Over the last three months, shares of auto industry kingpin (no, the king ain't quite dead yet) General Motors (NYSE:GM) have rebounded 36% as rumors of its demise proved premature. Meanwhile, shares of major parts supplier Superior Industries (NYSE:SUP) are off 5% during the same timespan. What's the frequency, Kenneth? Tomorrow morning, we find out whether Superior is destined to follow the General upwards, as the former reports its Q2 2006 results.

What analysts say:

  • Buy, sell, or waffle? Two analysts have dropped coverage of Superior since last we checked in. As of today, the stock gets one hold rating and eight sells. Ouch.
  • Revenues. Analysts are looking for a 10% year-over-year drop in sales to $203.2 million.
  • Earnings. Profits are also expected to drop off a cliff, falling 94% to just $0.01 per share.

What management says:
GM isn't the only auto industry employer to be shedding employees. In June, Superior announced it is laying off 225 employees at its chrome plating facility in Fayetteville, Ark. Likely, this means we'll be hearing of charges to earnings for severance payments tomorrow. This appears to be the second round of layoffs at the Fayetteville plant. In the Q1 conference call, CFO Jeff Ornstein advised that payroll at a Van Nuys plant would be reduced by 375 persons, and "a more modest reduction" had been implemented in Fayetteville. He advised that a continued tough business environment for auto parts manufacturers, worsened by high raw material costs, will force the company to continue shuttering factories, laying off some employees, and reducing work hours for others.

Why all the doom and gloom? Well, Superior saw wheel shipments decline 13% year over year in Q1 and expected a further 10% decline in the Q2 results we'll see tomorrow. Ornstein named several Ford (NYSE:F), DaimlerChrysler (NYSE:DCX), and GM models as companies who said they wouldn't be needing as many Superior wheels last quarter. One step that Superior has been taking to deal with the downturn in demand from Detroit has been to increasingly look abroad for customers. While Ford and GM business declined last quarter, Daimler-originated business held steady at 16.5% by volume, and "international business" rose to a record 14.2% of sales by volume.

What management does:
But enough prose. To really get a sense of how bad things are at Superior, let's have a look at some numbers:

Margins %




























All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Operating and net margins are down: no surprise there. What's really frightening, though, is the gross margin line. At last report, Superior was selling wheels (and related underbody components) for just a 2.8% margin. In other words, if Superior bought $100 worth of aluminum and other raw materials, and spent time and effort and paid the salaries necessary to turn these raw materials into a finished vehicle wheel, at the end of the day all it could sell that wheel for was $102.80. You want to talk about razor-thin margins? You can't hone razors this thin with nanotech.

"So aside from that, Mrs. Lincoln, how was the play?" I'll tell you, I actually think I'm going to like the ending on this one. Because with Wall Street united in its disdain for the company, a share price below its book value, and more than half its shares sold short, I think all the bad news has been priced into this stock. Meanwhile, Superior sports a debt-free balance sheet, $100 million in cash and equivalents, and another $50 million in long-term investments. Bankruptcy isn't even on the horizon here, and I suspect Superior can hang on a lot longer than the shorts can.


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Fool contributor Rich Smith does not own shares of any company named above.