Cooper-Standard Holdings Inc. (CPS) Q3 2013 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Cooper Standard's Third Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded this morning, and the webcast will be available for replay later today. I would now like to turn the call over to Glenn Dong, Treasurer of Cooper Standard. Please go ahead.

Thank you, and good morning, everyone. Please note that certain information in this call may be forward-looking and contain statements based on current plans, expectations, events and market trends that may affect the company's future operating results and financial position. Such statements involve risks and uncertainties that cannot be predicted or quantified and that may cause future activities and results of operations to differ materially from those discussed. For additional information, we ask that you refer to the company's filings with the Securities and Exchange Commission. This call is intended to be compliant with Reg FD and is open to institutional investors, security analysts, media representatives and other interested parties. A reconciliation of certain non-GAAP financial measures used during this call can be found in the appendix of this presentation. At this time, I'd like to turn the call over to Jeff Edwards, Cooper Standard's Chairman and Chief Executive Officer.

Okay. Thanks, Glenn, and good morning, everyone. As you know, our third quarter earning results were released last week when we were in New York at our Investor Day meeting. So for today's call, I'll keep my remarks brief. Turning to Slide 4, some highlights here around the industry. The global market continues steady growth of 4.7% quarter-over-quarter. In North America, the vehicle production remains strong and on target to reach 16.2 million units for the year. European headwinds obviously remain, which we've anticipated. However, our performance in the European market was stable and our sales outpaced the market. We continue to capitalize on opportunities in emerging markets, winning new business and expanding for future growth. On Slide 5, I'll go through a few of the business highlights from the third quarter. Most notably, in October, we announced that our common stock has been listed on the New York Stock Exchange under the new ticker symbol, CPS. This represents a major milestone for us, underscores the company's strength, progress and integrity. We also were in Bawal, India, where we inaugurated a new plant. We also broke ground on a new facility in Sanand, India, stressing our commitment to strengthening and expanding our customer relationships in the emerging markets. We're also on schedule to open our new Serbia facility in the first half of 2014. And the final note, we recently received our first fluid transfer systems order in China as part of a global platform from a major OEM. Moving on to Slide 6. Our consolidated sales for this quarter increased 11.7% quarter-over-quarter while at the same time the global production increased at a rate of 4.7%. The 11.7% increase represented growth in all of our regions. Despite some operating turbulence in North America, our financial metrics remained strong, reflecting the progress we're making with our strategic plan. So with that, I'd like to turn it over to Allen, who will cover the financials for the quarter. Allen?

Thank you, Jeff. On Slide 10, we show our sales for the third quarter and year-to-date compared to the same period prior year by region. For the quarter, Cooper Standard generated sales of $764.1 million up 11.7% when compared to same quarter in the previous year, driven by strong production volumes in North America, market share gains in Europe and notable sales increases in all other regions. Our Jyco acquisition in the quarter contributed $11.9 million of incremental sales. In addition, sales in the quarter were favorably impacted by $3.8 million in foreign exchange movement. Year-to-date, sales increased by $112.5 million to $2.3 billion compared to $2.2 billion in the previous year. Sales in North America were $408.6 million for the quarter, an increase of $44.8 million or 12.3% from the previous year. Our European operations generated sales of $258 million in the quarter, a $30.5 million or 13.4% increase when compared to the same quarter in the previous year. This sales increase comes in a period when vehicle production in Europe was relatively flat from prior year quarter. Sales from our Asia Pacific operations were $54.3 million and $43.1 million in Brazil for the quarter. Our nonconsolidated joint ventures continued to perform nicely, generating sales in the quarter of $109 million, up 8% from the prior year. On a year-to-date basis, their sales were $334.5 million, up 11% from the previous year. Turning to Slide 9. Gross profit in the quarter was $115 million or 15.1% of sales and $367.6 million or 16% of sales on a year-to-date basis. Gross profit was favorably impacted by increased production volumes in all regions, lien [ph] savings and lower depreciation, partially offset by customer price concessions and higher operating expenses. SG&A for the quarter was $73 million or 9.6% of sales, which is the same level as the previous year quarter. Similarly, on a year-to-date basis, SG&A was 9.6% of sales as compared to the prior period of 9.5%. We continue to strengthen engineering resources to support our customers and expand our development efforts while investing in business systems. Cooper Standard's operating profit in the quarter was $36.4 million or 4.8% of sales compared to the same quarter in the previous year of $23.6 million or 3.5% of sales. Similarly, year-to-date operating profit of $127.5 million improved to 5.6% of sales from the prior year period. Net income for the quarter was $20.3 million. Year-to-date, we have generated $66.3 million net income. Fully diluted earnings per share for the quarter was $3.26. When analyzing these numbers, please bear in mind that our 2012 year-to-date number included a onetime $48.3 million benefit related to the reversal of valuation allowances on the company's deferred income tax assets in the U.S. in the second quarter. In addition, we saw comparative lower restructuring and depreciation against higher interest expense in the quarter. We delivered adjusted EBITDA of $69.5 million or 9.1% of sales and $228.7 million on a year-to-date basis as we experienced some margin pressures due to additional infrastructure investments and rebuilding capabilities and plants, in particular to address the increase in North America volumes. On the next slide, Slide 10. We show the reconciliation of the $228.7 million adjusted EBITDA for the 9 months of the year, starting from net income of $68.7 million. The adjusted EBITDA reflects add-backs for restructuring and the 2010 stock-based compensation, as well as inventory adjustments and costs related to our recent Jyco acquisition. On a last 12 months basis, our adjusted EBITDA was approximately $299.6 million or 10% of sales. On Slide 11, we have updated our full year guidance for 2013 with the annual revenue expected to be between $3,050,000,000 to $3,075,000,000. This full year guidance assumes North America vehicle production of 16.2 million units and European production of 19 million. It also assumes an average exchange rate of $1.32 per euro. We expect capital expenditures for the year to range from $180 million to $190 million. For cash restructuring expenses, we lowered expectations to be between $20 million and $25 million. We anticipate our cash taxes to be in the range of $5 million to $10 million. With that, that concludes our presentation. I'd like to return the call to the operator to open it up for questions.

[Operator Instructions] We'll now turn the call back to our presenters for closing remarks. Thank you.

We'd like to thank you for your attendance to this call and we appreciate your support. And that concludes our session. Thank you.

This concludes our conference call. You may now disconnect. Thank you.