Stoneridge Beats the Street in Second Quarter

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Stoneridge, an electronics and electrical supplier, reported second-quarter 2013 earnings per share of $0.21, $0.03 better than the Street consensus of $0.18. However, EPS was substantially higher than the second quarter of 2012, when the company reported a loss of $0.13 per share on a major customer’s production issues.

Management reconfirmed 2013 guidance for EPS within a range of $0.75 to $0.95. In response to the better-than-expected second-quarter results, Morningstar raised its full-year EPS estimate to $0.75 from $0.70. However, Navistar production and PST, the company’s South American subsidiary, remain concerns for investors. This 2-star stock currently trades at a 32% premium to our $10 fair value estimate.

Management said that cost reduction and other initiatives implemented in 2012 favorably affected profitability. The company also stated that its diversified markets and global presence reduced the impact of lower global demand in commercial vehicle markets and that the second quarter performance demonstrated the company’s ability to generate operating profits on lower volume.

Analysts think Navistar’s return to normalized production in the currently weak heavy-truck market as well as more favorable copper prices were also a major contributor to improved profits. Navistar, Stoneridge’s largest customer at roughly 20% of revenue, is still recovering from an engine product line that failed to meet U.S. Environmental Protection Agency requirements for diesel emissions. Navistar’s year-overyear volume declined 30% in the second quarter, but Stoneridge’s revenue increased by 3.4% for the same period. The main difference from the second quarter of 2012 was the company’s Brazilian electronics business, PST, which provides security systems and infotainment products.

While the operation has faced a market where consumers have cut back on discretionary spending, revenue from PST increased 21.3% year over year. The revenue from the company’s electronics group was up by 17.3%, while control devices increased 8.5% and wiring declined by 14.8%.

 

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