Standard Motor Products, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Opened new 575,000 square foot state-of-the-art distribution center in Shawnee, Kansas, planning to ramp up activities.
• Discussed tariff landscape, hopeful for stabilized environment, with diverse global footprint providing competitive advantage. Over half U.S. sales from North American-produced tariff-free products, implementing cost mitigation plans.
• Nissens integration well underway with focus on product cost savings and leveraging complementary product portfolios for growth opportunities.

Segment Performance

• North American aftermarket:
  • Vehicle Control: Sales up nearly 7% in Q2, YTD up 5.3%. Customers invest in products as they expand footprint, with strong brand recognition.
  • Temperature Control: Sales up 5.5% in Q2, YTD up 12.3%. Impact of preseason order timing and strong market position.
• Nissens: Added $90.5 million net sales and $16.3 million adjusted EBITDA in Q2. Performing well with mid-to-high single-digit growth, benefiting from brand profile and go-to-market strategy. Integration underway with focus on product cost savings and new SKU introductions.
• Engineered Solutions: Sales down 8.3% in Q2, adjusted EBITDA 10% but down from last year due to slowdown in end markets, though longer-term trends are favorable.

Guidance

• Raised top line guidance to low 20s percent growth range, up from previous mid-teens.
• Reaffirmed adjusted EBITDA margin will be in range of 10% to 11% of net sales even after absorbing tariff impacts and price pass-through.

Risks

• Tariff uncertainties with evolving trade landscape.
• Cyclicality in Engineered Solutions segment due to slowdown in certain end markets.

Q: Still some moving pieces with tariffs, could you talk a bit more about pricing trends in the second half and maybe a range of same SKU inflation assumptions within the guide?

A: Pricing plans for second half in place to cover tariffs, relatively nominal when spread across offering.

Q: Within the U.S. aftermarket, could you talk a bit more on POS compared to sell-in? And any signs of inventory builds to get ahead of price increases there?

A: Vehicle Control had low to mid-single digit growth with positive sell-through, slightly less than sell-in. Customers expanding footprint, no step-wise change in inventory due to ongoing evolution of assortment.

Q: Just regarding tariffs, can you talk about the timing of the impacts? And also, if you could give any segment breakdown on where you see the price increases so far?

A: Some costs came through in Q2, mostly offsetting in Q3. No specific segment breakdown on price increases yet.

Q: How did the Nissens business perform compared to your expectations this quarter? How is the whole European aftermarket holding up? And what sort of synergies between products have you gone through so far?

A: Nissens exceeding expectations, outperforming European aftermarket in certain product types. Integration focusing on accelerating new category launches through combined capabilities.

Q: In the Engineered Solutions category, can you give some idea as to what's in all other?

A: All other includes lawn and garden, hydraulics, stationary equipment, mostly powersports. Has potential but saw softness this year.

Q: With the expectation of lower interest rates, are you going to have an opportunity to refinance that at some point?

A: Will keep abreast of interest rate changes, did refinancing last year with attractive rates through interest rate swaps.

Q: As we look into 2026 and Shawnee is complete and Edwardsville is kind of finalized, should we expect better margin and more efficiency at the EBIT level?

A: Expect efficiencies from automation and freight savings, but will have extra lease expense and higher depreciation, still expecting $3 million to $4 million net higher in cost off baseline from 2023.

Q: Out of curiosity, if we look at the third quarter tariffs versus what you experienced in the second quarter and what you were looking at in the second quarter, are you seeing -- given kind of what's come out at this point, have your -- will your tariff costs actually come down a little?

A: Based on announced and implemented tariffs, no, tariff costs not coming down yet; most future changes show slight increases.