Detroit isn't making things easy for its parts makers these days. With General Motors
What analysts say:
- Buy, sell, or waffle? Two more analysts got depressed and stopped following Superior since last quarter. Now we're down to just one hold, and six sell ratings. Ugh.
- Revenues. On average, analysts expect flat sales of $187.8 million .
- Earnings. . but a ballooning loss of $0.13 per share.
What management says:
Wednesday's news looks likely to be dominated by a series of one-time items as Superior restructures itself to deal with the downturn in business among U.S. automakers. In September, management announced two steps to right-size its business. First, it has sold an Arkansan aluminum-suspension-components factory to Saint Jean Industries. Expect to see a $15 million payment off of this sale show up on Wednesday, and another $2 million in payments on a promissory note (part of the purchase price) arrive in Q3 2008 and Q3 2009. Second: It is in the process of closing down a Tennessee factory and laying off the 500 employees there. Severance costs are expected to approximate $1 million. Asset impairment costs have yet to be determined -- see Wednesday's news for the tally.
Back in the Q2 earnings release, the company mentioned one more, hopefully non-recurring, hindrance to profits. The firm is opening up a new plant in Mexico, and expects "substantial start-up costs" to appear in its Q3 numbers. Meanwhile, that plant won't begin manufacturing wheels until next quarter.
What management does:
Just like last quarter, I think it's safe to show the numbers here. With trends as clear as these, you don't need commentary to describe how bad things are at Superior:
Margins % |
3/05 |
6/05 |
9/05 |
12/05 |
3/06 |
6/06 |
---|---|---|---|---|---|---|
Gross |
8.6 |
7.4 |
6.4 |
4.3 |
2.8 |
2.5 |
Op. |
6.6 |
5.3 |
4.2 |
2.4 |
0.8 |
0.3 |
Net |
4.7 |
3.7 |
3.0 |
(0.7) |
(1.8) |
(2.0) |
One Fool says:
Between the charges to shut down or sell off existing businesses, and the charges to start up new ones in lower-cost foreign countries, I won't be at all surprised if Wednesday's news shows Superior's rolling margins continued to fall in Q3. In fact, I suspect we'll see the operating margin turn negative, and with December's $42 million charge for an asset write-down continuing to weigh on the net, I'd say that a negative net margin Wednesday is pretty much a given.
Trends on the income statement give little reason to hope for anything better. Year to date, sales are down 4% year over year, while the cost of goods sold has hardly budged at all (squeezing the gross margin). Meanwhile, selling, general, and administrative costs are heading the wrong way -- rising 13% despite the decline in sales. Long story short, I see why the analysts are so uniformly pessimistic about Superior. While the cyclicality of this business tells me that they're probably wrong to be so pessimistic long-term, in the short-term, I think they're absolutely right in predicting a loss -- of some magnitude -- Wednesday.
Competitors:
Superior supplies all the usual suspects. In addition to the Detroit Big 3, its wheels can also be found on products from BMW (OTC: BAMXF.PK), Nissan
Who's crazy enough to recommend investing in the auto sector these days? We are, for one -- and have recommended automakers and auto parts-makers in the Motley Fool Stock Advisor. You can check out the newsletter yourself with a free report.
Masochists with a superior threshold for pain may enjoy the following recent columns on Superior Industries:
- Foolish Forecast: Superior Forecasting
- Foolish Forecast: Superior Rolls In
- Superior's Inferior Disclosure
BMW is a Stock Advisor selection.
Fool contributor Rich Smith does not own shares of any company named above.