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Standard Motor (SMP) Down 3% Since Earnings Report: Can It Rebound?

SMP

Trades from $3

It has been about a month since the last earnings report for Standard Motor Products, Inc. (SMP - Free Report) . Shares have lost about 3% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Standard Motor Fourth Quarter Earnings Lag Estimates, Rise Y/Y

Standard Motor Products’ adjusted earnings of $0.42 per share missed the Zacks Consensus Estimate of $0.53, but increased from $0.35 earned in the prior-year quarter. Adjusted earnings from continuing operations increased to $9.8 million from $8.1 million in the year-ago quarter.

Earnings from continuing operations, on a reported basis, amounted to $8.8 million or $0.38 per share, rising from $5.8 million or $0.25 in the prior-year quarter.

Total revenue also rose to $229.8 million from $205 million a year ago, missing the Zacks Consensus Estimate of $234 million.

Gross profit increased to $66.8 million from $62.8 million in the fourth quarter of 2015. Adjusted operating income excluding restructuring and integration expense improved to $14.5 million from $9.6 million in the year-ago quarter.

2016 Performance

Standard Motor’s adjusted earnings increased to $2.77 per share for full-year 2016 from $2.13 in 2015, missing the Zacks Consensus Estimate of $2.88. Revenues for full-year 2016 increased to $1.06 billion from $972 million in 2015 and were almost at par with the Zacks Consensus Estimate of $1.06 billion.

Segment Results

Revenues at the Engine Management segment rose to $185.2 million in the reported quarter from $167.6 million a year ago. Operating profit was $18.07 million (9.8% of sales) compared with $22.4 million (13.4% of sales) in the prior-year quarter.

Revenues at the Temperature Control segment increased to $42.7 million from $36.04 million a year ago. The segment recorded an operating profit of $1.25 million (2.9% of sales), up from loss of $3.6 million (10% of sales) in fourth-quarter 2015.

Revenues at the All Other segment increased to $1.9 million from $1.3 million a year ago. The segment recorded an operating loss of $5.2 million, narrower than $6 million in the fourth quarter of 2015.

Financial Position

Standard Motor had cash balance of $19.8 million as of Dec 31, 2016, compared with $18.8 million as of Dec 31, 2015. Total debt of the company was $163,000 as of Dec 31, 2016, compared with $78,000 as of Dec 31, 2015.

In 2016, Standard Motor had cash flow of $97.8 million from operating activities compared with $65.2 million in the prior-year period. Capital expenditures were $20.9 million, up from the year-ago level of $18.05 million.

Business Update

Standard Motor is benefitting from the acquisition of the General Cable. The company has maintained the customer base and improved the shipping performance. It is also integrating the sales and administration function and the distribution has been relocated to the wire facility in Edwardsville, Kansas. All have these strategies are generating significant savings.

Additionally, the company has started shifting the production from the acquired Nogales, Mexico, wire set assembly operation to its existing wire assembly business in Reynosa, Mexico by the end of first quarter of 2018. Following this, it also decided to close the Nogales plant.

Moving ahead, Standard Motor will also close electronics operation in Orlando, Florida and shift it into the existing facility in Independence, Kansas. The company is undertaking this strategy due to declining sales of products produced in the Orlando factory. This will lead to restructuring costs of $3.7 million and will generate annual savings of $3 million.

Dividend

Standard Motor’s board approved an increase in dividend to $0.19 per share up from $0.17, paid earlier. The dividend will be paid on Mar 1, 2017. With this, the company increased dividend for eight consecutive years.

Also, the board approved a share repurchase of $20 million under the new share repurchase policy.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimate flatlined during the past month. There has been one revision higher for the current quarter compared to one lower.

VGM Scores

At this time, Standard Motor's stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.





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