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Motorcar Parts of America Reports Fiscal 2010 First Quarter Results

Company says sales momentum returned late in the quarter; anticipates strong fiscal year.

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LOS ANGELES — Motorcar Parts of America (MPA) has reported results for its 2010 fiscal first quarter, with sales returning in the last month of the quarter to more normalized levels to two of the company’s largest customers.

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Net sales for the fiscal 2010 first quarter ended June 30 were $32.7 million compared with $32.7 million for the same period last year. As noted above, sales for the fiscal 2010 first quarter reflect the reduction in sales in the first two months of the quarter, offset by sales to new customers.

Net income for the fiscal 2010 first quarter was $1.2 million, or 10 cents per diluted share, compared with $3 million or 25 cents per diluted share, a year ago.

Gross profit for the fiscal 2010 first quarter was $7.2 million compared with $11.5 million for the same period a year ago. Gross profit as a percentage of net sales for the first quarter was 21.9 percent compared with 35.1 percent a year ago. The fiscal first quarter a year earlier benefited from the reversal of a $1.3 million accrual, or 7 cents per diluted share, related to customs duty claims; higher scrap metal revenues of approximately $900,000, or 4 cents per diluted share; lower packaging and other period costs; and the positive impact in the first quarter of the prior fiscal year (fiscal 2009) of an acceleration of promotional allowances in the fourth quarter of fiscal 2008, which otherwise would have been earned by a customer during the first quarter of fiscal 2009 of $1.2 million, or 6 cents per diluted share.

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The company noted that gross margin was also impacted by an inventory write-down of approximately $800,000 in the first quarter as a result of lower production costs. During the same period last year, the company experienced a non-cash write-down of inventory, offset by a reversal of a customs duty accrual discussed above. Monthly sales volatility, as well as operating expenses in connection with the launch of an enhanced product line, accounted for the remaining declines in comparable gross margin.

"The company experienced a significant pick-up of sales in the third month of the quarter from existing customers that gives us optimism that our base revenue is very strong. Sales in the first month of the current quarter continued to be strong," said Selwyn Joffe, chairman, president and chief executive officer of Motorcar Parts. "The volume of anticipated business from existing and new customers is encouraging. Enhanced utilization of manufacturing capacity and our ability to leverage the company’s low-cost manufacturing structure and produce quality products are key components of the company’s growth strategy," said Joffe.

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Joffe noted that increased absorption of fixed costs from anticipated new business will enhance operating margins and enable the company to improve earnings performance for the remaining quarters of the year. He added that the company expects further balance sheet improvements in fiscal 2010 and positive cash flow, supported by increased sales volume and an improved factoring environment for key customers.

General and administrative expenses for the fiscal 2010 first quarter decreased 40.2 percent to $2.5 million from $4.2 million a year earlier — primarily due to a non-cash gain in currency mark-to-market accounting for foreign exchange contracts of $964,000, or 5 cents per diluted share, compared with a gain of $203,000, or 1 cent per diluted share, a year ago; and a decrease of approximately $900,000 in audit, consulting and other professional fees and other general and administration expenses.

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Industry statistics related to replacement rates for alternators and starters continue to be positive, said Joffe. "With approximately 240 million vehicles currently on the road and 130 million vehicles at least nine years old, we are currently seeing and anticipate improved demand for our products — particularly if miles driven continue to increase," Joffe said.

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