Standard Motor Products, Inc., an automotive replacement parts manufacturer and distributor, reported recently its consolidated financial results for the three months ended March 31, 2020, and provided an update regarding the company’s response to the current COVID-19 pandemic and its impact on its business.
Consolidated net sales for the first quarter of 2020 were $254.3 million, compared to consolidated net sales of $283.8 million during the comparable quarter in 2019. Earnings from continuing operations for the first quarter of 2020 were $9.6 million or 42 cents per diluted share, compared to $13.1 million or 57 cents per diluted share in the first quarter of 2019. Excluding non-operational gains and losses identified on the attached reconciliation of GAAP and non-GAAP measures, earnings from continuing operations for the first quarter of 2020 were $9.8 million or 43cents per diluted share, compared to $13.1 million or 57 cents per diluted share in the first quarter of 2019.
Eric Sills, Standard Motor Products’ CEO and president stated, “Prior to a discussion of our first quarter results, it is important to address the current COVID-19 pandemic crisis’ impact on the auto care industry in general, and on SMP in particular. When the U.S. began issuing guidelines in mid-March to slow the spread of the disease through ‘stay-at-home’ orders, certain industries were identified as essential and could continue to operate. The auto care industry was included, as transportation is critical to the functioning of our nation, as we keep government, fleet, first responders and personal vehicles on our roads operating safely and efficiently.
“Our first obligation is to the health and safety of our employees. We implemented a number of operational changes to improve social distancing within our facilities and to substantially increase all cleaning and hygiene protocols, including the use of protective masks and daily temperature taking for all employees and guests entering our facilities. Thus far, our efforts have been successful, as only a few of our employees globally have tested positive for the virus, and thankfully are all on the road to recovery. We cannot thank our employees enough for the fortitude and loyalty they have shown during these times.
“Turning to our first quarter results, sales lagged behind the first quarter of 2019, with declines in both divisions. The 2019 purchasing patterns of our customers were very front-loaded in the year as compared to their POS. Our first quarter of 2019 was very strong – up 9% from 2018 in Engine Management (excluding wire and cable) and 14% in Temperature Control, making for difficult comps. This year Engine Management had lower pipeline orders than in 2019, and sales returned to levels more closely aligned to our customers’ POS sales. This was anticipated and announced on previous calls. In the second half of March we began to see the effects of the COVID-19 pandemic and sales began to fall further. In Temperature Control, the early part of the year is dominated by pre-season orders, which, for a variety of reasons, were below 2019. The success of the year is determined by how hot it gets during the summer. We were pleased that both divisions were able to maintain historic gross margins despite the decline in sales.
“As we head into the second quarter, miles driven are down dramatically as businesses are closed and people are required to shelter at home. Our customers’ sales are down accordingly. Their purchases from us are down even further, as they look to reduce inventory in line with their lower sales levels. April was a difficult month for us, with our incoming orders down 30-40%.
“While no one can predict the duration of the economic downturn resulting from the COVID-19 pandemic, we believe it will be a temporary situation. We enter it with a strong balance sheet and ample liquidity, and our goal is to exit it just as strong. To do so we are taking steps to reduce expenses and conserve cash, making sure that none of our actions will affect the long term health of the company. We have drawn down an additional $75 million from our bank credit line, temporarily ceased our stock buyback program, and temporarily suspended our quarterly dividend. Our top executive officers and board of directors have agreed to a 25% reduction in compensation for the balance of the year. All other senior executives will be taking a reduction in compensation as well. We will be taking a hard look at discretionary expenses. While we anticipate substantial savings from these actions, they are all short term in nature, in line with our belief that this is a temporary situation. None of these will affect the long term strength of our company.
“The automotive aftermarket is highly resilient. We are fortunate that the goods and services we provide are essential. Our addressable market – the hundreds of millions of vehicles on our roads – remains unchanged. The majority of SMP’s products are non-discretionary – deferred repairs will need to be performed. Transportation is the lifeblood of our country – people need their vehicles to get to work, shop, take their kids to school, and carry on with their lives. As for our company, with our strong position in the market, the brand loyalty of our customers, and our healthy balance sheet, and thanks to our wonderful group of employees, we are confident we will emerge from this crisis and begin the second century of our history, stronger than ever.”