Cooper-Standard Holdings Inc. (NYSE: CPS) today reported results for the first quarter 2018.
First Quarter 2018 Highlights
- Sales increased 7.2 percent to a record $967.4 million
- Net income reached a first quarter record $56.8 million or $3.07 per diluted share
- Adjusted EBITDA increased to a first quarter record $122.6 million or 12.7 percent of sales
- Adjusted net income increased 14.2 percent to a first quarter record $63.8 million or $3.45 per diluted share
- Net new business awards totaled $140 million for the quarter
During the first quarter of 2018, the Company generated net income of $56.8 million, or $3.07 per diluted share, and adjusted EBITDA of $122.6 million on sales of $967.4 million. These results compare to net income of $41.7 million, or $2.20 per diluted share, and adjusted EBITDA of $111.0 million on sales of $902.1 million in the first quarter of 2017. The Company’s adjusted EBITDA as a percent of sales (“Adjusted EBITDA Margin”) for the first quarter of 2018 was 12.7 percent compared to 12.3 percent in the first quarter of 2017.
“We are pleased to have started the year with solid operating performance and strong financial results,” stated Jeffrey Edwards, chairman and CEO of Cooper Standard. “Our sales growth continues to outpace global light vehicle production and our team’s further advancements toward world-class operations are helping to reduce costs and expand margins.”
The Company’s first quarter net income, excluding restructuring and other special items (“adjusted net income”), totaled $63.8 million, or $3.45 per diluted share, compared to $55.9 million, or $2.95 per diluted share in the first quarter of 2017. The increase in adjusted net income was driven primarily by improvements in operating efficiency and lower selling, general administrative and engineering (“SGA&E”) expense. These were partially offset by customer price reductions and inflation. Higher material costs were offset by purchasing lean initiatives and supply chain optimization.
Adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted earnings per share are non-GAAP measures. Definitions of these measures and 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
During the first quarter, Cooper Standard launched 50 new customer programs and was awarded $140 million in annual net new business.
New contract awards for the Company’s recent product innovations, including both new and replacement business, totaled $70 million in the quarter. Cooper Standard’sexpanding portfolio of commercialized innovation products includes: MagAlloy™; ArmorHose™; ArmorHose™ TPV; Gen III Posi-Lock; TP Microdense; and Fortrex™.
Subsequent to the end of the quarter, Cooper Standard received an Automotive NewsPACE Award for its Fortrex™ lightweight elastomeric material in automotive sealing applications. The annual PACE (Premier Automotive Suppliers’ Contribution to Excellence) Awards honor supplier innovations that have entered the market and are delivering measurable customer benefits.
Consolidated Results
First quarter 2018 sales increased by $65.3 million or 7.2 percent compared to the first quarter of 2017. The year-over-year increase was largely attributable to $53.0 million of favorable exchange rate fluctuations, primarily in Europe and Asia, and favorable volume and mix, net of customer price reductions.
First quarter adjusted EBITDA increased by $11.7 million or 10.5 percent compared to the first quarter of 2017. The year-over-year increase was primarily attributable to net operational efficiencies of $25.0 million, purchasing efficiencies and lower SGA&E expense, partially offset by customer price reductions and commodity price pressure.
The Company has adopted a new accounting standard related to Compensation – Retirement Benefits (ASU 2017-07) that reclassifies the presentation of the components of net periodic benefit costs in the statements of net income. As a result, prior period data have been recast.
Segment Results
North America
The Company’s North America segment reported sales of $499.2 million in the first quarter, an increase of 3.1 percent when compared to $484.2 million in sales reported in the first quarter 2017. The year-over-year improvement was largely attributable to favorable volume and mix, partially offset by customer price reductions.
North America segment profit was $64.7 million, or 13.0 percent of sales, in the first quarter. This compared to segment profit of $62.3 million or 12.9 percent of sales in the first quarter 2017. The year-over-year change in segment profit was driven primarily by net operational efficiencies and favorable volume and mix, partially offset by customer price reductions and inflation.
Europe
The Company’s Europe segment reported sales of $292.4 million in the first quarter, an increase of 11.8 percent when compared to sales of $261.5 million in the first quarter 2017. The year-over-year improvement was primarily attributable to favorable foreign exchange, partially offset by unfavorable volume and mix net of customer price reductions.
The Europe segment reported a profit of $2.6 million in the first quarter compared to segment loss of $8.6 million in the first quarter of 2017. The year-over-year improvement was largely attributable to net operational efficiencies, including savings from restructuring, lower restructuring expense, the non-recurrence of a prior period fixed asset impairment, favorable foreign exchange and lower SGA&E expense, partially offset by unfavorable volume and mix, customer price reductions, commodity price pressure and inflation.
Asia Pacific
The Company’s Asia Pacific segment reported sales of $149.2 million in the first quarter, an increase of 12.5 percent when compared to sales of $132.6 million in the first quarter 2017. The year-over-year increase was largely attributable to favorable foreign exchange and favorable volume and mix, net of customer price reductions.
Asia Pacific segment profit was $3.6 million in the first quarter, compared to $3.5 million in the first quarter 2017. The year-over-year improvement was largely attributable to net operational efficiencies and lower SGA&E expense offset by lower volume and mix, and customer price reductions.
South America
The Company’s South America segment reported sales of $26.6 million in the first quarter, an increase of 12.3 percent when compared to sales of $23.7 million in the first quarter of 2017. The increase was largely attributable to improved volume and mix, partially offset by foreign exchange.
The South America segment reported a loss of $1.5 million in the first quarter, compared to a segment loss of $2.8 million in the first quarter of 2017. The year-over-year improvement was due primarily to improved volume and mix, and purchasing efficiencies, partially offset by foreign exchange.
Liquidity and Cash Flow
At March 31, 2018, Cooper Standard had cash and cash equivalents totaling $420.2 million. Net cash used in operating activities in the first quarter 2018 was $10.6 million and free cash flow for the quarter (defined as net cash used/provided by operating activities minus capital expenditures) was an outflow of $78.4 million. Free cash flow was negatively impacted by the timing of certain customer payments and lower utilization of the Company’s accounts receivable factoring program during the quarter.
In addition to cash and cash equivalents, the Company had $200.0 million available under its amended senior asset-based revolving credit facility (“ABL”) for total liquidity of $620.2 million at March 31, 2018.
Total debt at March 31, 2018 was $758.2 million. Net debt (defined as total debt minus cash and cash equivalents) was $338.0 million. Cooper Standard’s net leverage ratio (defined as net debt divided by trailing 12 months adjusted EBITDA) at March 31, 2018 was 0.7 times.
During the first quarter, the Company entered into a third amendment to its Term Loan Facility to reduce the interest rate. The lower rate will reduce cash interest expense by approximately $0.8 million annually through the remaining term of the loan.
Outlook
Based on the results achieved in the first quarter and the market outlook for the rest of the year, the Company is maintaining its previous guidance for the full year 2018 as summarized below:
| Previous Guidance (2/15/2018) |
Current Guidance | |
| Sales | $3.55 – $3.60 billion | Unchanged |
| Adjusted EBITDA Margin1 | 12.7% – 13.3% | Unchanged |
| Capital Expenditures as a percent of sales | 5.5% – 5.9% | Unchanged |
| Cash Restructuring | $25 – $35 million | Unchanged |
| Effective Tax Rate | 20% – 24% | Unchanged |
| 1 Adjusted EBITDA Margin is a non-GAAP financial measure. We have not provided a reconciliation of projected adjusted EBITDA margin range to projected net income margin range 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, we cannot reconcile projected adjusted EBITDA margin range to a comparable US GAAP net income margin range without unreasonable effort. | ||
