Superior Industries International Inc. (SUP) reported a net loss of $13.9 million or 52 cents per share (excluding non-recurring charges) in the second quarter, driven by a significant 52% decline in unit wheel shipments, the lowest in more than a decade. Reported losses were considerably higher than Zacks’ consensus loss of 36 cents.
In addition to lower volumes, average selling prices declined 22%, which resulted in a 63% decline in revenue to $80.9 million in the second quarter of 2009 from $217.4 million reported in the same period last year.
During the quarter, the company’s two major customers — Chrysler and General Motors — had extended periods of shutdown and closed certain plants, which significantly hurt unit shipments. To address the industry-wide reduction in demand for aluminum wheels, Superior closed its manufacturing facilities in Pittsburg, Kansas in December 2008 and Van Nuys, California in June 2009. However, it anticipates moderate improvement in volumes during the next six months, with the key customers regaining their positions.
Superior supplies 35% of the aluminum wheels used by passenger cars and light trucks in North America. The company operates in a highly competitive environment in terms of customer service, product quality and innovations. It is the lowest-cost wheel producer in the U.S. as its three manufacturing units in Chihuahua, Mexico are the most economical facilities in the world since Mexican labor is about 33% cheaper than in the U.S.
Going forward, Superior plans to transfer about 66% of the current production to these lower-cost Mexico plants. This apart, Superior’s debt free status makes it financially strong. The company is, therefore, advantageously positioned should it desire to expand its facilities or grow internationally.
However, declining demand, pricing pressures from original equipment manufacturers and production cuts have negatively affected Superior Industries. Thus, we rate the stock a Hold and set a six-month target price of $12.50.
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