Cooper-Standard Holdings Inc. (NYSE: CPS) today reported results for the third quarter 2019.
Third Quarter 2019 Summary
- Sales totaled $729.0 million
- Net loss of $13.9 million or $(0.82) per diluted share
- Adjusted EBITDA of $43.5 million or 6.0 percent of sales
- Adjusted net loss of $5.2 million or $(0.31) per diluted share
- Net new business awards totaled $132 million in projected annualized sales
- Continuing record pace for new program launches
“Production levels on certain key vehicle platforms in North America and Asia have remained well below expectations and have continued to negatively impact our financial results,” said Jeffrey Edwards, chairman and CEO, Cooper Standard. “In addition, unfavorable outcomes of customer negotiations in China and the unanticipated UAW work stoppage in the United States further reduced sales and profits during the third quarter.
“We are continuing the aggressive implementation of several initiatives to reduce costs, optimize working capital and align our operations with lower light vehicle production in all regions,” Edwards added. “We expect the successful execution of these initiatives, combined with record new program launches and further advancements within our non-automotive businesses will position us to drive improved results going forward.”
Consolidated Results
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| (dollar amounts in millions except per share amounts) | |||||||||||||||
| Sales | $ | 729.0 | $ | 861.7 | $ | 2,373.9 | $ | 2,757.3 | |||||||
| Net income (loss) | $ | (13.9) | $ | 32.2 | $ | 128.0 | $ | 130.8 | |||||||
| Adjusted net income (loss) | $ | (5.2) | $ | 19.1 | $ | 12.1 | $ | 133.2 | |||||||
| Earnings (loss) per diluted share | $ | (0.82) | $ | 1.77 | $ | 7.40 | $ | 7.13 | |||||||
| Adjusted earnings (loss) per diluted share | $ | (0.31) | $ | 1.05 | $ | 0.70 | $ | 7.26 | |||||||
| Adjusted EBITDA | $ | 43.5 | $ | 69.6 | $ | 168.0 | $ | 300.1 | |||||||
The year-over-year change in third quarter sales was primarily attributable to the sale of the Company’s Anti-Vibration Systems (AVS) business, unfavorable volume and mix, customer price adjustments and foreign exchange, partially offset by incremental sales from acquisitions.
Net loss for the third quarter 2019 included restructuring charges related to headcount reduction actions, asset impairment charges related to fixed assets in Asia, an adjustment to the amount of the gain recognized on the second quarter sale of the AVS business, and certain project costs related to acquisitions and divestitures. Adjusted net loss, which excludes these items and their related tax impact, declined in the third quarter 2019 compared to the prior year period adjusted net income due largely to unfavorable volume and mix, general inflation, customer price adjustments and higher material costs, partially offset by operating efficiencies and other cost saving initiatives.
Adjusted net income (loss), adjusted EBITDA and adjusted earnings (loss) per diluted share are non-GAAP measures. Reconciliations to the most directly comparable financial measures, calculated and presented in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), are provided in the attached supplemental schedules.
Notable Developments
The Company continues at a record pace for new program launches. During the third quarter, the Company successfully launched 71 new customer programs, an increase of 54 percent compared to the third quarter of 2018. Also during the quarter, the Company received net new business awards totaling $132 million in annualized sales. This brings the year-to-date total net new business awards to $261 million. New contract awards related to product innovations, including both new and replacement business, totaled $24 million in annualized sales in the third quarter and $276 million year-to-date. Cooper Standard’s expanding portfolio of commercialized innovation products includes: MagAlloy™; ArmorHose™; ArmorHose™ TPV; LightHose; Gen III Posi-Lock; TP Microdense; Microdense EPDM; FlushSeal™ glass sealing technology; and Fortrex™.
Cost Reduction and Restructuring Initiatives
The Company remains focused on reducing ongoing costs through improved operating efficiency and the further rightsizing of its operating footprint and overhead expenses. In addition to actions announced and implemented in 2018 and the first half of 2019, the Company is implementing several additional restructuring and cost reduction initiatives that are expected to reduce expenses in 2020 and beyond. These additional initiatives include the transition from a regional management structure to a leaner, more effective and efficient global organization structure, further rightsizing of selling, general, administrative and engineering (SGA&E) expense, and structural cost reductions through the closure of 10 facilities. Restructuring expense related to planned headcount reductions is expected to be $7 to $9 million with annualized savings resulting in a payback of less than one year. The restructuring expense related to facility closures is expected to be in the range of $20 to $25 million including $11 million in restructuring expense already incurred. The related structural cost savings are expected to drive a cash payback in less than two years.
Segment Results of Operations
Sales
| Three Months Ended September 30, | Variance Due To: | |||||||||||||||||||||||
| 2019 | 2018 | Change | Volume / Mix* |
Foreign Exchange |
Acquisitions/ Divestiture, net |
|||||||||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||||||||||
| Sales to external customers | ||||||||||||||||||||||||
| North America | $ | 393,747 | $ | 471,553 | $ | (77,806) | $ | (29,319) | $ | (640) | $ | (47,847) | ||||||||||||
| Europe | 197,409 | 228,332 | (30,923) | (5,490) | (9,715) | (15,718) | ||||||||||||||||||
| Asia Pacific | 112,642 | 136,155 | (23,513) | (32,448) | (3,702) | 12,637 | ||||||||||||||||||
| South America | 25,223 | 25,613 | (390) | (254) | (136) | — | ||||||||||||||||||
| Consolidated sales | $ | 729,021 | $ | 861,653 | $ | (132,632) | $ | (67,511) | $ | (14,193) | $ | (50,928) | ||||||||||||
| * Net of customer price reductions | ||||||||||||||||||||||||
- The impact of foreign currency exchange primarily relates to the Euro and Chinese Renminbi.
Adjusted EBITDA
| Three Months Ended September 30, | Variance Due To: | |||||||||||||||||||||||||||
| 2019 | 2018 | Change | Volume / Mix* |
Foreign Exchange |
Cost (Increases) / Decreases |
Acquisitions/ Divestiture, net |
||||||||||||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||||||||||||||
| Segment adjusted EBITDA | ||||||||||||||||||||||||||||
| North America | $ | 62,603 | $ | 71,589 | $ | (8,986) | $ | (19,225) | $ | 299 | $ | 12,387 | $ | (2,447) | ||||||||||||||
| Europe | 6,750 | 934 | 5,816 | (3,617) | 768 | 9,438 | (773) | |||||||||||||||||||||
| Asia Pacific | (22,921) | (1,253) | (21,668) | (21,845) | (80) | 327 | (70) | |||||||||||||||||||||
| South America | (2,906) | (1,699) | (1,207) | 26 | (737) | (496) | — | |||||||||||||||||||||
| Consolidated adjusted EBITDA | $ | 43,526 | $ | 69,571 | $ | (26,045) | $ | (44,661) | $ | 250 | $ | 21,656 | $ | (3,290) | ||||||||||||||
| * Net of customer price reductions | ||||||||||||||||||||||||||||
- The impact of foreign currency exchange is primarily driven by the Polish Zloty, Czech Koruna, Canadian Dollar and Mexican Peso.
- The Cost (Increases) / Decreases category above includes:
- The increase in commodity cost pressure, general inflation and tariffs;
- Reduction in compensation-related expenses;
- The one-time impact of commercial settlements in Asia Pacific; and
- Net operational efficiencies of $12.9 million primarily driven by our Europe and Asia Pacific segments.
Liquidity and Cash Flow
At September 30, 2019, Cooper Standard had cash and cash equivalents totaling $323.1 million. Net cash provided by operating activities in the third quarter 2019 was $38.9 million and free cash flow for the quarter (defined as net cash used in/provided by operating activities minus capital expenditures) was an inflow of $3.3 million.
In addition to cash and cash equivalents, the Company had $183.7 million available under its amended senior asset-based revolving credit facility (“ABL”), inclusive of outstanding letters of credit, for total liquidity of $506.8 million at September 30, 2019.
Total debt at September 30, 2019 was $803.5 million. Net debt (defined as total debt minus cash and cash equivalents) was $480.4 million. Cooper Standard’s net leverage ratio (defined as net debt divided by trailing 12 months adjusted EBITDA) at September 30, 2019 was 2.0 times.
Outlook
Based on the results achieved in the first three quarters and the industry and economic outlook for the rest of the year, the Company has revised its guidance for the full year 2019 as summarized below:
| Previous Guidance (8/2/2019) |
Current Guidance1 | |||||||||
| Sales | $3.0 – $3.2 billion | $3.0 – $3.1 billion | ||||||||
| Adjusted EBITDA2 | $270 – $300 million | $190 – $210 million | ||||||||
| Capital Expenditures | $175 – $185 million | $165 – $175 million | ||||||||
| Cash Restructuring | $25 – $35 million | $35 – $40 million | ||||||||
| Effective Tax Rate | 21% – 25% | 25% – 29% | ||||||||
| 1 | Guidance is representative of management’s estimates and expectations as of the date it is published. Current guidance as presented in this press release is reflective of October 2019 IHS production forecasts for relevant light vehicle platforms and models, customers’ planned production schedules and other internal assumptions. |
| 2 | Adjusted EBITDA is a non-GAAP financial measure. The Company has not provided a reconciliation of projected adjusted EBITDA to projected net income because full-year net income will include special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end. Due to this uncertainty, the Company cannot reconcile projected adjusted EBITDA to U.S. GAAP net income without unreasonable effort. |
Conference Call Details
Cooper Standard management will host a conference call and webcast on November 6, 2019 at 9 a.m. ET to discuss its third quarter 2019 results, provide a general business update and respond to investor questions. A link to the live webcast of the call (listen only) and presentation materials will be available on Cooper Standard’s Investor Relations website at www.ir.cooperstandard.com/events.cfm.
To participate by phone, callers in the United States and Canada should dial toll-free (877) 374-4041. International callers should dial (253) 237-1156. Provide the conference ID 5561738 or ask to be connected to the Cooper Standard conference call. Representatives of the investment community will have the opportunity to ask questions after the presentation. Callers should dial in at least five minutes prior to the start of the call.
Individuals unable to participate during the live call may visit the investors’ portion of the Cooper Standard website (www.ir.cooperstandard.com) for a replay of the webcast.
SOURCE: Cooper Standard
