Stoneridge Reports Strong First-Quarter 2019 Results

NOVI, Mich., May 1, 2019 /PRNewswire/ --

2019 First-Quarter Results

• Earnings per diluted share ("EPS") of $0.33
• Adjusted EPS of $0.44 (adjustments related to the step-up in the fair value of the earn-out related to the PST transaction, certain restructuring and business realignment costs, costs associated with the recent divestiture, nonrecurring gains related to equity investments and a gain related to the impact of a state tax valuation allowance release)
• Sales of $218.3 million, a decrease of 3.4% from Q1 2018
• Gross profit of $60.9 million
• Adjusted gross profit of $62.1 million (28.4% of sales), a decrease of 8.6% from Q1 2018 adjusted gross profit
• Operating income of $11.7 million
• Adjusted operating income of $16.1 million (7.4% of sales), a decrease of 10.7% from Q1 2018
• Adjusted EBITDA of $24.1 million (11.0% of sales), a decrease of 10.4% from Q1 2018

Full-Year Guidance 

• Maintaining full-year guidance less the impact of the divestiture
• Midpoint of full-year Adjusted EPS guidance ($1.625) reflects the midpoint of previously provided guidance ($1.80) less the midpoint of the expected impact of recent divestiture ($0.175)
• Midpoint of sales guidance of $847.5 million reflects a $15 to $20 million impact to 2019 sales related to the divestiture offset by revenue related to contract manufacturing services related to the divestiture
• As a result of the recent divestiture, adjusted gross margin midpoint was reduced 50 basis points, adjusted operating margin was adjusted by 50 to 75 basis points and adjusted EBITDA margin were adjusted by 75 basis points

Stoneridge, Inc. (NYSE: SRI) today announced financial results for the first quarter ended March 31, 2019, with sales of $218.3 million and earnings per diluted share of $0.33. Adjusted EPS was $0.44 for the first quarter, considering adjustments related to the step-up in the fair value of the earn-out related to the PST transaction in 2017, certain restructuring and business realignment costs, costs associated with the recent divestiture, nonrecurring gains related to equity investments and a gain related to the impact of a state tax valuation allowance release, which have been removed to reflect normalized earnings.    

For the first quarter of 2019, Stoneridge reported gross profit of $60.9 million and adjusted gross profit of $62.1 million (28.4% of sales). Operating income was $11.7 million and adjusted operating income was $16.1 million (7.4% of sales). Adjusted EBITDA was $24.1 million (11.0% of sales).       

"Stoneridge continues to deliver strong and consistent financial performance," said Jon DeGaynor, president and chief executive officer. "In the first quarter, we announced the divestiture of non-core switches and connectors product lines to Standard Motor Products. This move is part of our Stoneridge 2020 initiative, announced in January. We will continue to refine our focus on products and core technologies that will drive sustainable, outsized growth and deliver top-quartile financial performance. The divestiture of the non-core switches and connectors products and subsequent closure of the Canton, Massachusetts facility will improve margin, reduces complexity and focuses our resources on growth technology platforms."

First Quarter in Review
Control Devices sales of $112.0 million decreased 4.7% relative to the first quarter of 2018, primarily due to decreased sales volume in the North American automotive market as a result of certain program volume reductions. This decrease is partially offset by increased sales volume in European and North American commercial vehicle and China automotive markets. Control Devices gross margin decreased due to lower sales and higher warranty costs. The segment's adjusted operating income decreased primarily due to a lower gross margin and higher SG&A expenses, partially offset by lower D&D costs, resulting in adjusted operating margin of 13.1%.

Electronics sales of $99.6 million decreased $0.9 million relative to the first quarter of 2018, primarily due to unfavorable foreign currency translation of $8.6 million partially offset by an increase in European and North American commercial vehicle and off-highway product sales. Electronics segment gross margin decreased due to an unfavorable product mix. The segment's adjusted operating income increased primarily due to lower D&D costs and SG&A expenses, resulting in adjusted operating margin of 9.3%. 

PST sales of $17.3 million decreased primarily due to unfavorable foreign currency translation. PST gross margin declined due to the adverse effect of U.S. denominated direct material purchases and higher labor costs as a percentage of sales. PST adjusted operating margin increased from 4.4% in Q1 2018 to 6.6% in the current quarter, primarily due to lower D&D and SG&A costs as a percentage of sales.    

Cash and Debt Balances
As of March 31, 2019, Stoneridge had cash and cash equivalent balances totaling $53.1 million. Total debt as of March 31, 2019, was $92.9 million. Total debt less cash and cash equivalents yields a current net debt to trailing-twelve-month adjusted EBITDA ratio of approximately 0.4x.

2019 Outlook
Bob Krakowiak, executive vice president and chief financial officer, commented, "For the full-year 2019, we are reaffirming the previously provided ranges for all guided metrics less the impact of the recent divestiture. As announced previously, we expect the impact of the divestiture to be ($0.15) – ($0.20) in 2019.  Beyond 2019, we expect the impact of the divestiture, as well as the closure of our Canton, Massachusetts, manufacturing facility and the related reduction to the overall cost structure to be accretive to our operating margin. We will continue to utilize the proceeds from this transaction, as well as our current capital structure, to maximize shareholder value through reinvestment in our existing business, targeted M&A activities or return of capital to our shareholders through our previously announced share repurchase program. We intend to execute on the Company's previously announced share repurchase program within the Board-authorized 18-month timeframe."

Conference Call on the Web
A live internet broadcast of Stoneridge's conference call regarding 2019 first-quarter results can be accessed at 9:00 a.m. Eastern Standard Time on Thursday, May 2, 2019, at www.stoneridge.com. A webcast replay will also be offered.

About Stoneridge, Inc.
Stoneridge, Inc., headquartered in Novi, Michigan, is an independent designer and manufacturer of highly engineered electrical and electronic components, modules and systems principally for the automotive, commercial, motorcycle, off-highway and agricultural vehicle markets. Additional information about Stoneridge can be found at www.stoneridge.com.

Forward-Looking Statements
Statements in this release contain "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this report and may include statements regarding the intent, belief or current expectations of the Company, with respect to, among other things, our (i) future product and facility expansion, (ii) acquisition strategy, (iii) investments and new product development, (iv) growth opportunities related to awarded business and (v) operational expectations.  Forward-looking statements may be identified by the words "will," "may," "should," "designed to," "believes," "plans," "projects," "intends," "expects," "estimates," "anticipates," "continue" and similar words and expressions.  The forward-looking statements are subject to risks and uncertainties that could cause actual events or results to differ materially from those expressed in or implied by the statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, among other factors:

• the reduced purchases, loss or bankruptcy of a major customer or supplier;
• the costs and timing of business realignment, facility closures or similar actions;
• a significant change in automotive, commercial, off-highway, motorcycle or agricultural vehicle production;
• competitive market conditions and resulting effects on sales and pricing;
• the impact of changes in foreign currency exchange rates on sales, costs and results, particularly the Argentinian peso, Brazilian real, Chinese renminbi, euro, Mexican peso and Swedish krona;
• our ability to achieve cost reductions that offset or exceed customer-mandated selling price reductions;
• customer acceptance of new products;
• our ability to successfully launch/produce products for awarded business;
• adverse changes in laws, government regulations or market conditions, including tariffs, affecting our products or our customers' products;
• our ability to protect our intellectual property and successfully defend against assertions made against us;
• liabilities arising from warranty claims, product recall or field actions, product liability and legal proceedings to which we are or may become a party, or the impact of product recall or field actions on our customers;
• labor disruptions at our facilities or at any of our significant customers or suppliers;
• the ability of our suppliers to supply us with parts and components at competitive prices on a timely basis, including the impact of potential tariffs and trade considerations on their operations and output;
• the amount of our indebtedness and the restrictive covenants contained in the agreements governing our indebtedness, including our revolving credit facility;
• capital availability or costs, including changes in interest rates or market perceptions;
• the failure to achieve the successful integration of any acquired company or business;
• risks related to a failure of our information technology systems and networks, and risks associated with current and emerging technology threats and damage from computer viruses, unauthorized access, cyber-attack and other similar disruptions; and
• the items described in Part I, Item IA ("Risk Factors") of our 2018 10-K filed with the SEC.

The forward-looking statements contained herein represent our estimates only as of the date of this release and should not be relied upon as representing our estimates as of any subsequent date.  While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, whether to reflect actual results, changes in assumptions, changes in other factors affecting such forward-looking statements or otherwise.

Use of Non-GAAP Financial Information
This press release contains information about Stoneridge's financial results which is not presented in accordance with accounting principles generally accepted in the United States ("GAAP"). Such non-GAAP financial measures are reconciled to their closest GAAP financial measures at the end of this press release. The provision of these non-GAAP financial measures for 2018 and 2019 is not intended to indicate that Stoneridge is explicitly or implicitly providing projections on those non-GAAP financial measures, and actual results for such measures are likely to vary from those presented. The reconciliations include all information reasonably available to the Company at the date of this press release and the adjustments that management can reasonably predict.

Management believes the non-GAAP financial measures used in this press release are useful to both management and investors in their analysis of the Company's financial position and results of operations.  In particular, management believes that adjusted gross profit, adjusted operating income, adjusted net income, adjusted earnings per share and adjusted EBITDA are useful measures in assessing the Company's financial performance by excluding certain items that are not indicative of the Company's core operating performance or that may obscure trends useful in evaluating the Company's continuing operating activities.  Management also believes that these measures are useful to both management and investors in their analysis of the Company's results of operations and provide improved comparability between fiscal periods.

Adjusted gross profit, adjusted operating income, adjusted net income, adjusted earnings per diluted share and adjusted EBITDA should not be considered in isolation or as a substitute for gross profit, operating income, net income, earnings per diluted share, cash provided by operating activities or other income statement or cash flow statement data prepared in accordance with GAAP.  

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SOURCE Stoneridge, Inc.