Motorcar Parts of America Inc. (MPA) has reported results for its fiscal 2018 third quarter and nine-months, reflecting slower than expected sales due to unusually soft demand in the industry and customer inventory reduction programs, with more robust sales activity in the current fourth quarter.

Net sales for the fiscal 2018 third quarter were $100.1 million compared with $112.6 million for the same period a year earlier. MPA said the company’s sales and profit performance for the prior fiscal third quarter reflects the benefits of recognizing a $9.3 million revenue pick-up due to a change in estimate for stock adjustment returns. Despite market-share increases, the company’s sales for the quarter were soft due to lower orders and customer inventory reduction initiatives, as noted above, both of which now appear to be reversing.

Adjusted net sales for the fiscal 2018 third quarter were $103.4 million compared with $112.9 million a year earlier.

Net loss for the fiscal 2018 third quarter was $6.8 million, or 36 cents loss per share, compared with net income of $11.1 million, or 57 cents per diluted share, a year ago. The net loss includes a $6.3 million, or 33 cents per share, non-cash book tax charge and a separate transition tax charge of approximately $545,000, or 3 cents per share, payable over eight years, both of which relate to the recently enacted Tax Cuts and Jobs Act (“Tax Reform Act”).

Adjusted net income for the fiscal 2018 third quarter was $6.7 million, or 34 cents per diluted share, compared with $11.7 million, or 60 cents per diluted share, in the same period a year earlier.

Gross profit for the fiscal 2018 third quarter was $22.5 million compared with $32.4 million a year earlier. Gross profit as a percentage of net sales for the fiscal 2018 third quarter was 22.5 percent compared with 28.7 percent a year earlier – primarily reflecting the impact of customer allowances related to new business, as well as higher returns as a percentage of sales, lower overhead absorption and product mix.

Adjusted gross profit for the fiscal 2018 third quarter was $28.8 million compared with $33.9 million a year ago. Adjusted gross profit as a percentage of adjusted net sales for the three months was 27.9 percent compared with 30.1 percent a year earlier. The current quarter adjusted gross profit as a percentage of adjusted net sales was impacted by higher returns as a percentage of adjusted sales, lower overhead absorption and product mix.

Net sales for the fiscal 2018 nine-month period were $307 million compared with $306.8 million a year earlier. As noted above, the company’s sales and profit performance for the prior year period reflects the benefits of recognizing a $9.3 million revenue pick-up due to a change in estimate for stock adjustment returns.

Adjusted net sales for the fiscal 2018 nine-month period were $312.7 million compared with $319.1 million last year.

Net income for the fiscal 2018 nine-month period was $7.1 million, or 37 cents per diluted share, compared with $27.8 million, or $1.43 per diluted share, in fiscal 2017. Net income includes a $6.3 million, or 32 cents per diluted share, non-cash book tax charge and a separate transition tax charge of approximately $545,000, or 3 cents per diluted share, payable over eight years, both of which relate to the recently enacted Tax Reform Act.

Adjusted net income for the fiscal 2018 nine-month period was $24.7 million, or $1.27 per diluted share, compared with $34.3 million, or $1.77 per diluted share, in fiscal 2017.

Gross profit for the fiscal 2018 nine-month period was $75.5 million compared with $83.4 million a year earlier. Gross profit as a percentage of net sales for the fiscal 2018 nine-month period was 24.6 percent compared with 27.2 percent a year earlier – reflecting the impact of customer allowances and return accruals related to new business, higher returns as a percentage of sales and lower overhead absorption.

Adjusted gross profit for the fiscal 2018 nine-month period was $88.3 million compared with $98.7 million a year ago. Adjusted gross profit as a percentage of adjusted net sales for the nine months was 28.2 percent compared with 30.9 percent a year earlier. Adjusted gross profit as a percentage of adjusted net sales for the current nine-month period was impacted by higher returns as a percentage of adjusted sales and lower overhead absorption.

“We were disappointed in our results for the quarter, especially since we continued to gain market share across all of our product lines. While we incurred additional expenses related to new business wins, we did not realize the full benefit of the associated revenues during the quarter. This was due to various factors, including reduced customer orders, which industry observers attribute to mild weather, which seems to have reversed in our current fourth quarter. In addition, the business was impacted by customer inventory reduction initiatives. As a result, we were negatively impacted by under-absorption of overhead costs. We are now pleased to see a return to positive momentum in the marketplace. We expect the colder winter conditions across the majority of the country to further increase demand.

“Ongoing positive strategic initiatives supported by organic growth, product line expansion and complementary acquisition opportunities lead me to reconfirm our near-and long-term optimism for growth within the $125 billion aftermarket hard parts industry,” said Selwyn Joffe, chairman, president and CEO of Motorcar Parts of America.

Separately, he said the board of directors last week increased the company’s share repurchase program authorization to $20 million from $15 million of its common stock, with current availability of approximately $13 million.

Joffe noted the company recently added a new 410,000-square-foot facility to support current and new growth.

Updated fiscal 2018 sales guidance

Due to the factors impacting the fiscal third quarter noted above, Motorcar Parts of America now believes revenues for its fiscal 2018 ending March 31 should be between $434 million and $440 million, with sales momentum improving in the current fiscal fourth quarter, as discussed above.

Impact of tax reform act

The company has preliminarily evaluated its net income tax expense as a result of the recently enacted Tax Reform Act, which reduces its federal corporate income tax rate to 21 percent from 35 percent, among other factors. The company estimates its effective tax rate commencing in fiscal 2019 will be reduced to approximately 25 percent.

The company’s deferred tax assets were provisionally reduced by a non-cash charge of approximately $6.3 million based on current estimates. In addition, transition taxes of approximately $545,000 were provisionally recorded as of Dec. 31, 2017.

The company’s fiscal 2018 third quarter results were impacted by 36 cents per diluted share as a result of the Tax Reform Act. A prorated federal corporate income tax rate of 31.5 percent will apply for the company’s full 2018 fiscal year. The full impact of the Tax Reform Act will be effective in the fiscal year commencing April 1, 2018.