for performance investing.
Hi, good morning, and thanks for taking my questions.
Hum quite interested in the shiny.
Move in.
I just wanted to.
I heard that you said that going forward seen beginning in 2000.
26 that the.
Efficiency.
Would be plus $3 million to $4 million was that correct.
Yeah, Hi, Robert This is Jim Burke.
A net savings of seven to eight that we said annualized after we achieve savings set in there. We believe the ongoing run rate will be in that $3 million to $4 million range now those savings will be achieved over the period of time, a small part of it.
For more of that in 'twenty, five and then fully in 2006 as we're fully operational.
Yes.
It seems rather conservative.
For me from a totally new facility with automation and robotics.
Am I missing something.
Well one of the pieces there are edwardsville DC that we have is fully owned.
I believe it's mostly fully depreciated as thats on there.
We will have the advantage of when we sell it and taking that capital lets isn't there to offset future Roth.
The impact, but the new lease on 575000, you incur the costs there in the property taxes on that so.
So thats incremental whereas most of on the existing owned facility wouldn't have had costs that are in there.
Got it.
Is there any prospect of actually buying the facility.
No thats not our intent to be in the real estate, we're fortunate from years past that we own. The other one there we will put that up for sale and that'll be a nice favorable cash flow benefit.
Right.
Are there any such possibilities with the other two facilities Dcs.
Well, that's where we'll wind up feeling.
<unk> the efficiency savings that were in there.
That will be able to scale down most of that will be where we have ramped up temporary workforce. So we really won't be even incurring any wind down costs for personnel in those areas there and we will staff up what the one big benefit is in the new shiny facility, we bring over.
Our full staff and management team, knowing our systems knowing.
The product categories no-one the part numbers on everything and we will staff up gradually during that period of time.
The savings will be achieved yes, there'll be some automation there, but a lot of the savings will be in the other two distribution centers, which are really at capacity at the moment now.
Yes.
Significant portion just to add to that Robert.
Some color.
As Jim described that we're going to be moving some of the distribution out of the other Dcs incidents, Sean a distribution center right now.
You already have or vehicle control is coming out of Virginia, which has to ship all the way across the country to West coast customers. This will now put that inventory in the middle of the country, which will allow us to service our customers better certainly from transportation time standpoint, but also from the freight costs, we're going to be halfway there already so SaaS, where youre going to see.
Some nice benefits as well.
Yeah I follow so later on in the Twenty's towards the end of the decade do you foresee a possibility of doing something with the other one or two.
D C.
Expanding those.
Well.
Our new structure.
I I anticipate with this additional 200000 plus square footage that we add and we will have sufficient capacity for the future, but I hope we grow significantly at this point, we don't have initial plans for the other two locations, but that'll be a good problem to be Faye.
And a couple of years out.
As you as you spend in engineered solutions the possibility of holdings.
Holding some of the distribution into the new shiny facility or your other two.
The majority of our engineered solutions business Robert is built to order. So we do not typically warehouse much if at all.
Most of that shipped directly from our factories. There are some that we do hold a been a safety stock for the accounts, but it's not like the aftermarket where youre stocking a significant amount of inventory for.
Stock orders, it's all built to order accounts.
Got it.
And Yeah give me an idea as to.
Very optimistic about engineered solutions and what's on what's on the landscape as far as possible.
Additional acquisitions in the near term.
Robert This is Jim Burke again.
And I've said as I've said many times, we we have a team that covers really to geographical space as we look worldwide and also functional product category lines. So we're evaluating always opportunities that are there.
The last couple of acquisitions, we did were in the engineering solution space, we're optimistic about that category we've seen growth.
So we're focused on both our.
Vehicle control temperature control categories in engineered solutions, but nothing at this point to announce.
Okay.
In particular comments about Mexico or China.
Could you be more specific on what you are.
Good morning.
Well listen there's a lot of.
Ambiguity going on under that as far as the politics and what's happening.
So on a both countries I was wondering what your what you guys are looking at from your viewpoint.
Well.
We're pretty committed to our footprint in both of those countries. As I think you are aware, we have a lot more in Mexico than we do in China, We've been building out our manufacturing capabilities in Mexico for going on 30 years I think.
<unk>.
Well really the only thing we see adverse going on in Mexico is some of the cost increases most notably related to labor costs right now we're seeing it.
Currency, but that's.
Hard to predict how long a trend that would be but we're very pleased with our footprint in Mexico, we have excellent.
Management teams there we are pushing 2000 people there and.
One of the nice things, we see in some of our big customers are growing their business in the Mexico market allows us to follow the demand so.
That's the Mexico story, China.
We are there as well we have four joint ventures. As you are aware I believe three of them are on the temperature control side and one came with the acquisition of Trumpf data doing power management power distribution products there.
They are really there for two purposes, one is to continue to bring high quality low cost product back here in North America, but also to sell engineered solutions business.
Globally, and they are all doing well.
And we're very pleased with how.
How we're doing we're obviously very aware of geopolitical.
Complexity, and we pay close attention to that.
And we look to mitigate some of that risk through.
Vendor diversification redundancy and so on but we're pretty committed to what we're doing there and we've seen very nice results.
How about your eastern European operations.
Eastern European.
Have.
Q2 manufacturing operations. There we are our largest and one that's been part of US the longest is in Poland in eastern Poland.
And it's really just a fantastic plant 700 people strong.
And an area, where we're seeing.
Essentially that the biggest.
Opportunities for engineered solutions quoting.
Due to the combination of high quality high technology and low cost.
And now more recently, we have a plant outside of Budapest Hungary.
It came with the <unk> acquisition.
And it's been terrific for us as well not only we are seeing a lot of opportunities to sell to third parties.
It brought to US was electronics manufacturing in Europe , and now they've become a supplier to our Poland plant. So we're really pleased with how we're building out.
Kind of moved from having.
Manufacturing plant in Poland to have a European wide business and we're continuing to invest heavily there and we're just very pleased with what we're seeing.
Any reverberations from the Ukraine situation.
No.
It's really.
Business as usual and the war.
Our first broke out a year and a half ago or so.
We quickly mobilized to understand what the potential impact could be on the supply chain.
Fortunately too bad debt there was we had no suppliers in the region.
We had no customers except for one very small one in the region.
Here was that it was going to potentially impact our utilities infrastructure. There. It is not this is now a year and a half.
Ongoing and so it's really proven to be a non event, which is very good.
Thanks, Thanks for taking my questions. Good luck.
Thank you Robert.
Yes.
Got it.
Thank you we'll go next to Scott <unk> with Roth <unk>. Please.
Please go ahead.
Oh.
Yes.
And Scott, we still have your mute.
Yes.
Yes, we'll follow up with Scott if he is not able to to ask his question here.
Understood. Thank you.
But once again, if you would like to ask a question. Please press star one at this time, we'll pause just another moment.
And we have no further questions at this time I will turn it back to management for any closing remarks.
Okay, we want to thank everyone for participating in our conference call. Today, we understand there was a lot of information presented and we'll be happy to answer any follow up questions. You may have our contact information is available on our press release or Investor Relations website. We hope you have a great day. Thank you.
This does conclude today's standard motor products second quarter 2023 earnings call and webcast.
You may disconnect. Your line at this time and have a wonderful day.
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