Superior Industries international Inc. (SUP) reported its fourth quarter and full year 2010 earnings on March 16, 2011. Financial performance was far better than expected, beating the Zacks Consensus Estimate by several pennies.
As a consequence, the share price rose by 11% on the day with further increases on the following days as well over the last week. Investors are clearly hopeful about the stock after incorporating all the recent updates about the company. Below we will cover the results of the recent earnings announcement, subsequent analyst estimate revisions and the Zacks ratings for the short term and long term outlook for the stock.
Earnings Report Review
Net income for the fourth quarter and for the full year exceeded the Zacks Consensus Estimates by $0.45 and $0.71, respectively. Fourth quarter revenues also improved 32% year over year to $191 million whereas full year sales rose 72% to $719.5 million.
Superior Industries reaped benefits from its increased plant utilization along with a 54% growth in unit sales volume during 2010. At present the company has only five operational facilities following the closures of its Pittsburg, Kansas and Van Nuys, California plants in 2009. Each of its existing plants ran at high utilization rates to meet the increased customer demand in 2010.
A gradually recovering automotive industry pushed up the market demand of vehicles in North America, particularly that of passenger cars and light-duty vehicles whose production increased by nearly 40% in the region during the period.
The growth in sales volume was again attributable to changes in sales mix and increased shipments. The company succeeded in increasing its unit shipments to each of its major customers including Ford Motor Co. (F), General Motors Company (GM) and Chrysler.
(Read our full coverage on this earnings report: Superior Industries Excels in 4Q)
Earnings Estimate Revisions – Overview
Following the press release, estimates for Superior Industries have shown mixed trends. The quarterly estimates took a dip while the yearly estimates climbed up. This implies that the analysts’ confidence in the company’s stock is on the rise for the longer term, although they are not much sure over the shorter term. Next we will try to dig into the earnings estimate details.
Agreement of Estimate Revisions
Surprisingly, out of the 3 analysts covering the stock for the first quarter of 2011 only 1 has made an upward revision to his estimate in the last 7 days while the other two have kept their estimates unchanged. There are no downward revisions though. Likewise, for the second quarter, one analyst out of the three pulled up his estimate, while none revised it downward.
Out of the 4 analysts for 2011, two have raised their estimates, while none decreased the same. Again for 2012, only one out of the 4 analysts revised his estimate upward, while the others maintaining their prior stand.
The fact that most analysts remained unaffected by the most recent performance of the company is certainly not good news.
Magnitude of Estimate Revisions
The first quarter earnings estimate went down to 47 cents from 50 cents since the earnings announcement. The second quarter revenue estimate dropped by one penny only to 57 cents.
On the contrary, current year and next year earnings estimates went up to $1.97 and $2.15 from $1.73 and $2.11, respectively.
Our Take on the Stock
Superior Industries’ two biggest strengths are its appropriate product portfolio and a strong balance sheet. The company is the largest manufacturer of aluminum wheels in North America, mainly for passenger cars and light-duty vehicles. Aluminum wheels are now part of 65% of all vehicles, and are increasing by 1% every year. The growing demand for aluminum wheels replacing steel wheels will certainly broaden the company’s customer base, thereby increasing its sales in the near future.
Secondly, Superior Industries has no bank or other interest bearing debt on its balance sheet. The absence of any long-term debt has allowed full utilization of cash for investment in business opportunities. The company is aggressively executing its business expansion plans. Most recently, it bought a 26% equity stake in SYNERGIES Castings Limited, an aluminum wheel manufacturer based in Visakhapatnam, India. The investment has been made with an intention to make the most out of the growing light vehicle industry in India.
Given the above analysis, it is no surprise that Superior Industries shares are maintaining a Zacks #1 Rank, which translates into a short-term ‘Strong Buy’ rating. Besides, we also give the stock an ‘Outperform’ recommendation in the long term.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
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