Superior Industries International, Inc., one of the world’s leading light vehicle aluminum wheel suppliers for OEMs and the European aftermarket, recently reported financial results for the fourth quarter and fiscal year ended December 31, 2019.

“In 2019, we continued executing on our premium portfolio of differentiating technologies delivering growth over market in Value-Added Sales of 2% and Value-Added Sales per wheel growth of 6%. We also operationalized market leading product offerings including PVD, pad printing, laser etching, and AluLite, and launched our first 23-inch OEM production wheel. These results underscore our competitive position and support the attractive tailwinds in the aluminum wheel industry. Further, given the softer automotive demand environment, we positioned the company for the future by rightsizing our manufacturing footprint, improving our cost structure, and strengthening our balance sheet with record cash flow from operations of $163 million and net debt reduction of $84 million,” commented Majdi Abulaban, CEO of Superior.

Abulaban continued, “Looking at 2020, we anticipate softer automotive industry demand compared to 2019. With this outlook, we remain focused on delivering incremental profitability and strong cash flow by realizing the benefits of the changes made during 2019, improving manufacturing productivity, reducing costs, efficiently executing on our portfolio of premium products, and winning programs to support a balanced portfolio that maximizes utilization of our footprint.”

Fourth Quarter Results

Wheel unit shipments were 4.5 million in the fourth quarter of 2019, a decrease of 14%, compared to unit shipments of 5.2 million in the prior year period. The change in units was driven by a decline in both North America and Europe due to lower year-over-year production by our key customers, including the impact of the UAW labor strike at General Motors, as well as reduced market share on select platforms due to a strategic focus on higher value-added product mix. During the quarter, wheels 19 inches and greater accounted for approximately 30% of Superior’s portfolio compared to just over 20% in the prior year period.

Net sales for the fourth quarter of 2019 were $310 million, compared to net sales of $379 million in the prior year period. The decrease in the quarter was driven primarily by lower volumes, including the impact from the strike at General Motors of approximately $30 million, as well as lower aluminum prices, partially offset by the shift towards larger wheels with more premium content.

Value-Added Sales, a non-GAAP financial measure defined as net sales less the value of aluminum and services provided by outsourced service providers that are included in net sales, were $173 million for the fourth quarter of 2019 compared to $206 million in the prior year period. The portfolio shift to larger diameter wheels with more premium content partially offset lower volume. See “Non-GAAP Financial Information” below and the reconciliation of consolidated net sales to Value-Added Sales in this press release.

Gross profit for the fourth quarter of 2019 was $27 million, compared to $36 million in the prior year period. The decrease in gross profit for the quarter was primarily due to lower sales and costs related to the rationalization of the company’s Fayetteville facility of $2 million.

Selling, general and administrative (“SG&A”) expenses for the fourth quarter of 2019 were $17 million compared to $17 million in the prior year period.

Operating loss for the fourth quarter of 2019 was $92 million, compared to income from operations of $19 million in the prior year period. The reduction in operating income for the quarter was primarily driven by the impairment of goodwill and indefinite-lived intangible assets totaling $102 million, in the company’s European operations.

The income tax benefit for the fourth quarter ended December 31, 2019, was $4 million on a pre-tax loss of $103 million. The tax benefit for the quarter was primarily due to the effects of U.S. taxation on foreign earnings under the provisions of tax reform and the generation of additional Polish tax credits.

For the fourth quarter of 2019, the company reported a net loss of $99 million, or a loss per diluted share of $4.25 including the impact of $4.17 per share from acquisition, restructuring, goodwill and indefinite-lived intangible asset impairments, and net other items. This compares to net income of $8 million, or earnings per diluted share of $0.61, in the fourth quarter of 2018.

Adjusted EBITDA, a non-GAAP financial measure, was $38 million for the fourth quarter of 2019. This compares to $46 million for the fourth quarter of 2018. The decrease in Adjusted EBITDA was driven by lower volumes in North America and Europe, including the UAW labor strike at General Motors, partially offset by the shift to larger, more premium wheels.

The company reported net cash provided by operating activities of $61 million in the fourth quarter of 2019 compared to cash provided by operating activities of $92 million during the fourth quarter of 2018. The decrease in net cash from operating activities was primarily driven by working capital improvements in the prior year period, coupled with lower profit in the fourth quarter of 2019.

Net cash used for investing activities was $17 million in the fourth quarter of 2019 compared to $22 million in the prior year period. The reduction was the result of reduced capital expenditures.

During the fourth quarter of 2019, the company made debt principal payments of $11 million, including $4 million of payments on the term loan, $7 million face value of the senior notes using $6 million in cash, and other debt payments totaling $1 million. Superior also paid dividends of $3 million and purchased $3 million of shares from minority equity holders of Superior Industries Europe AG during the quarter.

Full Year 2019 Results 

Wheel unit shipments were 19.2 million for 2019 compared to unit shipments of 21.0 million in the prior year. The decrease in unit shipments was primarily due to a decline in global industry production volumes, lower production at the company’s key customers, and reduced market share on select platforms due to a strategic focus on higher value-added product mix. In 2019, wheels 19 inches and greater accounted for approximately 30% of Superior’s portfolio compared to approximately 20% in the prior year.

Net sales for 2019 were $1,372 million, compared to net sales of $1,502 million in 2018. Value-Added Sales, a non-GAAP financial measure, were $755 million for 2019 compared to $797 million in the prior year. The portfolio shift to larger diameter wheels with more premium content was a significant offset to the lower volume and weaker Euro. On a per-wheel basis, Value-Added Sales excluding FX increased 6% in 2019 compared to 2018, driving growth over market in Value-Added Sales of 2%. See “Non-GAAP Financial Information” below and the reconciliation of consolidated net sales to Value-Added Sales in this press release.

Gross profit for 2019 was $116 million compared to $164 million in the prior year. The decrease in gross profit was due to restructuring costs of $15 million primarily related to the reduction of the company’s manufacturing footprint, as well as lower shipments, 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. These reductions were partially offset by improved mix and year-over-year procurement savings, primarily related to material.

SG&A expenses for 2019 were $64 million, or 5% of net sales, compared to $78 million, or 5% of net sales, in the prior year. The decrease in SG&A primarily reflects a reduction in acquisition and integration expenses, the previously mentioned alignment of reporting for SG&A, and initiatives to reduce SG&A costs.

Operating loss for 2019 was $50 million compared to income from operations of $86 million in the prior year, reflecting the previously described impairment of European goodwill and indefinite-lived intangible assets, restructuring costs related to the reduction of the company’s manufacturing footprint, and lower overall production levels.

The income tax provision for 2019 was $3 million. This compares to an income tax provision for the year ended 2018 of $6 million. The tax provision declined from 2018 to 2019 due to the effects of U.S. taxation on foreign earnings under the provisions of tax reform and the generation of additional Polish tax credits. Cash taxes for 2019 were $9 million.

For 2019, the company reported a net loss of $97 million, or loss per diluted share of $5.10, including the impact of $4.65 per share from acquisition, restructuring, impairment and net other items. This compares to net income of $26 million, or earnings per diluted share of $0.29, in 2018.

Adjusted EBITDA, a non-GAAP financial measure, was $169 million, or 22% of Value-Added Sales, in 2019, which compares to $186 million, or 23% of Value-Added Sales, in 2018. The decrease in Adjusted EBITDA was primarily driven by lower volumes, higher energy costs, and higher outside service provider costs, partially offset by improved product mix comprised of larger diameter wheels and more premium content and year-over-year cost savings.

The company reported net cash provided by operating activities of $163 million for the full year 2019 compared to cash provided by operating activities of $156 million in 2018. The increase in net cash from operating activities was driven by improved working capital management, including the impact of lower volume and lower aluminum prices.

Cash used by investing activities during 2019 included $64 million of capital expenditures partially offset by the sale of other assets for $10 million. This compares to capital expenditures of $78 million in 2018.

Cash used by financing activities included dividends totaling $23 million with dividends to common stockholders of $7 million, preferred and participating preferred dividends of $15 million, and $1 million of dividends to noncontrolling minority owners of Superior Industries Europe AG. In 2019, Superior paid down $11 million of principal on its term loan, repurchased $37 million face value of its senior notes using $32 million of cash, and repaid other debt of $4 million. Also, during the year, Superior purchased $7 million of shares from minority equity holders of Superior Industries Europe AG. The outstanding value of the minority shares is $7 million.

Capital Structure and Liquidity as of December 31, 2019

In 2019, total funded debt and net debt decreased by $54 million and $84 million, respectively. Total funded debt and net debt at December 31, 2019 were $631 million and $553 million, respectively. Total liquidity, including cash and available amounts under revolving credit facilities totaled $284 million as of December 31, 2019, which compares to $239 million at the end of 2018.