Good day, everyone, and welcome to today’s Standard Motor Products First Quarter Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later on you will have the opportunity to ask question, during the question-and-answer session [Operator Instructions] Please note, this call may be recorded, and I’ll be standing by should you need any assistance. It is now my pleasure to turn today’s program over to Mr. Larry Sills, Executive Chairman of Standard Motor Products. Please go ahead, sir.

Good morning, everyone. We welcome you to our First Quarter Conference Call, and we thank you for taking the time to attend. Here from the company is Eric Sills, President and CEO; Jim Burke, Executive Vice President and Chief Financial Officer; and myself, Larry Sills, Executive Chairman. Our agenda for the morning will be: first, Jim will review the numbers of the quarter; second, Eric will review the progress of some of our latest initiatives; and then we’ll open for questions. So let’s start with Jim.

Okay. Thank you, Larry. As a preliminary note, I would like to point out that some of the material we 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 that they will prove correct. 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. Looking at the P&L. Consolidated net sales in Q1 2017 were $282.4 million, up $43.5 million or 18.2%. This significant increase is primarily related to two factors: first, $23.4 million wire sales from our general cable acquisition, completed at the end of May 2016. Excluding the GC volume, our consolidated net sales increased 8.4%. The second significant increase was from stronger preseason Temp Control orders, following the warm 2016 season. By segment, Engine Management net sales in Q1 2017 were $211.3 million, up $30.6 million or 17%. Excluding the GC wire acquisition incremental sales, Engine Management sales were up $7.2 million or 4%. This increase reflects higher pipeline orders from certain customers as they are increasing their inventory coverage. Temp Control net sales in Q1 2017 were $70.3 million, up $13.5 million or 23.8%. This significant percentage increase reflects the higher preseason orders in anticipation of another warm season as experienced in 2016. Consolidated gross margin dollars in Q1 were up $11.1 million at 29.8%, down 0.8 points. Looking at the margins by segment, Engine Management gross margin was 30.3%,…

Thanks, Jim, and good morning, everybody. Jim has covered the numbers, and as you’ve heard, we’re quite pleased. Sales were obviously quite strong. However, it is important to note that in both of our divisions, a portion of the sales was geared towards customer pipelines rather than strong demand through the channel. As you’ve seen from first quarter earnings calls from our large publicly traded customers, Q1 was a bit of a challenge overall, and we did see that to varying degrees with how they did with our product lines as well. I’ll talk about the two divisions separately. In Engine Management, our customers’ POS was slightly down. Meanwhile, their purchases from us were up fairly substantially. If you exclude the acquired General Cable business, our Engine Management sales out were about 4% up. Few of our customers determined the need to expand their assortment and deployed broader inventories throughout their system. They, therefore, placed heavier-than-normal line update orders as they reset their planograms. As you know, a key to growth in the DIFM business is to have broad coverage and rapid delivery. So working with our category management team, they identified coverage gaps and sought to fill those gaps. In Temp Control, our customers did post slight increases in POS, but the dollars are small as Q1 is always a light quarter. As a weather-related business, our first quarter is almost entirely about preseason orders as our customers get ready for the summer. We see this every year, but this year, the preseason orders have come in heavier, which reflects the impact of last year’s hot summer, where they ended the season a bit lighter on inventory than usual. So we, therefore, believe that the customer actions within both divisions do bode well for the future as we believe…

[Operator Instructions] And we’ll take our first question from Scott Stember with CL King. Please go ahead.

Good morning, guys and very nice quarter.

Thanks, Scott.

Thanks, Scott.

Can you maybe just talk about sell-in? Eric, you talked about how your customers are talking about how things were a little sluggish in the quarter. Maybe just talk a little bit more about what they’re saying, what they’re hearing, whether it’s weather related or just timing or tough comparisons with a year ago. And maybe just talk about – maybe just reaffirm your expectations for the segment if you could.

The quarter – different customers had slightly different experiences in the quarter with the two different product lines. And – but I don’t think it’s anything that has any longer-term impacts. Overall, we see our Engine Management business is going to increase barring any major gains or losses of business. It’s going to roll with the trends of the overall market, up a couple of percentage points year-over-year. Temp Control is entirely based on the summer. And so here we are in early May. We’ll see what the next few months bring. But we don’t get too hung up in what happened in a particular quarter. And we’ll just see what happens as the year progresses.

Got it. And on the margin side, a couple of items. You talked about General Cable mixing in and some of the redundancies with the facility moves. Can you maybe just – it sounds as if the lion’s share of the contraction came from the latter. Can you maybe just confirm that, maybe just talk about that a little bit?

Yes, Scott. This is Jim Burke. So again, part of the – on the General Cable, the volume there – when we took it over, the margins were lower and fully anticipated to bring them up once we consolidated the businesses. They have a higher mix of OE/OES business that’s in there, which margins will be different than our aftermarket, but then we have lower SG&A. We are incurring incremental costs as you start up in a new area and wind down in the other. And really, there’s a lot of moving parts. The key is we expect these margins to improve to the Engine Management levels, and you’ll see further improvements once we complete all the moves by the end of Q1 2018.

Got it. And maybe on the SG&A line. You definitely had some nice advances in leverage. Some of the things you talked about with General Cable and some of the consolidations there. But maybe just give us a framework of where you see in absolute dollar terms the line item going, I guess, for the balance of the year on a quarterly basis?

Yes. We came in at $57 million for the quarter. And Q2 and Q3, because of our sales volumes will pick up, that’s in there. So again, that’s probably the low end of the number that we would be in. And again, I’ve talked consistently that we’re more in absolute dollars than as a percent when you’re looking at our spend. So from the $57 million, we would size up, obviously, in Q2 and Q3. And then Q4, it really depends how much volume, but we’re probably in that same range again there. So I would say the low point per quarter is $57 million. We size up a little bit in Q2 and 3.

Got it. And one just last question maybe on new products. I know that you guys have a lot of things in the pipeline and you’ve talked about numerous times. Maybe just talk about whether it’s diesel injectors or some of the new technologies in cars today that are leading to increased uses of your parts. Maybe just give us an idea of how that’s going. And thanks for taking my questions.

Sure, absolutely, Scott. Well, yes, we do always have several new product lines that we are adding and growing with. It’s important to note that a lot of times, any sales growth that we see on newer categories is really replacing older technology as it’s falling off the backside of its life cycle. But we do have several going on right now. One that we’ve been talking about a bunch recently is diesel where, if you go back a couple of years, 2015, we really used that to get our house in order; 2016, we started to see the fruits of that; and here, first quarter of 2017, we’re continuing to see sales in our overall diesel offering up in north of 20% growth year-over-year. So diesel is a really exciting category for us, and we see a lot of upside there, continuing to see growth in our TechSmart offering. One new thing that maybe I’ll highlight just briefly is, we developed several years ago a compressed natural gas injector for heavy-duty markets, and really, it was – we had the product, and we’re waiting for the market to develop. Here in early 2017, we are starting to see a nice uptick as the China market starts to adopt the technology a little bit better. Yes, it’s a small piece of what we do, but just another example of where we’re always looking for complementary product categories.

Great, that’s all I have. Thanks again.

Thank you, Scott.

[Operator Instructions] We’ll take our next question from Bret Jordan with Jefferies. Please go ahead.

Hey, good morning, guys.

Good morning.

Hi. On the POS topic, I guess, if you look at maybe cadence or trajectory of the sell-through as the quarter progressed and maybe anything that you’ve sort of seen anecdotally in April, just that from an industry demand standpoint, obviously, that’s been talked a lot about the weak first quarter for your customers.

Within – I don’t have the month-over-month numbers. But within the quarter, like I said, Engine Management was slightly soft, Temperature Control was okay. It’s really a little too early to tell what’s happening in this quarter, especially Engine Management, not particularly a weather-related product line. And Temperature Control, as we’ve said numerous times, we really have to wait and see what happens going forward.

Okay. And then I guess from a Temperature Control channel inventory standpoint, obviously, a lot of early seasonal orders. If you looked at the inventory with your customers year-over-year, did they start out particularly light? Or are they holding more inventory now versus where they were a year ago?

I believe that they started out this year a bit lighter than they started out last year, which is reflecting the fact that not only was last summer hot, but it stayed hot long. So what typically happens is, towards the end of a season, they will stop reordering from us and sell [them] from their own shelves. And that is what we saw happen in 2016. So I believe that what we saw this year is, they started out lighter than they started 2016, and now they are probably equally positioned for the season as they were last year.

Okay. And then one last question on margins. You talked about the Engine Management, the wire margin improving significantly. Is there sort of gradual improvement or more of like a step function where we get to 2018, you shut the plant and then we really pick up the margin. Should we expect that margin to uptick gradually over the next 12 months? Or is it mostly – is it sort of going to be an abrupt uptick?

Yes. Again, Jim Burke. It’ll be more gradual that’s in there. We’ll see some improvements coming over the second half of the year that we would see there and then the balance. It won’t be a full step item that’s in there, Bret.

Okay. Great, thank you.

You’re welcome.

And we have no further questions at this time.

Okay. Well, thank you all. Thank you all for attending. Just to summarize what you’ve been hearing, we’re pleased with the first quarter, the year was off to a good start, but then again, it is only the first quarter. However, as you’ve heard, we have many initiatives in place, and we have an excellent group of people to carry them out. As a result, we look forward to the balance of the year. So thank you all for attending.

All right. Goodbye.

Thank you.

This does conclude today’s call. You may disconnect at any time, and have a wonderful day.