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Analyst Blog

On Aug 20, 2013, we maintained our Neutral recommendation on Superior Industries International, Inc. (SUP - Analyst Report). The company has a strong product portfolio and the Mexican operations are also yielding improved returns. However, the company faces significant customer concentration risk, declining operating cash flow and high competition.

Why Reiterate?

On Aug 2, 2013, Superior Industries reported earnings per share of 23 cents for the second quarter of 2013. Results were in line with the year-ago quarter, but it outpaced the Zacks Consensus Estimate by 6 cents. Revenues for the quarter dropped 7.5% year over year to $199 million, missing the Zacks Consensus Estimate of $205 million.

The Zacks Consensus Estimate for Superior Industries’ 2013 earnings per share increased 14.5% to 79 cents since the earnings release. Moreover the Zacks Consensus Estimate for 2014 increased 9.7% to 79 cents in the last 30 days.

The Mexican operations of Superior Industries are witnessing increasing operating income on the back of an improved mix of wheel sizes and finishes. As the Mexican operations contributed 62% of the total production in the first half of 2013, improving operating income in the region is favorable for the company.

Moreover, the absence of any long-term debt has allowed full utilization of cash by investing in potential opportunities as Superior Industries does not need to divert its funds for interest payments or debt repayment.

However, Superior Industries has been witnessing a decline in cash flows. The company’s cash outflow increased to $16.8 million as of Jun 30, 2013, from $6.4 million as of Jun 24, 2012.

Moreover, Superior Industries is significantly reliant on Ford Motor Co. (F - Analyst Report), General Motors Company (GM - Analyst Report), Toyota Motor Corporation (TM - Analyst Report),  and Chrysler for its sales. These companies represented almost 92% of its total wheel sales in the first half of 2013.

Superior Industries currently carries a Zacks Rank #2 (Buy).

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