Q2 2025 Standard Motor Products Inc Earnings Call
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Good day, everyone. And welcome to the standard Motor Products, second quarter, 2025 earnings call.
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Please note today's call will be recorded and I will be standing by. Should you need any assistance?
It is now my pleasure to turn the conference over to Tony cello, vice president of investor relations. Please go ahead.
Uh, thank you and good morning everyone and thank you for joining us on standard Motor Products. Second quarter 2025 earnings conference call with me. Today are Larry SS chairman emeritus, Eric SS chairman and Chief Executive Officer, Jim Burke Chief, Operating Officer and Nathan Isles, Chief Financial Officer.
On our call today, Eric will give an overview of our performance in the quarter and Nathan will then discuss our financial results. Eric will then provide some concluding remarks and open the call up for Q&A.
Before we begin this morning, I'd like to remind you that some of the material that will 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 in 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. They will prove correct.
You should also read our filings in the security Exchange Commission for discussion of the risks and uncertainties that could cause our actual results to differ from our forward-looking statements.
I'll now turn the call over to Eric SS, our CEO.
Thank you, Tony and good morning everyone and Welcome to our second quarter earnings call.
So overall, we were quite pleased with our results, as the strong momentum from Q1 has continued.
From a top line perspective we posted growth of nearly 20%. Now while the majority of this growth was from the addition of our newly acquired nissens business, the Legacy business was up 3 and a half percent and that is against very challenging comps as last year's second quarter was quite strong.
Year to date, we are now up about 26% or about 4%, excluding misses.
We're also pleased with our profit gains.
Adjusted Eva increased 20 million up to 190 basis points to 12%.
Here too. Nissen provided much of the lift, though. Other segments also contributed to the growth.
We have decided to increase our topline expectations to the low 20% growth range, up from our previous guide of mid-teens growth.
I'll now review each business separately, starting with the North American aftermarket.
This is comprised of 2, operating segments, vehicle control, and temperature control, both of, which have very strong quarters.
Vehicle control sales were up nearly 7% in the quarter and are now up 5.3% year to date.
our customers continue to invest in our products as they expand our, their footprint, recognizing the critical need for in Market product availability and their strong, sell through demonstrates, the ongoing demand for our largely, non-discretionary offering
Furthermore, we believe that the brand recognition, we enjoy with professional technicians leads them to choose our products over others.
Turning to our temperature control division sales increased 5 and a half percent over last year, which is impressive as last year's Q2 was up 28% over the prior year.
Year to date. The segment is now up, 12.3% over last year and last year, had been 1 of the hottest on record.
We believe there are a few things at play here. First is the impact of the timing of preseason orders this year. They came in early as was reflected in our strong first quarter and often that just leads to timing differences across orders. But we believe this year that early in stock better prepared our customers, for the start of the season and they never missed a beat.
Here, too. We contend that our strong Market position is created momentum for Our Brands and our customers sell through suggest, they are doing quite well with our program.
next, I'll speak about our newest, aftermarket segment Nissan's Automotive, which has been part of S&P since last November,
Sales remained strong in the quarter, adding 90 million in Revenue.
They continue to outperform in their markets, enjoying mid to high single-digit growth.
There are several contributing factors to this outperformance.
First, as a non-discretionary and largely weather dependent offering. They are enjoying some of the same Market Tailwinds as here in the US.
Additionally, there's strong brand profile and well-received. Go to market strategy, has allowed them to grow market share in their existing categories, and to gain Traction in newly launched categories. Specifically in what they call engine efficiency, and what would fall within vehicle control here.
Now well and this is a strong company in its own right? We believe that meaningful synergies exist through integration which is well underway.
For saving synergies, we have been heavily focused on product cost.
As we have significant product overlap. We are combining, our sourcing efforts to identify best suppliers leveraging or combined, spend and insourcing as appropriate.
We have also now begun taking advantage of our complimentary product portfolios to pursue growth opportunities.
For example this quarter we announced the introduction of over 800. New skus to the nissen's. North American customer base and are actively building our programs for Europe.
We're really just getting started and seeing that opportunities about
Lastly, I'll address our non aftermarket segment engineered Solutions.
Sales declined 8.3% in the quarter, which reflects the ongoing trend of a Slowdown in certain end markets.
It's worth noting that this softness began in the second half of last year. So the comps going forward will be easier.
We've always known and discussed that, as opposed to the aftermarket, it is prone to more cyclicality. While we can expect some volatility period to period, we believe that the longer-term trends are favorable, and we believe it provides a nice complement to our aftermarket business with valuable synergies.
Turning to our operations, we are proud to announce in the quarter, the official opening of our new 575,000 square foot, state-of-the-art Distribution Center in Shaunie Kansas.
We plan to fully ramped up over the balance of the Year by transferring all activities from the nearby Edwardsville facility as well as by shifting portions of our volume from our other major DCs.
We will emerge with a much better balance of activities across our network with expanded capacity, redundancy for Miss for risk, mitigation and the ability to better serve our customers.
It's been a heavy lift and I thank all who are involved in this major undertaking.
But lastly, let me speak to the current tariff landscape.
And while it is changing by the minute, we are hopeful that we are nearing a more stabilized environment.
While we are still awaiting, certain trade agreements to be finalized. We believe that our diverse Global footprint will continue to provide us with a competitive advantage.
Over half our sales in the US are from products produced in North America, which are largely tariff-free.
For products from other regions. We have been implementing our plans as previously described.
Suppliers on cost sharing and by relocating production from China to lower tariffs areas.
However, much of our cost recovery comes from passing through the impact, through to our customers at our cost.
Again, due to our North American footprint, we believe that the amount we need to pass through is likely less than the competition.
It's important to note that there is a timing delay between 1 costs are incurred. And new pricing takes effect.
Due to this, we did incur costs in Q2 associated with previously, implemented, tariffs with minimal offsetting pricing, but beginning in Q3, these will begin to roughly offset.
We recognize that the landscape remains fluid, as it evolves, we will continue to implement our Playbook adjusting prices up or down as needed.
It is worth reiterating that, as most of our products are non-discretionary, product decisions are typically made by professional repair facilities. They are fairly priced and inelastic at the end consumer.
When you put all these moving pieces together, we are very pleased with the quarter's Financial results and with our ability to execute on our initiatives during complex times.
So, let me hand this over to Nathan, who will provide the team?
All right, thank you, Eric, and good morning, everyone.
As we go through the numbers, I'll first give some color on the results for the quarter by segment and then look at the Consolidated results for both the quarter and year so far.
I'll then cover some key, cash flow metrics, and the balance sheet and finish with an update on our financial outlook for the full year of 2025.
First looking at our vehicle control segment, you can see on the slide, the net sales of 201.7 million in Q2, we're up 6.9% with the increase driven by Steady demand for our portfolio of products.
Vehicle controls adjusted Eva in second, quarter increased to 10.7% up 30 basis points from last year.
the increase in adjusted ibido was driven by better, leverage of operating expenses on higher sales, and lower factoring expenses as a result of lower interest rates in the quarter,
These items more than offset a lower gross margin rate that was pressured by the increased cost of tariffs. In the quarter, the dynamics of which Eric noted earlier.
during the temperature control, net sales in the quarter for that segment of 131.4 million or up 5.5%.
The second quarter benefited from a strong start to the season, with weather being hot across most of the country. We continue to see strong sell-through with customers.
Temperature controls adjusted. EVA is expected to increase in Q2 to 16.1% due to higher sales volumes that led to a higher gross margin rate, which more than offset pressure from tariff costs, as well as improved operating expenses as a percent of sales for the quarter.
Next I'll touch on this is in our second full quarter of ownership missions. Added 90.5 million of net sales and 16.3 million of adjusted Ava.
The business is performing well and again exceeded our estimate at mid-teams, even a percent coming in at 18% for the quarter.
Niss continues to grow at sales across Europe and has also benefited from some favorable currency translation movements.
Looking now, at engineered Solutions sales in that segment in the quarter were down 8.3%, but this was expected. As we noted last quarter, that sales continued to be solved across most Den markets.
Adjusted, even if for engineered solutions in the quarter, 10% was down from last year.
this was the result of lower sales, volume unfavorable mix and some impact from tariff costs that lowered, the gross margin rate but we continue to point out that I would a continues to be healthy at 10
To summarize and put it all together, across the 4 segments. For the second quarter Consolidated, sales increased 26.7%, and adjusted ebit to increase, 190 basis points to 12% of net sales and non-gaap diluted earnings per. Share were up 31.6%.
for the first 6 months, your sales have increased 25.8% now over last year and 4.1% excluding missions helped by strong sales in both our North American aftermarket segments,
Tacking on a strong second quarter to a strong first quarter resulted in a year-to-date increase in adjusted Eva of 250 basis points.
And an increase in non-gaap diluted earnings per share of 47.9%.
Turning now to cash flows cash used in operations. For the first 6 months of 5.9 million was down from cash, used of 10.1 Million last year.
While we always use cash during the first half of the year due to seasonal working capital needs, the higher earnings allow for slightly lower usage this year, and we were pleased to turn in better performance despite paying higher cash costs for tariffs.
Our investing activities show capital expenditures of $19.3 million, which includes $7 million of investment related to our new Distribution Center.
Capex is slightly lower than last year, as capital spending related to the new DC is nearing completion.
Which were used mainly to fund our working capital and capex needs.
Now, we repaid 33.2 million on a revolver during the second quarter and expect further repayments during the second half of the year.
Our net debt of 577.8 million. At the end of the second quarter was higher than last year, after we made borrowings for the nissen's acquisition.
We finished Q2 with a leverage ratio of 3.2 times Eva but accounting for a full 12 months of Eva from nissens Leverage would have been lower.
Before I finish, I want to give an update on our sales and profit expectations for the full year of 2025.
Particularly now that we have much better visibility into the impact of tariffs and mitigating actions.
As we noted in our release this morning, our updated Outlook includes higher tariff costs and offsetting impacts.
We are raising our sales guidance for the full year to be an increase over last year in the low. 20% range.
We're also pleased to reaffirm our adjusted EVA margin will be in a range of 10% to 11% of net sales, even after absorbing the impact of higher tariff costs and the margin compression that occurs from passing through price at our cost level.
Note this updated guidance, reflects the robust sales performance. We've seen so far, including a full year of nissens and passed through a price and to cover tariffs and will result in higher earnings per share from higher sales.
To wrap up. We were very pleased with our sales and earnings growth for the year. So far with earnings up across, most segments and improvements in debt, leverage as anticipated. The strong performance helped us overcome the impact of additional tariff costs on the business.
While the trade situation around tariffs will undoubtedly continue to evolve, we have again proven our ability to manage through the change and grow our business.
Thank you for your time and I'll turn the call back to Eric for some final comments.
Thank you, Nathan, in closing. Let me just spend a moment discussing. How are you doing today?
Even in the face of the challenging economic environment, we have enjoyed several consecutive quarters of strengthening performance.
The largest part of our business, the North American aftermarket continues to demonstrate its resilience
highly Stable Market with solid foundations as the addressable Market expands through a growing and aging car park.
Within this attractive space, non-discretionary products tend to do better as motorists are unable to defer repairs, and our value proposition continues to resonate.
Full line coverage of professional grade products, and Brands technicians trust, and a relationship with our training. Partners is strong.
We've added 2 new legs to our business, providing a combination of diversification and opportunities for synergies.
Our recent geographic expansion, with the acquisition of Missing, is exceeding our expectations. They enjoy many of the same benefits I just described for us here, both in terms of market dynamics and their place in it. The more we work together, the more I'm impressed with their team, their capabilities, and our ability to identify opportunities. So, we remain very bullish about the future.
And so that concludes our prepared remarks, we'll now turn it over to the moderator and open it up for questions.
Thank you at this time. If you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the Queue at any time by pressing star 2.
Once again, to ask a question, that is star 1.
Our first question comes from Brett, Jordan with Jeffrey's, your line is open.
Hey, good morning guys. This is Patrick Buckley on for Brett. Thanks for taking our questions.
Still some still, some moving pieces with tariffs but because you talk a bit more about pricing Trends, and in the second half and and maybe a range of same SKU inflation assumptions within the guide.
Uh, you know, we're not going to get into the specific numbers but our pricing, uh, plans for the the second half most of which are are now, uh, in place, uh, are really there to, uh, to cover the tariffs. So, it'll be, uh, you know, as as we've been talking about
uh, our tariff exposure due to our footprint is only on a portion of our sales and we're looking to track with what those, uh, tariff numbers are again at our cost so you can expect it to be relatively nominal, certainly on on, uh, as you look at, spreading it across the entire offering,
got it. That's how
Uh, and then within the U.S. aftermarket, could you talk a bit more on how POS compared to sell-in? And I guess any signs of inventory builds to get ahead of price increases there?
Any, you know, change in stocking strategy. It's more as our customers are expanding their footprint, uh, both by adding locations and by deepening their assortment and existing locations. We are seeing that just kind of ongoing, evolution of increased inventory, so it's not a stepwise change. It's not a reaction to get ahead of things. It's just their ongoing Evolution to, to a broader assortment you're seeing similar things in temp control, temp control, uh, has a little bit more quarter to quarter volatility as you well know. So in the second quarter of last year, uh, P was up like mid teens, so it was a tough comp here where slightly up over that in the quarter. But year to date. It's still kind of tracking similar to what we're seeing in vehicle, which is uh uh low singles. Uh,
and uh,
a kind of smoothed across the periods.
Great. Very helpful. That's all from us. Thanks, guys.
Thank you.
Our next question.
Your line is open.
Hi guys, good morning. This is Jack on for Scott.
Um just regarding terrorists. Um, you talked a little bit about it in your prepared remarks, but um, can you talk about the timing of the impacts? And also, if you could give any segma breakdown on where you see the price increases so far, um or what is impacted more than others? Uh, going forward.
Yeah.
Uh, yeah. Hi, it's Nathan. I guess with regard to timing uh, maybe just to piggyback off. What Eric mentioned, we, we did see some costs come through in the second quarter. Um, that just basically, as we started to see some higher, um, cost inventory turned through that had those higher tariffs on it, uh, start to come through the p&l, uh, and we took a little bit of time to work through, you know, both mitigating actions on the cost side as well as, with our customers to get pricing through. Uh, so we did have some higher costs in the second quarter. But now going forward, uh, think that we should be mostly offset. Um, fully offset for the most part of the second half of the year, um, with regard to, uh, to segments, we really don't get into kind of profit Expectations by segments, or pricing and cost. And so, um, just to note that we continue to manage it. Uh, we had good, good numbers in the second quarter to show that
Okay, great, thank you. And then, um, just a few on missions. Um, how how did the nissen's business, perform compared to your expectations? This quarter, um, how's the whole European aftermarket holding up and uh, what what sort of synergies between products? Um, have you gone through so far?
Right. So uh, in terms of How It's meeting our, uh, lining up with our expectations, I I would say, uh, that it is exceeding our expectations in in just about every regard. Um, both in terms of its performance, as well as as how we see, uh, moving forward into the future as a combined entity with what they bring and what what we bring. So um, you know, you're hearing a certain amount from perhaps some of the public that traded players about how, uh, the European aftermarket, uh, is right now. We are outperforming it, and there's a handful of reasons for that.
1 is that you have to really look at it product type by product type. And so while, you know, the whole Market is going to have its Dynamics within what we do, you know, similar to what we always talk about here in North America, where it's non-discretionary, they have a big temperature control element so it's weather dependent. Uh, the categories will tend to outperform the overall, uh,
Portfolio of these of these, uh, Distributors. But beyond that, there's no doubt about it. That that nonsense is gaining share and it's doing that both by getting better penetration within its existing categories. But they've also had a excellent track record over the last several years starting. Well before they are part of smpp of adding new categories, getting into new categories, uh which frankly is a difficult thing to do to get to to leverage your brand.
Abandoned something different and they've been able to do that pushing into what we call vehicle control categories. It's still a relatively small portion of what they do but it's been all upside for them as they have been able to get some good placements. So that's what they've been able to do thus far now as you think through the integration.
We see from specific to that the ability to accelerate that because of all the different pieces that we bring that can help Fast Track as their launch of new category, uh product types.
So, uh, long answer, but it was a good question because it's a really critical part of our future. And, uh, it's absolutely exceeding expectations.
Great, thank you. That was very helpful.
Our next question.
Smith with the center for performance, investing, your line is open.
Thank you. Uh, thanks. Good morning. Thanks for taking my questions. Uh, just circling back to this in for a moment. Uh, is there any uh color you can give me on uh, the actual numbers in comparison with uh, with the prior year?
And the the various segments.
The strengths are and any of the 3 categories more than others.
uh,
in terms of,
Going to give it to you in more general terms and and maybe Nathan give a little more flavor. But what we're seeing is that that they are uh, tracking up mid mid, mid to high single digits. Uh, over previous years and what we are seeing is a is an evolving shift away uh or not away from but uh to in strengthening of their newer categories as uh as a percentage of their business. So you go back 5 or 6 years, they had nothing in what they call engine efficiency. And now it's I believe north of
15% maybe pushing 20. Uh so it is you know, all all of their 3 subcategories are growing but uh the engine efficiency 1 is growing faster because it's it's it's adding new product types.
Okay, uh, in the engineered Solutions category. You have a breakout of them and you have category all others. Can you give me some ideas to what? What, what's in all other?
Sure, all other is, uh, a combination of things like lawn and garden. Um, Hydraulics and stationary equipment. Uh, um, and uh, but the biggest thing in there. Uh, all other is Powersports so things like snowmobiles side by side ATVs and so on.
and how much is is that of the 76,
Of the all other.
Yeah, well uh, we don't go more, we don't go more granular than that, right?
Okay. That's been a good growth area, though.
it, it it
Has a lot of potential. It's uh, as you're seeing with some of the other subcategories, seeing some softness this year, as you would expect in, especially in something like Powersports, which is
A purely discretionary type of purchase and a high-value purchase. Um, but the long-term trends within the subcategories under all other uh,
Absolutely, it has some nice legs.
Uh, and just finally uh, with the expectation of lower lower interest rates, you're going to have an opportunity to refinance that at some point.
Hi, Robert. It's Nathan. Yeah, we'll we'll keep a breast of changes in interest rates. Um, I would point out, you know, we did the refinancing last year in connection with the nissen's acquisition. Uh, we were able to lock in some attractive rates through interest rate swaps at that point. Um, so we do have some fixed debt at at lower, um, lower good rates, um, but we'll continue to watch it and if it makes sense, we'll we'll do something.
Thanks very much.
Thank you.
As a reminder, if you would like to ask a question, please press the star and 1 on your telephone keypad.
Our next question comes from Karolina Jolly with Gabelli. Your line is open.
Good morning. Thank you for taking my question. Um, just to start as we look into 2026 and Shaunie is complete and Edwardsville, you know, Edwardsville is kind of finalized, should we expect better margins and more efficiency?
Um, at the I guess at the EBIT level.
Yeah, highly. It's Nathan. Um, so we do expect to get better efficiencies.
Uh, certainly coming out of the automation, as well as some Freight savings that we would expect. Just from being in the middle of the country, versus on the East Coast, for um, existing vehicle control distribution.
I think we're still holding with our outlook that will be, you know, $3 to $4 million sort of net, higher in cost off that baseline from 2023. Uh, and then there'll be some savings offsets from that number as we go forward.
Great, thanks. And then just, um,
Out of curiosity, if we look at the third quarter tariffs versus...
What you experienced in the second quarter and what you were looking at in the second quarter.
Are you seeing given kind of what's come out at this point? Have your tariff are? Will your tariff costs actually come down? A little
Uh, based on what's, uh, been announced and implemented so far. Uh, no. I mean there was like some temporary spikes in announcements, for example, when China for a couple weeks went very high and then came back down to the 30% uh uh reciprocals that they're currently at that. That spike is is, is, is long since absorbed. So now it's more about uh, any changes that will occur going forward as you're seeing uh and 1 of the things we've been saying just to to reiterate and make sure it's clear is what we have passed through to this point or tasks that have taken effect thus far. So a lot of the announcements from last week that have yet to take effect in some of the things that have that are still being negotiated, those are into the future. Uh, we'll continue to execute that Playbook most of them.
Show things going up slightly. Uh, but we're just going to, we're going to operate as we've been stating and and Rise and Fall with what happens.
Great. Thanks so much for your time.
Thank you, Caroline.
Appears we have no further questions at this time. I'll turn the program back to the speakers for any additional or closing remarks.
We want to thank everyone for participating in our conference call. Today, we understand there was a lot of information presented, and we will 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.
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