Cooper-Standard Holdings Inc. has reported results for the second quarter of 2018.
During the second quarter of 2018, the company generated a net income of $41.9 million, or $2.28 per diluted share, and an Adjusted EBITDA of $107.9 million on sales of $928.3 million. These results compare to net income of $40.5 million, or $2.14 per diluted share, and an Adjusted EBITDA of $113.8 million on sales of $909.1 million in the second quarter of 2017. The company’s Adjusted EBITDA as a percent of sales for the second quarter of 2018 was 11.6 percent compared to 12.5 percent in the second quarter of 2017.
“Our team continued to perform well despite challenging market conditions in the quarter,” said Jeffrey Edwards, chairman and CEO of Cooper Standard. “We are on pace for a record year of new business awards and our focus on driving cost efficiencies generated nearly $22 million in savings within our core business. In addition, we announced two strategic acquisitions that will expand our product offerings and further diversify the markets we serve. We expect improved performance in the second half of the year as the volume and mix of vehicle production returns to planned levels, especially in North America.”
The company’s second quarter net income, excluding restructuring and other special items, totaled $50.3 million, or $2.74 per diluted share, compared to $49 million, or $2.60 per diluted share in the second quarter of 2017. The change in adjusted net income was driven primarily by improvements in operating efficiency and lower selling, general administrative and engineering (“SGA&E”) expense, partially offset by unfavorable volume and mix, customer price reductions and higher material costs. The improvement in adjusted net income per share was driven by the increase in adjusted net income and lower average diluted shares outstanding, which is primarily due to the company’s repurchase of 698,088 shares between June 30, 2017 and June 30, 2018.
For the first six months of 2018, the company reported net income of $98.7 million, or $5.36 per diluted share on sales of $1.90 billion. Adjusted EBITDA for the first six months of the year was $230.5 million. By comparison, the company reported net income of $82.2 million, or $4.34 per diluted share, and Adjusted EBITDA of $224.8 million on sales of $1.81 billion in the first six months of 2017. The company’s Adjusted EBITDA margin for the first six months of 2018 was 12.2 percent compared to 12.4 percent in the first six months of 2017.
Adjusted net income for the first six months of 2018 was $114.1 million or $6.19 per diluted share. This compares to adjusted net income of $104.9 million or $5.54 per diluted share in the first six months of 2017.
Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted earnings per share are non-GAAP measures. Definitions of these measures and reconciliations to the most directly comparable financial measures, calculated and presented in accordance with accounting principles generally accepted in the United States, are provided in the attached supplemental schedules.
Notable Developments
During the second quarter, Cooper Standard launched 51 new customer programs and was awarded $144 million in annual net new business. New contract awards for the company’s recent product innovations, including both new and replacement business, totaled $49 million in the quarter. Subsequent to the end of the quarter, the company received its first production order for Fortrex sealing products in China. Cooper Standard’s expanding portfolio of commercialized innovation products includes: MagAlloy; ArmorHose; ArmorHose TPV; Gen III Posi-Lock; TP Microdense; and Fortrex.
Cooper Standard says it continues to pursue a strategy of profitable growth through organic activities as well as strategic acquisitions. During the second quarter, the company agreed to acquire a majority ownership stake in the automotive business of LS Mtron of South Korea. This acquisition will expand Cooper Standard’s product and technology portfolio to include brake jounce lines and charged air cooling components. In addition, the LS Mtron acquisition will improve the company’s positioning with key Korean automotive customers and expand its competitive position in China and South America. Final closing of this acquisition is subject to customary regulatory approval.
Subsequent to the end of the second quarter, Cooper Standard announced an agreement to acquire Lauren Manufacturing and Lauren Plastics from Lauren International. Upon closing, these acquisitions will significantly expand the company’s Industrial and Specialty Group (ISG), consistent with a strategy to further diversify company sales and profits outside of the automotive industry.
Consolidated Results
Second quarter 2018 sales increased by $19.1 million or 2.1 percent compared to the second quarter of 2017. The year-over-year increase was primarily attributable to $29 million of favorable foreign exchange, primarily in Europe and Asia, and improved volume and mix, primarily in Europe. These were partially offset by customer price reductions.
Second quarter Adjusted EBITDA decreased by $5.9 million or 5.2 percent compared to the second quarter of 2017. The year-over-year change was primarily attributable to unfavorable volume and mix, customer price reductions, higher net material costs and general inflation, partially offset by net operational efficiencies of $21.8 million, lower SGA&E and compensation expense and favorable foreign exchange.
Liquidity and Cash Flow
At June 30, 2018, Cooper Standard had cash and cash equivalents totaling $440.2 million. Net cash provided by operating activities in the second quarter 2018 was $108.9 million and free cash flow for the quarter (defined as net cash used/provided by operating activities minus capital expenditures) was $70 million.
In addition to cash and cash equivalents, the company had $200.5 million available under its amended senior asset-based revolving credit facility for total liquidity of $640.7 million at June 30, 2018.
Total debt at June 30, 2018 was $757.2 million. Net debt (defined as total debt minus cash and cash equivalents) was $317 million. Cooper Standard’s net leverage ratio (defined as net debt divided by trailing 12 months Adjusted EBITDA) at June 30, 2018 was 0.7 times.
During the second quarter the company used $43.5 million of cash to repurchase shares of its common stock through an accelerated share repurchase program as well as open market transactions. In June 2018, the company’s board of directors approved a new common stock repurchase program authorizing the company to repurchase, in aggregate, up to $150 million of its outstanding common stock.