Standard Motor Products, Inc. Site/Documents/Nov_2010_Wall... · Standard Motor Products, Inc. ......

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Standard Motor Products, Inc. Wall Street Analyst Forum November 11, 2010 1

Transcript of Standard Motor Products, Inc. Site/Documents/Nov_2010_Wall... · Standard Motor Products, Inc. ......

Standard Motor Products, Inc.

Wall Street Analyst ForumNovember 11, 2010

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Forward Looking Statements

You should be aware that except for historical information, the matters discussed herein are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements, including projections and anticipated levels of future performance, are based on current information and assumptions and involve risks and uncertainties which may cause actual results to differ materially from those discussed herein. You are urged to review our filings with the SEC and our press releases from time to time for details of these risks and uncertainties.

Standard Motor Products, Inc.

90+ Years in Business

A Leading Automotive Aftermarket Company

Major Player in Two Product Segments Engine Management

Temperature Control

Well Positioned for the Future

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Investment RationaleCompany and Industry Fundamentals

Standard Motor Products is an aftermarket pure play 93% of sales are aftermarket

Attractive automotive aftermarket fundamentals provide stable growth, with potential upside driven by industry trends Declining new car sales Aging vehicle fleet Closing car dealerships Lower fuel prices leads to increased mileage Most repairs are non-discretionary

Continued margin improvement driven by recent restructuring actions Low-cost production in Mexico and closure of Puerto Rico and Long Island City

facilities Production in low cost facilities expected to reach a goal of 55% in 2010, an

increase of 30%+ over the last 5 years Purchases from low cost suppliers expected to reach a goal of 49% in 2010, an

increase of 15% over the last 5 years

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Investment RationaleOpportunity for Investor Returns

SMP market position yields attractive margins and high quality earnings Leading market positions in Engine Management and Temperature Control Strong customer relationships

SMP has flexibility to pursue strategic opportunities Financial flexibility will allow SMP to take full advantage of opportunities to acquire

products / production lines as other vendors rationalize their businesses

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SMP is an Aftermarket Pure Play

Based on 250 million vehicles on the road

Highly stable

Slow and steady growth

Tens of thousands of SKUs

Not affected by rise and fall of new car

production

Higher margins

Traditional44%

Retail38%

OE7%

OES4%

Export2%

SpecialMarkets

5%

2009 Sales

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Favorable Macro Trends for Aftermarket

New Car Sales Down

Aging Fleet of Vehicles

Car Dealerships Closing

Increases average age of vehicles driven

Increases demand for replacement parts

Independent distributors and repair shops will become only option in many areas

Trend Impact on Aftermarket

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Large and Stable MarketPredictable Top-line Performance with Attractive Upside

Source: U.S. Department of Transportation, AAIA, and RL Polk & Co.* Estimate

Miles Driven

2.4 2.5 2.6 2.72.9

2.6 2.7 2.8 2.9 2.9 2.93.0 3.0 3.0 3.0

1.0

1.5

2.0

2.5

3.0

3.5

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

MIle

s dr

iven

(tril

lions

)

100

130

160

190

220

250

280

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

(mill

ions

)

United States Vehicles in Use

10.210.09.89.79.59.49.19.08.98.98.8

7.07.58.08.59.09.5

10.010.5

99 00 01 02 03 04 05 06 07 08 09

(yea

rs)

Average Age of U.S. Light Vehicles

$0

$50

$100

$150

$200

$250

99 00 01 02 03 04 05 06 07 08 09 10* 11* 12*

$ bi

llion

Size of U.S. Motor Vehicle Aftermarket

$230

$149

250

205

$178$195 $207

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Focused Business Strategy

Focused on Two Major Product Lines #1 in each

EngineManagement

72%

TemperatureControl

27%Other1%

Note: Based on 2010 Forecasted Revenues

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Focused Business StrategyEngine Management Division

#1 market position

High brand loyalty

Predictable top-line performance

High margin product category

#1 Position in Engine Management

Distributor Cap & Rotor

Distributorless Ignition System Module

Business Strengths

Fuel Injectors

Point Set and Condenser

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Focused Business Strategy Temperature Control Division

Temperature Control Products

#1 Position in Temperature Control

#1 market position

Top-line growth

Recent wins in 2009 (AutoZone, CSK, Pep Boys)

Cost reduction as a result of plant relocations to Reynosa, Mexico

Significant operating leverage

Business Strengths

R4 Compressor

H6 Compressor

Accumulator

Orifice Tubes

Evaporator

Fan Clutch

Condenser Fan

Hose Assembly

Blower Motor

Power Window Motor

Pulley Water Outlet

Belt Tensioner Expansion

ValveLubricant Additive

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Excellent Customer Relationships

Traditional Retail

Most Independents

Car Dealerships

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Key Priorities – As Per 2009

► Generate ► Generate Cash

► Reduce Debt

► Redeem Convertible Debentures Original Issue $90 MM 6.75% Coupon 10 Year Life Due July 15, 2009

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Actions Taken

► Sold LIC Building

► Reduced Inventory $30 MM in 2009 $20 MM in 2008

► Reduced Accounts Receivable $50 MM

► Suspended Dividend Reinstated in 2010

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Actions Taken

► Hiring Freeze/Early Retirement Reduced Salaried Staff

► 100 People► 10% of Total

► Reduced Capital Expenditures $7.2 MM 2009 $11.5 MM Historical

Average

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Actions Taken

► Exited Two Businesses Blue Streak Electronics European Distribution

► Rolled Over $17 MM Bonds 2 Years 15% Interest

► Raised Additional Equity 3,450,000 Shares $27.5 MM (Net of Expenses)

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Result

► 2009 Debt Reduction $118 MM

► Redeemed Balance of Bonds

► Debt : EBITDA Ratio 2008: 6.2 (x) 2009: 1.7 (x) 2010: 1.3 (x) (LTM 9/10)

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Result

(Total Debt – US$ in millions)

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Strategic Initiatives

2003-2005 Dana Engine Management Acquisition and Integration

2006-2007 Exit UK Manufacturing Establish Low Cost Poland Manufacturing Site

2007 - 2008 Exit high-cost manufacturing facilities (Puerto Rico & LIC) Expand low-cost manufacturing in Reynosa, MX Begin remanufacturing compressors in Reynosa, MX

2009 Continued shift to three manufacturing facilities in Reynosa, MX Acquired Federal Mogul Wire Product Line Sale of European Distribution business

2010 Hong Kong transition from manufacturing to Procurement Operation Hayden fan clutch consolidation into Grapevine, TX

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Other Accomplishments

21%

27% 28%

38%

49%

55%58%

2005 2006 2007 2008 2009 2010Est.

2011Goal

Low Cost Manufacturing

% production labor hours in low cost facilities (Mexico and Poland)

Note: Prior years restated to exclude Europe

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Other Accomplishments

34%38%

42%47% 49% 49% 50%

2005 2006 2007 2008 2009 2010Est.

2011Goal

Low Cost Purchasing

% purchased from low cost suppliers

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2010 Update

Industry Having Strong Sales Year Ageing Car Population Pent Up Demand Closing Down Dealerships

Standard Motor Products Increased Sales Reduced Costs Optimistic About Future

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Future Planned Initiatives

Cost Reduction1. Plant Rationalization2. Global Sourcing3. Poland/Mexico

Revenue Enhancement1. Increase OE/OES Business2. Import Application Market Share3. Selective Acquisitions

Financial Overview

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Continuous Improvement in Yearly Performance

23.8%

24.1%

25.4%

23.0%

23.5%

24.0%

24.5%

25.0%

25.5%

Full Year

Gross Margin

2008

2009

2010

222

LTM

$31.1

$46.1

$58.6

$30

$35

$40

$45

$50

$55

$60

Full Year (Millions)

EBITDA (w/o Special Items)

2008

2009

2010

25 7%27 28%22 9%

LTM ($0.11)

$0.70

$0.98

($0.20)

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

Full Year

Diluted EPS (w/o Special Items)

2008

2009

2010

23 8%222 9%

LTM

25

$775.2

$735.4

$798.1

$700

$720

$740

$760

$780

$800

Full Year (Millions)

Consolidated Net Sales

2008

2009

2010

LTM

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2008 2009 Target

Engine Management Gross Margin %

23.3% 24.7% 27-28%

Temperature Control Gross Margin %

19.3% 19.7% 23-24%

Substantial Margin Improvement

9 Months 2010 Results

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September YTD Income StatementNon-GAAP

(Excluding Non-Operational Gains and Losses)

($ in Millions)

Amount % of Sales Amount % of Sales

Net Sales 637.9$ 100.0% 575.3$ 100.0%

Gross Profit 162.2 25.4% 137.1 23.8%

SG&A Expenses 120.5 18.9% 109.6 19.0%

Operating Profit 41.7 6.5% 27.5 4.8%

Other Income/Loss 0.1 1.1

Interest Expense 5.7 7.2

Income Taxes 14.5 8.3

Earnings from Continuing Ops. 21.6$ 13.1$

Diluted EPS 0.96$ 0.70$

Sept. 2010 YTD Sept. 2009 YTD

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Condensed Balance Sheet

Total Debt Reduction ($36.6MM) Debt to Total Capitalization Ratio of 26.2% (‘10) vs. 39.0% (’09)

($ in Millions)

Condensed Balance Sheet Sep '10 Sep '09

Current Assets 442.4$ 410.5$ PP&E 62.1 63.9 Other Assets 51.8 63.3

Total Assets 556.3$ 537.7$

Current Liabilities 204.2$ 186.2$ Debt 74.3 110.9 Other Liabilities 68.5 67.5 Shareholders Equity 209.3 173.1

Total Liabilities and Shareholders' Equity 556.3$ 537.7$

SMP Capitalization

Revolving Credit Facility $61.7 21.8% March 2013 Maturity

15% Convertible Subordinated Debentures 12.3 4.3 April 2011 Maturity

Other 0.3 0.1

Total Debt $74.3 26.2%

Book Value of Equity 209.3 73.8%

Total Capitalization $283.6 100.0%

Debt / LTM EBITDA(a) 1.3x

LTM Interest Coverage 7.6x

% of Total Amount Capitalization

As of September 30, 2010(US$ in millions)

(a) LTM Adjusted EBITDA of $58.6 Sept 30, 2010.

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Appendix

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Reconciliation of GAAP and Non-GAAP Measures

($ in thousands, except per share amounts)

EARNINGS FROM CONTINUING OPERATIONS 2010 2009 2010 2009

GAAP EARNINGS FROM CONTINUING OPERATIONS 11,097$ 4,724$ 22,025 11,149

RESTRUCTURING AND INTEGRATION EXPENSES (NET OF TAX) 832 2,042 2,058 3,871 LOSS FROM EUROPE DIVESTITURE (NET OF TAX) - - 47 - GAIN FROM SALE OF PREFERRED STOCK INVESTMENT (NET OF TAX) - - - (1,402) REVERSAL OF LT TAX LIABILITY (1,084) - (1,084) - GAIN FROM SALE OF BUILDINGS (NET OF TAX) (1,033) (157) (1,431) (472) GAIN FROM DEBENTURE REPURCHASE (NET OF TAX) - - - (24) NON-GAAP EARNINGS FROM CONTINUING OPERATIONS 9,812$ 6,609$ 21,615$ 13,122$

DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONSGAAP DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS 0.48$ 0.25$ 0.97$ 0.59$ RESTRUCTURING AND INTEGRATION EXPENSES (NET OF TAX) 0.03 0.11 0.09 0.21 LOSS FROM EUROPE DIVESTITURE (NET OF TAX) - - - - GAIN FROM SALE OF PREFERRED STOCK INVESTMENT (NET OF TAX) - - - (0.07) REVERSAL OF LT TAX LIABILITY (0.04) - (0.04) - GAIN FROM SALE OF BUILDINGS (NET OF TAX) (0.04) (0.01) (0.06) (0.03) GAIN FROM DEBENTURE REPURCHASE (NET OF TAX) - - - -

NON-GAAP DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS 0.43$ 0.35$ 0.96$ 0.70$

MANAGEMENT BELIEVES THAT EARNINGS FROM CONTINUING OPERATIONS AND DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS BEFORE SPECIAL ITEMS, WHICH ARE NON-GAAP MEASUREMENTS, ARE MEANINGFUL TO INVESTORS BECAUSE THEY PROVIDE A VIEW OF THE COMPANY WITH RESPECT TO ONGOINGOPERATING RESULTS. SPECIAL ITEMS REPRESENT SIGNIFICANT CHARGES OR CREDITS THAT ARE IMPORTANT TO AN UNDERSTANDING OF THE COMPANY'S OVERALL OPERATING RESULTS IN THE PERIODS PRESENTED. SUCH NON-GAAP MEASUREMENTS ARE NOT RECOGNIZED IN ACCORDANCE WITH GENERALLY ACCEPTEDACCOUNTING PRINCIPLES AND SHOULD NOT BE VIEWED AS AN ALTERNATIVE TO GAAP MEASURES OF PERFORMANCE.

NINE MONTHS ENDEDSEPTEMBER 30, SEPTEMBER 30,

(Unaudited)

THREE MONTHS ENDED