Standard Motor Products - Earnings Call - Q2 2025

Executive Summary

• Strong quarter with broad-based outperformance: revenue rose 26.7% year over year to $493.9M and adjusted diluted EPS increased 31.6% to $1.29; both materially beat S&P Global consensus (Rev: $450.2M est; EPS: $0.95 est). Management raised FY25 sales growth guidance to the “low-20s%” and reaffirmed 10–11% adjusted EBITDA margin despite tariff headwinds.
• Nissens continued to outperform: Q2 sales of $90.5M with 18.0% adjusted EBITDA margin (ahead of mid-teens plan); integration and growth synergies advancing (800+ new SKUs launched in North America).
• Tariffs created timing pressure in Q2, but pricing/mitigation expected to largely offset from Q3 onward; updated FY guidance now embeds tariff impacts and mitigation.
• Balance sheet/liquidity: net debt $577.8M; leverage 3.2x (would be lower including a full 12 months of Nissens EBITDA); new 575k sq ft Shawnee, KS DC opened, with Edwardsville exit targeted by year-end.

What Went Well and What Went Wrong

• What Went Well

  • Broad beat versus expectations and tough comps: adjusted EPS up 31.6% and adjusted EBITDA margin up 190 bps to 12.0% driven by Nissens and North American aftermarket. “We are very pleased with our strong second quarter results.”
  • Nissens execution ahead of plan: $90.5M revenue with 18% EBITDA and early growth synergies (800+ SKUs) reinforcing share gains in Europe and traction in engine efficiency categories.
  • Aftermarket resilience: Vehicle Control up ~7% and Temperature Control up 5.5% despite a 28% prior-year comp; management cites strong sell-through and non‑discretionary demand.

• What Went Wrong

  • Tariff timing: costs flowed through Q2 before offsetting pricing, pressuring gross margin rate within certain segments; offsets expected from Q3.
  • Engineered Solutions softness: segment sales declined 8.3% YoY on end-market weakness and unfavorable mix; management expects easier 2H comps but near-term remains subdued.
  • Higher interest expense and leverage versus prior year given acquisition financing and seasonal working capital; Q2 interest expense $8.3M and leverage at 3.2x.

Transcript

Speaker 6

Thank you and good morning, everyone, and thank you for joining us on Standard Motor Products' second quarter 2025 earnings conference call. With me today are Larry Sills, Chairman Emeritus, Eric Sills, Chairman and Chief Executive Officer, Jim Burke, Chief Operating Officer, and Nathan Iles, Chief Financial Officer. On our call today, Eric will give an overview of our performance in the quarter, and Nathan will then discuss our financial results. Eric will then provide some concluding remarks and open the call up for Q&A. Before we begin this morning, I'd like to remind you that some of the material that we'll be discussing today may include forward-looking statements regarding our business and expected financial results. When we use words like "anticipate," "believe," "estimate," or "expect," these are generally forward-looking statements.

Although we believe that the expectations reflected in these forward-looking statements are reasonable, they are based on information currently available to us and certain assumptions made by us, and we cannot assure you they will prove correct. You should also read our filings in the Securities and Exchange Commission for a discussion of the risks and uncertainties that could cause our actual results to differ from our forward-looking statements. I'll now turn the call over to Eric Sills, our CEO.

Speaker 0

Thank you, Tony, and good morning, everyone, and welcome to our second quarter earnings call. Overall, we are quite pleased with our results, as the strong momentum from the first quarter has continued. From a top-line perspective, we posted growth of nearly 27%. While the majority of this growth was from the addition of our newly acquired Nissens Automotive business, the legacy business was up 3.5%, and that is against very challenging comps as last year's second quarter was quite strong. Year to date, we are now up about 26%, or about 4% excluding Nissens Automotive. We're also pleased by our profit gains. Adjusted EBITDA increased $20 million, up 190 basis points to 12%. Here too, Nissens Automotive provided much of the lift, though other segments also contributed to the growth.

Due to the strength of our first half, we have decided to increase our top-line expectations to the low 20% growth range, up from our previous guide of mid-teens growth. I'll now review each business separately, starting with the North American aftermarket. This is comprised of two operating segments: Vehicle Control and Temperature Control, both of which had very strong quarters. Vehicle Control sales were up nearly 7% in the quarter and are now up 5.3% year to date. Our customers continue to invest in our products as they expand their footprint, recognizing the critical need for in-market product availability, and their strong sell-through demonstrates the ongoing demand for our largely non-discretionary offering. Furthermore, we believe that the brand recognition we enjoy with professional technicians leads them to choose our products over others.

Turning to our Temperature Control division, sales increased 5.5% over last year, which is impressive as last year's Q2 was up 28% over the prior year. Year to date, the segment is now up 12.3% over last year, and last year had been one of the hottest on record. We believe there are a few things at play here. First is the impact of the timing of preseason orders. This year, they came in early, as was reflected in our strong first quarter, and often that just leads to timing differences across quarters, but we believe this year that early in-stock better prepared our customers for the start of the season, and they never missed a beat. Here too, we contend that our strong market position has created momentum for our brands, and our customer sell-through suggests they are doing quite well with our program.

Next, I'll speak about our newest aftermarket segment, Nissens Automotive, which has been part of Standard Motor Products since last November. Sales remained strong in the quarter, adding $90 million in revenue. They continue to outperform in their markets, enjoying mid to high single-digit growth. There are several contributing factors to this outperformance. First, as a non-discretionary and largely weather-dependent offering, they are enjoying some of the same market tailwinds as here in the U.S. Additionally, their strong brand profile and well-received go-to-market strategy have allowed them to grow market share in their existing categories and to gain traction in newly launched categories, specifically in what they call engine efficiency and what would fall within Vehicle Control here. Now, while Nissens is a strong company in its own right, we believe that meaningful synergies exist through integration, which is well underway.

For saving synergies, we have been heavily focused on product cost. As we have significant product overlap, we are combining our sourcing efforts to identify best suppliers, leveraging our combined spend, and insourcing as appropriate. We have also now begun taking advantage of our complementary product portfolios to pursue growth opportunities. For example, this quarter we announced the introduction of over 800 new SKUs to the Nissens North American customer base and are actively building out programs for Europe. We're really just getting started and seeing that opportunities abound. Lastly, I'll address our non-aftermarket segment, Engineered Solutions. Sales declined 8.3% in the quarter, which reflects the ongoing trend of a slowdown in certain end markets. It's worth noting that this softness began in the second half of last year, so the comps going forward will be easier.

We have always known and discussed that, as opposed to the aftermarket, it is prone to more cyclicality. While we can expect some volatility period to period, we believe that the longer-term trends are favorable, and we believe it provides a nice complement to our aftermarket business with valuable synergies. Turning to our operations, we are proud to announce in the quarter the official opening of our new 575,000 square foot state-of-the-art distribution center in Shawnee Campus. We plan to fully ramp up over the balance of the year by transferring all activities from the nearby Edwardsville facility, as well as by shifting portions of our volume from our other major DCs. We will emerge with a much better balance of activities across our network, with expanded capacity, redundancy for risk mitigation, and the ability to better serve our customers.

It's been a heavy lift, and I thank all who are involved in this major undertaking. Lastly, let me speak to the current tariff landscape. While it is changing by the minute, we are hopeful that we are nearing a more stabilized environment. While we are still awaiting certain trade agreements to be finalized, we believe that our diverse global footprint will continue to provide us with a competitive advantage. Over half our sales in the U.S. are from products produced in North America, which are largely tariff-free. For products from other regions, we have been implementing our plans as previously described. It begins with mitigating costs by working with our upstream suppliers on cost sharing and by relocating production from China to lower tariffed areas. However, much of our cost recovery comes from passing through the impact through to our customers at our cost.

Due to our North American footprint, we believe that the amount we need to pass through is likely less than the competition. It's important to note that there is a timing delay between when costs are incurred and new pricing takes effect. Due to this, we did incur costs in Q2 associated with previously implemented tariffs with minimal offsetting pricing, but beginning in Q3, these will begin to roughly offset. We recognize that the landscape remains fluid. As it evolves, we will continue to implement our playbook, adjusting prices up or down as needed. It is worth reiterating that as most of our products are non-discretionary and as product decisions are typically made by professional repair facilities, they are fairly price inelastic at the end consumer.

When you put all these moving pieces together, we are very pleased with the quarter's financial results and with our ability to execute on our initiatives during complex times. Let me hand this over to Nathan, who will provide the details.

Speaker 5

All right, thank you, Eric, and good morning, everyone. As we go through the numbers, I'll first give some color on the results for the quarter by segment and then look at the consolidated results for both the quarter and year so far. I'll then cover some key cash flow metrics, end the balance sheet, and finish with an update on our financial outlook for the full year of 2025. First, looking at our Vehicle Control segment, you can see on the slide that the net sales of $201.7 million in Q2 were up 6.9%, with the increase driven by steady demand for our portfolio of products. Vehicle Control's adjusted EBITDA in the second quarter increased to 10.7%, up 30 basis points from last year.

The increase in adjusted EBITDA was driven by better leverage of operating expenses on higher sales and lower factoring expenses as a result of lower interest rates in the quarter. These items more than offset a lower gross margin rate that was pressured by the increased cost of tariffs in the quarter, the dynamics of which Eric noted earlier. Turning to Temperature Control, net sales in the quarter for that segment of $131.4 million were up 5.5%. The second quarter benefited from a strong start to the season, with weather being hot across most of the country, and we continue to see strong sell-through with customers. Temperature Control's adjusted EBITDA increased in Q2 to 16.1% due to higher sales volumes that led to a higher gross margin rate, which more than offset pressure from tariff costs, as well as improved operating expenses as percent of sales for the quarter.

Next, I'll touch on Nissens. In our second full quarter of ownership, Nissens added $90.5 million of net sales and $16.3 million of adjusted EBITDA. The business is performing well and again exceeded our estimate of mid-teens EBITDA percent, coming in at 18% for the quarter. Nissens continues to grow its sales across Europe and has also benefited from some favorable currency translation movements. Looking now at Engineered Solutions, sales in that segment in the quarter were down 8.3%, but this was expected as we noted last quarter that sales continued to be soft across most end markets. Adjusted EBITDA for Engineered Solutions in the quarter of 10% was down from last year.

This was the result of lower sales volume, unfavorable mix, and some impact from tariff costs that lowered the gross margin rate, but we continue to point out that EBITDA continues to be healthy at 10% for this quarter despite volume headwinds. To summarize and put it all together across the four segments for the second quarter, consolidated sales increased 26.7% and adjusted EBITDA increased 190 basis points to 12% of net sales, and non-GAAP diluted earnings per share were up 31.6%. For the first six months, our sales have increased 25.8% now over last year and 4.1% excluding Nissens Automotive, helped by strong sales in both our North American aftermarket segments. Tacking on a strong second quarter to a strong first quarter resulted in a year-to-date increase in adjusted EBITDA of 250 basis points and an increase in non-GAAP diluted earnings per share of 47.9%.

Turning now to cash flows, cash used in operations for the first six months with $5.9 million was down from cash used of $10.1 million last year. While we always use cash during the first half of the year due to seasonal working capital needs, the higher earnings allow for slightly lower usage this year, and we were pleased to turn in better performance despite paying higher cash costs for tariffs. Our investing activities show capital expenditures of $19.3 million, which includes $7 million of investment related to our new distribution center. CapEx is slightly lower than last year as capital spending related to the new DC is nearing completion. Financing activities show payments of $13.6 million of dividends, as well as borrowings for the year so far of $45.9 million, which were used mainly to fund our working capital and CapEx needs.

Note we repaid $33.2 million on a revolver during the second quarter and expect further repayments during the second half of the year. Our net debt of $577.8 million at the end of the second quarter was higher than last year after we made borrowings for the Nissens Automotive acquisition. We finished Q2 with a leverage ratio of 3.2 times EBITDA, but accounting for a full 12 months of EBITDA from Nissens Automotive, leverage would have been lower. Before I finish, I want to give an update on our sales and profit expectations for the full year of 2025, particularly now that we have much better visibility into the impact of tariffs and mitigating actions. As we noted in our release this morning, our updated outlook includes higher tariff costs and offsetting impacts.

We are raising our sales guidance for the full year to be an increase over last year in the low 20% range. We're also pleased to reaffirm our adjusted EBITDA margin will be in a range of 10% to 11% of net sales, even after absorbing the impact of higher tariff costs and the margin compression which occurs from passing through price at our cost level. Note this updated guidance reflects the robust sales performance we've seen so far, including a full year of Nissens Automotive and pass-through pricing to cover tariffs, and will result in higher earnings per share from higher sales. To wrap up, we are very pleased with our sales and earnings growth for the year so far. With earnings up across most segments and improvements in debt leverage as anticipated, the strong performance helped us overcome the impact of additional tariff costs on the business.

While the trade situation around tariffs will undoubtedly continue to evolve, we have again proven our ability to manage through the change and grow our business. Thank you for your time, and I'll turn the call back to Eric for some final comments.

Speaker 0

Thank you, Nathan. In closing, let me just spend a moment discussing how we're viewing things. Even in the face of a challenging economic environment, we have enjoyed several consecutive quarters of strengthening performance. The largest part of our business, the North American aftermarket, continues to demonstrate its resilience. It is a highly stable market with solid foundations as the addressable market expands through a growing and aging car park. Within this attractive space, non-discretionary products tend to do better as motorists are unable to defer repairs, and our value proposition continues to resonate. Our full-line coverage of professional-grade products and brands technicians trust, and our relationship with our trading partners is strong. We've added two new legs to our business, providing a combination of diversification and opportunities for synergies. Our recent geographic expansion with the acquisition of Nissens Automotive is exceeding our expectations.

They enjoy many of the same benefits I just described for us here, both in terms of market dynamics and their place in it, and the more we work together, the more I'm impressed with their team, with their capabilities, and our ability to identify opportunities. We remain very bullish about the future. That concludes our prepared remarks. We'll now turn it over to the moderator and open it up for questions.

Speaker 6

Thank you. At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, to ask a question, that is star one. Our first question comes from Bret Jordan with Jefferies. Your line is open.

Hey, good morning, guys. This is Patrick Buckley on for Bret. Thanks for taking our questions. Still some moving pieces with tariffs, but could you talk a bit more about pricing trends in the second half and maybe a range of same SKU inflation assumptions within the guide?

Speaker 0

We're not going to get into the specific numbers, but our pricing plans for the second half, most of which are now in place, are really there to cover the tariffs. It'll be, as we've been talking about, our tariff exposure due to our footprint is only on a portion of our sale, and we're looking to track with what those tariff numbers are, again, at our cost. You can expect it to be relatively nominal, certainly as you look at spreading it across the entire offering.

Got it. That's helpful. Within the U.S. aftermarket, could you talk a bit more on how POS compared to sell-in, and I guess any signs of inventory builds to get ahead of price increases there?

Sure. What we've seen is, I'll take the two segments separately. Vehicle Control in the quarter was up low to mid-single digits, which roughly tracks for where it's been for the year. We're seeing that positive sell-through. It's slightly less than the sell-in. What that's reflective of is something we've been talking about the last several quarters. It's not about trying to buy ahead of price increases or any change in stocking strategy. It's more as our customers are expanding their footprint, both by adding locations and by deepening their assortment in existing locations, we are seeing that ongoing evolution of increased inventory. It's not a stepwise change. It's not a reaction to get ahead of things. It's just their ongoing evolution to a broader assortment. You're seeing similar things in Temperature Control. Temperature Control has a little bit more quarter-to-quarter volatility, as you well know.

In the second quarter of last year, POS was up like mid-teens, so it was a tough comp. Here we're slightly up over that in the quarter, but year to date it's still kind of tracking similar to what we're seeing in Vehicle, which is low singles and kind of smoothed across the periods.

Great. Very helpful. That's all from us. Thanks, guys.

Thank you.

Speaker 6

Our next question comes from Scott Stember with ROTH MKM. Your line is open.

Hi guys, good morning. This is Jack on for Scott. Just regarding tariffs, you talked a little bit about it in your prepared remarks, but can you talk about the timing of the impacts and also if you could give any segment breakdown on where you see the price increases so far or what is impacted more than others going forward?

Speaker 5

Yeah, hi, it's Nathan. With regard to timing, maybe just to piggyback off what Eric mentioned, we did see some costs come through in the second quarter. That's just basically as we started to see some higher cost inventory turn through that had those higher tariffs on it start to come through the P&L. We took a little bit of time to work through both mitigating actions on the cost side as well as with our customers to get pricing through. We did have some higher costs in the second quarter, but now going forward, I think that we should be mostly offset, fully offset for the most part in the second half of the year. With regard to segments, we really don't get into kind of profit expectations by segment or pricing and cost. I would note that we continue to manage it.

We had good numbers in the second quarter to show that.

Okay, great. Thank you. Just a few on Nissens. How did the Nissens Automotive business perform compared to your expectations this quarter? How's the whole European aftermarket holding up? What sort of synergies between products have you gone through so far?

Speaker 0

In terms of how it's meeting or lining up with our expectations, I would say that it is exceeding our expectations in just about every regard, both in terms of its performance as well as how we see moving forward into the future as a combined entity with what they bring and what we bring. You're hearing a certain amount from perhaps some of the publicly traded players about how the European aftermarket is right now. We are outperforming it, and there's a handful of reasons for that. One is that you have to really look at it product type by product type.

While the whole market is going to have its dynamics within what we do, similar to what we always talk about here in North America, where it's non-discretionary, they have the big Temperature Control elements, so it's weather-dependent, the categories will tend to outperform the overall portfolio of these distributors. Beyond that, there's no doubt about it that Nissens Automotive is gaining share. It's doing that both by getting better penetration within its existing categories, but they've also had an excellent track record over the last several years, starting well before they were part of Standard Motor Products, of adding new categories, getting into new categories, which frankly is a difficult thing to do to leverage your brand into something different. They've been able to do that pushing into what we call Vehicle Control categories.

It's still a relatively small portion of what they do, but it's been all upside for them as they have been able to get some good placements. That's what they've been able to do thus far. As you think through the integration, we see from specific to that the ability to accelerate that because of all the different pieces that we bring that can help fast-track their launch of new category product types. Nothing specific to report. 2025 is really more the preparation year. We did want to get that quick win out there with the new SKUs added that I spoke about. This is really the year as we position ourselves going forward to how do we expand product portfolios on both sides of the ocean. A long answer, but it was a good question because it's a really critical part of our future. It's absolutely exceeding expectations.

Great. Thank you. That was very helpful.

Speaker 6

Our next question comes from Robert Smith with the Center for Performance Investing. Your line is open.

Thank you. Good morning. Thanks for taking my questions. Just circling back to Nissens Automotive for a moment, is there any color you can give me on the actual numbers in comparison with the prior year in the various segments? The strengths are in any of the three categories more than others?

Speaker 0

Yeah, what we're seeing in terms of, and we're just going to give it to you in more general terms, and maybe Nathan give a little more flavor, what we're seeing is that they are tracking up mid to high single digits over previous years. What we are seeing is an evolving shift away, or not away from, but in strengthening of their newer categories as a percentage of their business. You go back five or six years, they had nothing in what they call engine efficiency, and now it's, I believe, north of 15%, maybe pushing 20%. It is, you know, all of their three subcategories are growing, but the engine efficiency one is growing faster because it's adding new product types.

Okay. In the Engineered Solutions segment, you have a breakout of them, and you have a category all other. Can you give me some ideas to what's in all other?

Sure. All other is a combination of things like lawn and garden, hydraulics, and stationary equipment. The biggest thing in there, all other, is power sports, so things like snowmobiles, side-by-sides, ATVs, and so on.

How much is that of the seven, of the all other?

Yeah, we don't go more granular than that, Robert.

Okay. That's been a good growth area, though?

It has a lot of potential. It's, as you're seeing with some of the other subcategories, seeing some softness this year, as you would expect, especially in something like power sports, which is a purely discretionary type of a purchase and a high-value purchase. The long-term trends within the subcategories under all other absolutely have some nice legs.

With the expectation of lower interest rates, are you going to have an opportunity to refinance that at some point?

Speaker 5

Hi, Robert. It's Nathan. Yeah, we'll keep abreast of changes in interest rates. I would point out, you know, we did the refinancing last year in connection with the Nissens Automotive acquisition. We were able to lock in some attractive rates through interest rate swaps at that point. We do have some fixed debt at lower, lower good rates, but we'll continue to watch it, and if it makes sense, we'll do something.

Okay, thanks very much.

Speaker 0

Thank you.

Speaker 6

As a reminder, if you would like to ask a question, please press the star and one on your telephone keypad. Our next question comes from Carolina Jolly with Gabelli. Your line is open.

Good morning. Thank you for taking my question. Just to start, as we look into 2026 and Shawnee is complete and Edwardsville is kind of finalized, should we expect better margin and more efficiency at the, I guess, at the EBIT level?

Speaker 5

Yeah, hi, Carolina. It's Nathan. We do expect to get better efficiencies, certainly coming out of the automation as well as some freight savings that we would expect just from being in the middle of the country versus on the East Coast for existing Vehicle Control distribution. That said, going back a couple of years, we noted that we would be sort of net higher in cost just because we're going to have some extra lease expense where we are now leasing a building versus owning one, and then we'll have higher depreciation on a lot of that automation equipment. I think we're still holding with our outlook that we'll be $3 to $4 million sort of net higher in cost off that baseline from 2023, and then there'll be some savings offsets from that number as we go forward.

Great. Thanks. If we look at the third quarter tariffs versus what you experienced in the second quarter and what you were looking at in the second quarter, are you seeing, given kind of what's come out at this point, will your tariff costs actually come down a little?

Speaker 0

Based on what's been announced and implemented so far, no. I mean, there was like some temporary spikes in announcements, for example, when China for a couple of weeks went very high and then came back down to the 30% reciprocal that they're currently at. That spike is long since absorbed. Now it's more about any changes that will occur going forward, as you're seeing. One of the things we've been saying, just to reiterate and make sure it's clear, is what we have passed through to this point are tariffs that have taken effect thus far. A lot of the announcements from last week that have yet to take effect and some of the things that are still being negotiated, those are into the future. We'll continue to execute that playbook. Most of them show things going up slightly.

We're just going to operate as we've been stating and rise and fall with what happens.

Great. Thanks so much for your time.

Thank you, Carolina.

Speaker 6

It appears we have no further questions at this time. I'll turn the program back to the speakers for any additional or closing remarks.

We want to thank everyone for participating in our conference call today. We understand there was a lot of information presented, and we will be happy to answer any follow-up questions you may have. Our contact information is available on our press release or investor relations website. We hope you have a great day. Thank you.

This concludes today's program. Thank you for your participation. You may disconnect at any time.