Superior Industries(SUP) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Net sales decreased to $319 million in Q2 2024, down from$373 million in the prior year period, primarily due to the normalization of aluminum costs and the deconsolidation of SPG [15] - Value-added sales decreased to $280 million in Q2 2024, compared to$200 million in the prior year period, with $19 million of the decline attributed to SPG deconsolidation and foreign exchange impacts [15] - Adjusted EBITDA was$40 million in Q2 2024, with a margin of 22% of value-added sales, down from $52 million and a 26$2 million in Q2 2024, up from a negative $17 million in the prior year period, driven by lower cash used in operating activities [19] Business Line Performance - The company successfully exited its German manufacturing operations (SPG) and is ramping up production in Poland, which is expected to result in annual savings of$23 million to $25 million and reduce capital expenditures by approximately$10 million annually [14] - The company secured a record $1.7 billion wheel program with Volvo, valued at$100 million, which includes premium aerodynamic and lightweighting technologies and is expected to launch in Q4 2025 [8] - The company received an A rating in R&D from Audi, reflecting its strong portfolio and industry-leading R&D capabilities [8] Market Performance - Industry production declined by 3% in Q2 2024, with key customer production declining by 5%, while the company's value-added sales adjusted for foreign exchange and deconsolidation increased by 1% [6][11] - North American OEM production increased, but this was offset by softer production among European OEMs, though the company's operations in both regions grew ahead of their respective markets [11] Strategic Direction and Industry Competition - The company has refocused its portfolio on winning products and transformed its manufacturing footprint to a best-in-class, competitively advantaged local footprint, positioning it for sustainable growth and profitability [4] - The company has successfully pivoted pricing dialogues with OEMs from one-time price recoveries to permanent price increases, reflecting 90% of inflation in its pricing agreements [22] - The company is in advanced discussions with lenders to retire its senior unsecured notes, which will strengthen its balance sheet and position it for long-term growth [6] Management Commentary on Operating Environment and Future Outlook - The industry continues to face a complex landscape shaped by volume volatility, key customer shutdowns, higher dealer inventories, unfavorable production mix, and increased inflation in Europe [10] - The company expects long-term industry recovery supported by pent-up demand tailwinds, with the U.S. fleet age remaining at an all-time high [11] - The company updated its full-year 2024 outlook, reducing net sales and value-added sales expectations due to lower aluminum pricing and declines in industry production volumes, while maintaining margins and focusing on cash flow [7][20] Other Important Information - The company successfully executed a cost-effective facility closure in Germany and transferred production to Poland, resulting in a significant increase in unlevered free cash flow due to reduced capital employed and higher earnings [14] - The company expects to complete the transfer of wheels from Germany to Poland by Q4 2024, with the full benefit of the $23 million to$25 million annual savings expected in 2025 [27] Q&A Session Summary Question: Pricing negotiations with OEMs - The company has successfully negotiated permanent price increases with OEMs to recover inflation, with 90% of inflation now reflected in pricing agreements [22] Question: Volvo program and future opportunities - The $1.7 billion Volvo program is a sign of the company's strong competitive position and is expected to lead to further opportunities with luxury manufacturers in Europe [23][24] Question: Unit shipment data by region - The company did not provide unit shipment data by region during the call but indicated it would be available in the queue [26] Question: Margin improvement in Europe - The company expects margins in Europe to approach those of North America by the end of 2024, with the full benefit of the$23 million to $25 million annual savings expected in 2025 [27] Question: Debt refinancing - The company is in advanced discussions to retire its senior unsecured notes but has not yet disclosed details of the new capital structure [32][34] Question: Inflation indexing in pricing - Most of the negotiated price increases are permanent and not indexed, with a small element in Europe indexed to energy costs due to volatility [30] Question: Volvo program details - The Volvo program is for a midsize SUV EV and is expected to run for three to five years [31] Question: Debt refinancing timing - The company expects to provide more details on the refinancing in the coming weeks but has not specified a timeline [35]