NEW YORK CITY – Parts manufacturer Standard Motor Products reported earnings of $18.3 million for second-quarter 2017, down from $19.9 million for second-quarter 2016.
Gross margin in the company’s core Engine Management division dropped from 32.1 percent to 29.4 percent.
The company attributed the declines to the costs of previously announced plant moves, including the integration of General Cable’s automotive ignition-wire business. Standard Motor Products bought the business in May 2016 for $71 million.
“As we move ahead with the integration of the General Cable North American ignition-wire acquisition, we have begun transferring all production from the acquired plant in Nogales, Mexico, to our facility in Reynosa, Mexico,” CEO Eric Sills said. “In addition, starting last year, we transferred the balance of our ignition-coil production to Bialystok, Poland, and diesel-fuel injectors and pumps to Greenville, South Carolina, both of which are still in the process of achieving full benefits. Finally, we have begun the move of our electronics plant in Orlando, Florida, to our plant in Independence, Kansas.”
The company plans to complete the moves within the next nine to 12 months, and will close its facilities in Nogales, Orlando and Grapevine, Texas, Sills added.
“In the short run, we are incurring additional costs, including ramp-up inefficiencies, duplication of overhead and the expenses resulting from hiring and training hundreds of new employees,” Sills said. “This is the primary cause of the decline in gross margin.”
Sills said the company expects the Engine Management business to get back to its historical gross margin of 31 percent to 32 percent, plus $7 million to $10 million in operational savings.
Second-quarter net sales were $312.7 million, up from $289 million in second-quarter 2016.
“In all other areas, we are pleased with our results,” Sills said. “Sales continue to outpace 2016, up 8.2 percent for the quarter and 12.7 percent for the half.”
Excluding sales from the newly acquired General Cable business, second-quarter and first-half 2017 sales are up 3 percent and 5.5 percent, respectively, year-over-year.
“Our Temperature Control division continues to post strong results,” Sills added. “Sales are up 9.3 percent year-to-date, though second-quarter sales were essentially flat. This was due to timing of pre-season orders, which hit heavier in the first quarter of 2017 than in the previous year, and therefore the year-to-date numbers are more meaningful. Temperature Control’s second-quarter gross margin of 26.4 percent is up almost 300 basis points compared with 2016, as we are seeing the benefits of our recent cost-reduction initiatives.
“To conclude, while we are temporarily feeling the impact of costs associated with our strategic restructuring initiatives, we are confident of the benefits, and we are excited about our future. We are very proud of all of our people, and we thank them for their efforts and dedication as we work through these moves.”