Superior Industries International has reported financial results for the second quarter ended June 30, 2019.

“Superior faced a challenging quarter with industry production levels in both North America and Europe down significantly from the peak levels reached in recent years, which contributed to year-over-year volume declines in our business, impacting our profitability,” said Majdi Abulaban, CEO of Superior. “Despite the volume challenges, we saw a continued shift to larger diameter wheels and premium finishes by our customers, in line with the company’s strategy, which delivered a significant 11.2%, year-over-year increase in Value-Added Sales per wheel. This improvement offset a large portion of the volume declines.”

Abulaban continued, “In light of the persistent volume weakness, we are taking action to right-size costs, including aligning our production capacity, and managing working capital and capital investments in the current environment. As a result of these actions, we have reduced production schedules in certain facilities and realized an improvement in working capital and cash flow, which supported sizeable debt principal reductions in the second quarter. In fact, these debt reductions are the first proactive payments the company has made against its debt since acquiring the European operations more than two years ago. Looking to the second half of 2019, we are updating our outlook ranges to reflect the persistent challenging macro production environment. However, we are confident that the initiatives we are implementing, including reducing capital expenditures, will further enhance cash generation for continued debt paydown in 2019.”

Second Quarter Results 

Net sales for the second quarter of 2019 were $352.5 million, compared to net sales of $389 million for the same period in 2018. The reduction in sales is primarily driven by reduced volumes, lower aluminum prices and a weaker Euro, partially offset by improved product mix comprised of larger diameter wheels and premium finishes in both regions.

Gross profit for the second quarter of 2019 was $40 million compared to $53.6 million in the prior year period. The company said this decrease was primarily due to lower shipments, lower production, higher energy costs, higher outside service provider costs and the alignment of reporting for selling, general, and administrative (SG&A) expenses between its North American and European operations, which resulted in higher cost of goods sold and lower SG&A expenses by approximately $3 million. These items were partially offset by improved mix and procurement savings.

Net income for the second quarter of 2019 was $7.3 million, or a loss of 4 cents per diluted share, including non-recurring income of 2 cents per diluted share, compared to $8.1 million, or a loss of 2 cents per diluted share in the prior year period. 

Adjusted EBITDA, a non-GAAP measure as defined and reconciled to net income below, was $49.2 million for the second quarter of 2019 compared to $57.2 million in the prior year period. The decrease in Adjusted EBITDA was primarily driven by the lower gross profit previously described.

Year-to-Date Results 

Net sales for the first half of 2019 were $710.2 million, compared to net sales of $775.4 million for the same period in 2018. The reduction in sales is primarily driven by reduced volumes, lower aluminum prices and a weaker Euro, partially offset by improved product mix comprised of larger diameter wheels and premium finishes in both regions.

Gross profit for the first half of 2019 was $73.1 million compared to $103.6 million in the prior year period. The decrease was primarily due to lower shipments, lower production, higher energy costs, higher outside service provider costs and the alignment of reporting for SG&A expenses between the company’s North American and European operations, which resulted in higher cost of goods sold and lower SG&A expenses by approximately $7 million. These items were partially offset by improved mix and procurement savings.

Net income for the first half of 2019 was $9.2 million, or a loss of 27 cents per diluted share, compared to $18.4 million, or income of 5 cents per diluted share in the prior year period. 

Adjusted EBITDA, a non-GAAP measure as defined and reconciled to net income below, was $92.4 million for the first half of 2019 compared to $109.4 million in the prior year period. The decrease in Adjusted EBITDA was primarily driven by the lower gross profit previously described.

2019 Outlook 

Superior revises its previously issued full year 2019 outlook as follows:

• Net sales now expected to be $1.39 billion to $1.44 billion, driven by unit shipments of 19.5 million to 19.9 million, which compares to the previous outlook for net sales of $1.42 billion to $1.47 billion and unit shipments of 19.85 million to 20.30 million
• Value-Added Sales now expected to be $755 million to $795 million, which compares to the previous outlook of $765 million to $805 million
• Adjusted EBITDA now expected to be $165 million to $180 million, which compares to the previous outlook of $170 million to $185 million
• Cash flow from operations is still expected to be $125 million to $145 million
• Capital expenditures now expected to be approximately $75 million, which compares to the previous outlook of $85 million