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SUP Superior Industries International

Participants
Troy Ford VP, Treasury & Corporate Development
Majdi Abulaban President & CEO
Matti Masanovich EVP & CFO
Gary Prestopino Barrington Research
Glenn Chin The Buckingham Research
Call transcript
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Operator

Good day, and welcome to the Superior Industries' Third Quarter 2019 Earnings Teleconference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Troy Ford. Please go ahead, sir.

Troy Ford

you. Thank and third everyone call. XXXX to welcome morning, quarter our earnings Good

available Relations our be morning, and with and CFO. which, are will today, I'm and the Vice President Matti the to release During Abulaban, we CEO; presentation, joined referring by discussion our website. of section Superior's our Majdi earnings earnings Masanovich, on This Executive Investor President along our

Company's Majdi, in I any Before presentation would Reform to Private X more factors. I Safe Please and SEC forward-looking to over turn today discussion that contained to Slide the for the Form Securities presentation remind the provisions on Company's forward-looking of risk commented to statements to Harbor report Safe for this call XX-K or everyone of annual Litigation XXXX. subject complete statements of on a statement of full the and the like are Act refer including this Harbor filings, the

non-GAAP including of calculated measures in presentation. impact most US discussing and US the not of are be the are comparable will Reconciliations in measures of therefore found GAAP. measures GAAP certain exclude directly and also value-added adjusted accordance appendix These measures today, to We items non-GAAP EBITDA. the these sales with this

over I call that, With will turn to Majdi. the

Majdi Abulaban

quarter Thanks, and morning, us thank third everyone review Troy, our results. good today and you for to joining

I will the have to I the you finally by you to we’re discussed you for provide taking third through then improvement. begin take through and me quarter. update highlights will previously Let I drive progress taking on the an priorities strategic relative actions our the

earnings on begin Slide presentation. I X of the will

the European quarter, X% X.X year-over-year including an increase our in third supported aftermarket. in at by versus globally million business, the units year. shipped was increase The the of recovery we prior During

was In WLTP. addition, of third by quarter the impacted XXXX

strong was in the Partially the performance we’ve America. weakness offsetting North seen Europe in ongoing

which sales. effects by negatively General some or net shipments the impacted our strike units from America Motors, in QX at North in XX,XXX also We felt million $X

see reflected in our in We fourth continue impact quarter, to the will an revised outlook. which is

reflects volume Despite positioning provider. globally, the continued solutions as our momentum our premium a the wheel mix of results performance

sales sales million, and million net respectively. and quarter, $XXX value added the increased to During $XXX

the and markets year-over-year, our added actually While markets. essentially significantly were combined grew America ahead North European XX% flat value sales of

capitalizing This on and to on the more shift growth larger, our underscores complex finishes. secular progress premium wheels

Additionally, GM the team increase in we is are strike. by the the reflected XX% delivered quarter. our impact global from the despite EBITDA encouraged adjusted the This results during in

executed the In the these reduce months. year initiatives line principal the net reduced million, strong results, cash XX over debt very a by by the $XXX we prior past have result with quarter during million versus net enabled debt we us $XX to

initiatives focused organization laser remain We cash incremental on enable throughout driving further to to net debt the production. our

value-added for result flow this are we for GM efforts, due a for EBITDA, our on shortly. sales, are full-year elaborate sales At the the increasing these our narrowing Matti capital outlook of strike, time, same and more unit shipments, from maintaining As operations. to will of adjusted expenditures. while we outlook the our net outlook impact XXXX cash

North broadly, would about X. in like and touch Moving our again profitability. the activities to priorities operational executing I'll I near-term America Slide we're on on to more the specifically improve speak then to

improving on of well both opportunities As creation generation EBITDA. cash are value as priorities adjusted these as apply regions. focused we I mentioned earlier, to Many and

to taking regards system, for includes remains key excellence drive current from are we to putting operating production a from and industry rightsizing and commercial our operations to focus in in operational accountability are all creation. to functional First, and us. place approach our holistic value operational driving in In improvement order tracking aligning production purchasing a This to areas, and costs to levels. the our engineering,

our This an of sector deep of we experience Mr. automotive leadership organization, record collaboration, and our team. delivering operational roles regional business results. team. which very a in our operational He President Andreas track recent will has in announcement leadership role Meyer, strengthen integral European our in strengthening our within global focused is play important cross remain championing of will leading on European our the Andreas Second, and operations. includes as the

a and Human Resources will In developing He Mr. track functions appointed was role leading in Burke a talents. regional addition, has leveraging cross strong in record Officer. Kevin Chief globally. play as Kevin HR key

are Andreas on and about We Kevin having team. the excited both,

to America respect been attention. our our the strengthened I also in overseeing our most Mexico. leadership we’ve the time, At requiring business North initiatives. operational have of With region, same segment our team the personally

Third, level to base and to our customers, to execute with balanced continue portfolio wheels to pursue utilization. respect a we across premium strategy maximize

this on commercial customers chain. that a on from We European organization are later. I bit the America. we also progress to North are profit standpoint, value value making a touch deliver OEMs with throughout focused creating will a Also, minded in we where

putting with metric side systems and the are for of in place visibility business accountability We operating in commercial profit our enhancement.

Fourth, and product enhancing focused portfolio underperforming on we lines. remain improving our

to product consolidating For line on improving example, we’re service providers. and production profitability lower-cost by polishing our shifting

through to focus generation. on we’re Fifth, position enhance cash our continuing financial flow

we our on strategic see see in we efficiency all working and value to continue priority made where capital highest across improvement our Further, we clear paybacks. metrics. tremendous where our have focus initiatives We resources capital

ability will or invest relates $XX This it announced the enhance know, business third million. to allocation, we our you suspension as dividend the by common approximately debt in as Finally, reduce the quarter. of the to capital reduction in

incremental is for translate here shareholders. this common view equity our that value Our into will

will about North segment. than segment Slide provide is about America. to value-added European of us, XXX reference, our to or to we on I America actions so margin X. in a to in higher you just pursuing the of basis aggressively Moving benchmark talked point speak opportunity North more on now our points drive ahead extensively a our the sales We’ve improvement directly are on

We on focused are this narrowing gap.

few I'll through go won't these We highlights. a all actions, you give but

foremost, term and setting are From the announced priorities most the in are critical of is we standpoint, here. immediate the execution we rallying and executing in the volume an areas portfolio. outlook, and on operational reduction the the customers our team very team given operations well Fayetteville with and operations First manufacturing

has one action, this Further, emphasis more market and we have here. a in respond also on With we execution is critical we chop our capabilities competitive in improving this process dynamics. the and controls. agile including casting that quite and wheel area are to solid North weakness placing but more inside It to foundry been frankly, now in footprint is plants, area have starts a correct we America, stability must the of foundation North able entire The this of and that manufacturing it. And significant actually of America process facility.

this attrition. Enabling reduction a improvement also is in

made X.X time that us. areas We we North North this America. we for significant in European we have our plants. in working progress are an America to is quarter. million targeted plans our are OEMs in to vehicles currently In facility customers, the The most to Mexico validated get opportunity mentioned implementing of improve OEMs and regard, European manufacture the the serve in Relative critical call, retention to last

Mexico. European -- been after. in before and referring successfully productivity team and focused not on also in launches expertise launch milestone complex actually leveraging and that here key We our have expertise leadership of been executed and to we’ve productivity the team strengthening our been We've several the readiness I’m leveraging

company we portfolio, to product. report from that relative of that to our the progress customers the have launch a develop. finally, And PVD, validation resources the one in major made we have to -- We pleased invested now has significant of finishing now I’m this technology significant release to

launch So the and it, released to there's positive wheel technology is be significant is our and finishes. very for to a done the step process expanding but forward released. broadening this still work premium is in Needless portfolio say, to

we're Let making by saying me progress. finish

we on substantial executing work but are our We have ahead. initiatives,

crystal are priorities Our clear.

are is value. right back Ultimately, we aligned areas drive to establishing Our we team shareholder that and our basics structure many business. operating the of are in going will

details Matti? the that, on Matti, our quarter. will financial who With provide here's results for

Matti Masanovich

Thanks, Majdi.

organization. would Majdi $XXX.X momentum seen our have flow the into to we've seen expectations. in improvement organization cash favorable a the by get I by dramatic on mentioned, versus since positive by the year, like a debt, as net we third of the is I Before emphasize internal entire the on last in focus cash million detail, quarter which supported

improvements. now is enhancing sustaining on concentration these and Our

these trends. and Also during XXXX overall quarter in our portfolio, the to diameter highlighting be quarter, third our more from the wheel to roughly increased XX% of tailwinds one-third market mix of the up front of in ability than secular our the large

quarter Let more nine review performance the me for and now first provide our months XXXX. a of of the detailed financial third

our Turning the to mentioned earlier, and market key due lower Slide take including production North rates share, X, the overall than shipments our more at America to customers. items declined reduced Majdi

our percentage the Europe .X%. North X.X% America region. larger, and wheels Note Europe results shipped down units for resulted per Superior's due our year-over-year units versus in market, X.X% of was were of Year-over-year region. value-added sales to and were to increase per sales were favorable customers in North for assembly. year-over-year content shipped X% produced adjusted Value-added the the which this Superior in down higher -- wheel America overall mix wheel in in down change that is

shift driven Superior's America region, despite In in more in were up European growth the are year-over-year, Value-added mentioned, figures our market I North Europe, being key segment unit for our aftermarket at as X.X% from the of and per customers, Again wheels. assembly. our larger which business. up Superior is sales higher by wheel volumes to unit we shipments X% year-over-year saw growth complex production in the resulted X.X% higher for including towards flat, adjusted

as reflects of by for sales to Slide quarter third and compared value-added period. the X X, Slide unit year region XXXX net the sales shipments, of the prior Turning to breakdown

million increased Majdi volumes shipments unit by units aftermarket units was As X.X Europe, in the North to lower including by business, partially million offset in prior increase our previously, shipments higher in compared year in The shipments X.X mentioned our driven to America. period.

unit to approximately XX,XXX strike. impacted the due Our units North UAW America were shipments negatively by

loss of a prior-year we $XXX,XXX of per reported or $X.X loss Including to share loss diluted $X.XX million, share a per in a compared share. $X.XX quarter, net the nonrecurring of of loss a of net loss period. diluted $X.XX a equating per to diluted the For

and quarter totaling is accelerated This comprised depreciation which $XX to restructuring of inventory other appendix a $XX total on totaled included Please expenses, the of net table Please per Fayetteville, note in income The to the million $X.X diluted net see of with million the million. which for on the costs. third of for consumable the reconciliation includes income adjustments to assets net location, of $XX workforce the and net severance the and to million supplies and our write-downs Fayetteville million for earnings relate that income. share adjustments $X.X $XX million. other

loss per nine a net which income compares of diluted Year-to-date, the net $XX.X for a $X.XX million to year-to-date $X.X totaling adjustments was Please and income of of in diluted XXXX share acquisition, period. or to prior first or income. net share. million $X.XX net that adjustments the include months restructuring other per loss the This note cost $XX.X of $X.XX million of per includes share,

million reform income income tax taxation a forecasted million valuation of to allowance under the period. primarily The the benefit pretax of income partially of foreign and intangible or offset $XX.X tax quarter low on effects million a a benefit the of prior-year on third provisions for earnings due GILTI the earnings benefit benefit tax of $X.X an jurisdictions. on compared was million to The due the loss interest pretax mix tax of loss is nondeductible amount $X.X in tax $X.X with amongst of global on U.S by tax

XXXX by tax was operations as for GILTI, $XX.X year-to-date tax The as the compared the income impacts which includes first now quarter. well months provision on the provision compared $X.X nine on third $XX.X income as was driven mentioned of of XXXX. The a primarily months company's to in in full an phase XXXX nine of previous pretax to taxation the of income for pretax of million GILTI the tax in of million million first provision income foreign the under $X.X million

rate tax to year-to-date mentioned the quarter remains Due effective impacts and our these for high. period,

We full-year expect tax XXXX. effective rate of high a for the

for of full-year In operations. we outlook terms is to cash expect cash of the $XX our into for full-year, taxes, continue already approximately incorporated cash from million flow which taxes

finishes you walk sales period, million for XXXX. the as in year-over-year Value-added improvements by to mix, product and quarter $XX million mix increased me by driven impact comprised weaker to euro, premium larger volumes, and compared prior which our On third in positive sales offset Slide X, through improved of a higher let segments, sales both $XXX.X diameter had in $XXX.X value-added change in net wheels well million. which were of of sales as by These the impacted million. $X year value-added partially

of the X, EBITDA slide exchange adjusted $XX.X foreign compared and by was The million by the negligible in peso U.S the volume. mix driven impacts dollar of On our rate third weaker program. for higher was euro in primarily including impact as The FX hedge adjusted the $XX.X improved million XXXX period. to EBITDA the prior offset quarter was increase was foreign-exchange

energy offset and Europe, in higher savings, in energy North XXXX, seen In initiatives. procurement quarter approximately performance XX%. the other electrical in with global third the lower prices favorable spike since in prices Poland slightly was rates by by in performance of North America, decline America being energy specifically prices Cost we've

in fully this time, result XXXX first in the As made be on we of in discussed expect in previously, these purchase At to in the Mexico capital markets. reduced the electricity we of secondary systems costs enable our quarter electric will and investments locations North America. had operational early to

natural seen increase In by specifically an Europe, Poland. in and we electric XX%, rates approximately have in gas

third a year-to-date other this periods. quarter in but efficiency have focused We offsetting and been through was the headwind on it increase initiatives,

SG&A expenses net million of the were of for or quarter third reference, $XX.X sales X.X% period. in compared XXXX to For the $XX million prior-year

to more energy procurement and higher by operating including a initiatives, Europe. on year-over-year quarter, X.X% prices of offsetting adjusted wheels XX.X% the For larger EBITDA complex percentage as of sales, value-added leverage volume, driven improved by increased improved savings performance in mix

premium added I in XXXX. a period had in months of sales reduction mix million this nine wheels impact offset had compared Slide take were million $XXX.X of impact volume million. was XXXX. of the net you $XX sales to which XX, partially period will value-added in sales through Value diameter million. Lower favorable Moving first the primarily same and driven finishes larger comprised euro, negative of walk $XX for by in by $XXX.X to The regions for a a weaker improved of both

nine million in a adjusted lower Slide in million XX, Turning to $XXX.X volume was and XXXX The decrease of regions. adjusted compared EBITDA period. prices the energy $XXX to first EBITDA for prior a the months both by in was higher driven

in While are of mentioned, headwind. basis, also as a the the last energy were is America it in than lower compared been Poland prices to year-to-date previously North Also a year, last on year. third still higher quarter rates

sales consisting partially savings. including value-added the higher and these All energy constitute product negative negative and driven the partially improved These in content by offset volume most energy an year-over-year. favorable first procurement XXXX, cost year-over-year adjusted of performance material mix items energy -- by these were prices performance half of procurement and with Year-to-date, of X.X% a percentage by offset costs, wheels as of savings. decreased mix XX.X%, higher EBITDA to higher

and SG&A expenses integration for net compared SG&A an or reduction expenses decrease in the due reporting The of $XX.X to were of was nine in alignment first XXXX our $XX.X regions. X.X% period. months million of prior-year the acquisition to primarily of in million and for sales both

result to I XX. will to operations in the largely was million capital cash other was accounts the prior on operating Net period. $XX.X the last million quarter third $XX.X cash and address by year's our structure of the very This cash is from that flow year program. activities -- compared usage from of prior compared driven receivable the flow as strong factoring compared Slide to

for in cash Net XXXX million million the quarter used investing of the $XX.X period. in activities $XX.X compared third to prior-year was

annually, approximately and common to inclusive During to preferred business quarterly participation in $XX the debt. the reallocate shareholder reduce to the shareholders common net million of and invest its quarter, Superior dividend, company allowing the the of dividends suspended

the This will Superior quarter million Europe of for the of Dividends last paid a $X.X from the -- minority for Industries million. the be dividend. in common holders Purchases quarter. $X.X totaled quarter during payment totaled

As ownership or $X.X of minority the approximately had end of we million X% the quarter, outstanding. of the third

€X value which at payments in arrive deducted a adjusted Also is during €X.X debt face the the total net has of unsecured during in in million and quarter, been our the debt reduction million, unsecured EBITDA. Superior other of income its on The notes for $X market other in million principal gain repurchased and quarter. senior X% of senior repurchase of notes pretax million, resulting included open resulted to our $XX.X of a

available more $XXX facilities our near-term cash debt. and Currently of under maturities no of million, we liquidity which our than credit availability have funded revolving and includes

We also receivable have an factoring incremental accounts availability under our program.

third As the was of our nearly a period. turn down quarter, X.Xx, of net the the end leverage from half prior-year approximately

our XX. Finally, to on outlook Slide on move

current production impact General Motors Motors, range narrowing view This XXXX, the flow Looking the the for $XXX the from our the due value-added working UAW are up net and of of for units, capital so $XXX ahead expected strike sales, increasing remainder operations, the sales our of for are to ramp Reflecting outlook year of this we remainder initiatives and we million now adjusted million rate the for General for EBITDA. the be to reflects at to sustained progress of our year. the is to which outlook at year. cash

maintaining capital for expenditures. range Finally, the we are

the and questions. back turn open-up for the operator now will to I call

Operator

you. first Instructions] Our Gary with [Operator Research. Prestopino from Barrington Thank comes question

Gary Prestopino

everyone. morning, Good

Majdi Abulaban

morning. Good

Matti Masanovich

Gary. morning, Good

Gary Prestopino

things of here. couple a just Hey,

would the the higher target units had had, the be up that said by your that in XX% end of said you By year. quarter. notes your I of You got XX-inch to that wheels or

be So, already rate it up I time? mean, mean, realistic I get what to that of earlier. go mean quarter I as hit higher would your a we can run one over or you’ve target forward? XX%

Matti Masanovich

I think content it and will wheel. Yes, about the think mix, continue proliferate. premium and more Gary favorable It's all do future larger, so we to is

said our put the year do the XX continue our And premium at wheels guidance it's get to to give with of well. QX. alive -- QX to -- we is we've XX-inch phenomenon We penetrate the going certainly next -- haven't did in the But call. in our in finishes when after will the think that put guidance we target and and we and year earlier early we

are about shift we happy are QX where into So year-end. the don't that. from a major I see QX we and

same So the penetration of year. it exit thinking that kind we as we be about kind are will of the

Gary Prestopino

then, the working you’re I And hard was down, something trying you I to writing real about this Mexico Okay. you're to wanted Majdi, that fact think you be. obviously mentioned to get get where

of kind You’re certification? hear correct? working be U.S produce get do market? some Is Majdi, wheels the also right? a them manufacturers are that that that that for the European-based for Is to to I able in correct to to U.S

Majdi Abulaban

recall they business. opportunity that and OEMs. Hey, quote correct fundamentally on us docket and our and grow on specifically an that’s OEMs Gary, plans to a in European on with those the a focused over critical that get had America, is North were four And we’ve been it's months. absolutely to area customers launches is that few We’ve for last substantial the European underpenetrated because with released future

and and with to certified support So BMW, source very having Volvo, important. with very, Daimler our is with quote plant

progress done. that in team really quarter good the has So the

Gary Prestopino

any those Audi you I some right? -- give idea Audi. of well, you us like assume are even as Can with certified of

Majdi Abulaban

Yes. Absolutely. Yes, absolutely, yes.

with customers. certified VW, we with Volvo in those with quarter BMW, Audi, were So with with four and the

Gary Prestopino

to right? just can start wheels, Okay. producing then business, you And you means that or win that the have

Majdi Abulaban

transferring of Well, cases, what those units our sourced, and a to Europe. other of had business call out business a I In things there. try that would customers, few a capability. incubation localizing us couple we we of to On are coming been already are for demonstrate

of cases with four before -- should production both in then So in be the we end the these and year. customers, --

Gary Prestopino

Thank you. Okay.

Operator

Mr. from your you’re on verify Chin, Our question not live. is Buckingham Glenn comes line Chin Research. Please mute. with

Glenn Chin

about gentlemen. morning. Sorry Good that,

Majdi Abulaban

morning. Good

Glenn Chin

you it? detail thank what So was the from from the the the impact for strike. impact regarding profitability you share GM Can

Matti Masanovich

so Yes. I yes, -- approximately lost of million $X directionally, profitability. we mean -- it's

Glenn Chin

so source expect up that flow, working and reverse I’m ramps see -- that Okay. us cash. And was a to cash of we capital a operating it encouraged Can big from big inventories function you the -- as back And then backs subsequent was ramp to production GM up? the a strike? in of tell quarters was benefit should

Matti Masanovich

Yes.

our that taking was huge the beginning on will the advertised we’ve specifically contributor of I initiative America out the six and months our the year. say --we’ve of So North focused DIO year since reducing and in this been first a

We in QX, also was for so saw in here DIO knew we Europe some it coming. and improvement

don't QX a we change significant as exit DIO perspective see so look QX. QX necessarily DIO and sit -- And as I we and here today, the a -- from go exit inventory through in

we’ve a to down. we've think get I inventory -- our done in do to Europe little more So work

We sustainability little the two the so question, of the used North are to carry used the on focused two -- I inventory. in over DIO, about we to answered weeks -- America carry advertiser we think of

that to trim worth a today to inventory about of week's trying We North are down America. in

to impact the strike. for million balances $X UAW for of exit be number a are the I down and think bigger So year metal the QX earnings a for we it's down we’re going overall, a our we’ve -- QX also -- the as GM us sized to inventory as of on this coming coming full-year impact well, for -- strike. well. as It's But source only. clearly, benefited was from some for for with we adequately basis cash cost that metal And

Glenn Chin

my next question. Yes, Okay. was that

how Fayetteville? don't then, can guys I you being for severely specifically What articulating, -- or there, goals exactly or is intent restructured? is And recall targets Okay. you the it

Majdi Abulaban

Matti and I take Well, that can add will more.

production year of and of have of before center we basically there left our all end technical to what the have is our out and the is service intent the So Fayetteville

Glenn Chin

Okay.

So speak? overflow so no longer as function to capacity,

Matti Masanovich

Yes, correct.

Majdi Abulaban

Correct.

Glenn Chin

Okay. Very good.

Thanks. me. Okay, for it That's great.

Majdi Abulaban

you. Thank

Matti Masanovich

Glenn. Thanks,

Operator

[Operator Instructions] Research. with Our next Barrington question comes from Gary Prestopino

Gary Prestopino

ask Yes. something Fayetteville going That’s answered. I to well. been about was as

So to guess, the in capacity far not any as getting in up, pretty about having on U.S feeling the you’re good quality kind I production anymore? Majdi going Mexico what's as relative of

Majdi Abulaban

I good No, X. that Mexico, about between on pretty North Gary, the see us executing. just year. being to very only focused you plan and here gap on is I’m I I but running mentioned holistically, America ground not feeling on Europe well-positioned walked about The team chart America. new absolutely North as close to margins and the the hitting going we through

Gary Prestopino

tongue, right. as that? you And on ever, are don't anything wise I here. is cash like All how lastly, whatever, just are your have I tip my contemplating just EBITDA focus changing things started capital more people as working this the EBITDA generation or that less towards of flow compensated and far know and And but bonus margin,

Majdi Abulaban

share, and LTI we I is do our -- and continue continue that. we ROIC earnings so to per expect based No, DSR, program the on will

and there's cash element, an is earned annual element. based compensation on element our there a So And EBITDA flow EBITDA. is

as to that So I expect own direction. continue we

Gary Prestopino

Thank Okay. you.

Operator

queue I’m questions further no in time. at Instructions] this showing [Operator the [indiscernible]

Majdi Abulaban

All everyone. you right. Thank

Operator

Thank today's everyone. you, teleconference. concludes This

disconnect. now may You