Standard Motor Products, Inc.

Good day, everyone, and welcome to the Standard Motor Products fourth quarter 2024 earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask questions at any time by pressing the star and 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2. Please note this call is being recorded and I will be sending by should you need any assistance. It is now my pleasure to turn the conference over to Tony Christello, Vice President of Investor Relations. Please go ahead.

Thanks, Nikki, and good morning, everyone, and thank you for joining us on Standard Motor Products' fourth quarter 2024 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 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 that they will prove correct. You should also read our filings with the Securities and Exchange Commission for a discussion of the risk 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.

Well, thank you, Tony, and good morning, everyone, and welcome to our fourth quarter earnings call. It's good to be with you today. Overall, we're pleased with our performance in the quarter, making for a solid finish to a strong year. Top line showed growth overall, not including the contribution of our new acquisition, which I'll discuss shortly. And we saw the trend of an improving bottom line continue with adjusted diluted earnings per share of 27% in the quarter and 8.6% for the full year. Let me discuss each segment separately as each has its own story. Our vehicle control business in the quarter increased by 4.9% over last year, allowing us to post a 3.3% increase on the full year, setting a high watermark for the segment. We believe we benefited from a product offering that's largely non-discretionary in nature, as these types of categories tend to outperform in difficult economic conditions. And as our products are mostly professionally installed, we believe that our reputation for high quality has technicians seeking them out in the marketplace. Lastly, we are seeing an incremental ongoing investment in inventory by the larger distributors as they add locations and increase store assortments. recognizing that the best forward deployed inventory wins in the marketplace, and we expect this trend to continue. Our temperature control division continued the strong trend it has been enjoying all year. Sales were up 30% in the quarter, though the fourth quarter is always the smallest in the seasonal category. But for the full year, we were up 12.5%, far and away the best year for the segment. In addition to the non-discretionary nature of the products discussed in vehicle control, This category is also highly weather dependent and 2024 set all records. It got hot across the country early and stayed that way all year. With such outsized demand, we are very pleased with our distribution and operation folks who are able to keep up throughout and we thank them. Within our engineered solutions segment, although our full year sales were up slightly over the prior year, we did experience softness in the quarter. As you know, the segment provides parts to new vehicle and equipment production across various end markets. As we discussed in our third quarter call, certain of our customers began to slow their production schedules as their demand softened, which in turn dampened their purchases from their parts suppliers like us. It's important to note that our volume reduction is solely due to these slowdowns. We have not lost any business. And as we have always said, this segment could be more volatile than the aftermarket, but still has great potential and a long-term trajectory of growth. We are a small player in a vast global marketplace, and as we are getting known as a capable player, we are gaining new business awards. As such, we remain very bullish on the segment and truly believe that while it can be temporarily impacted by the cyclical nature of the market, it has a tremendous future. Lastly, I'll speak about our newest piece, Nissan's Automotive. Having cleared all regulatory hurdles, we consummated the deal on November 1st, and for the two months that it was part of S&P, it performed as expected, recognizing that these are typically low months for a business that's semi-seasonal. First, let me remind you a bit about the business. Nissans is a leading aftermarket player in Europe and go-to-market with similar strategy as S&P with overlapping product categories and complementary strengths. They are largely in thermal management systems, both air conditioning and powertrain cooling, and in the last few years have made strong inroads in categories that fall within our vehicle control portfolio. They have a strong record of growth, both through market share gains and expansion of their offerings, and generate mid-teen EBITDA. We are now heavily engaged in integrating the business, seeking the benefits that the combination of our two companies provides. On the cost reduction front, we have teams working closely together to seek best cost across a host of inputs. biggest areas for savings is product cost identifying supplier consolidation and leverage make first buy opportunities and so on but there are many other areas of savings as well as we stated at the time of the acquisition we are targeting 8 to 12 million dollars in run rate cost reduction synergies within 24 months and remain very confident in that number as we look to help each other these improvements will be reflected across all segments not just nests From a product offering standpoint, we've begun fleshing out each other's catalogs. In addition to filling holes in common product groups, we are identifying complementary product categories to add on either side of the ocean. And lastly, from a commercial standpoint, we've begun discussions with each other's accounts to identify potential opportunities, and these discussions are going quite well. We're still in the early days, but are more bullish than ever. The two teams are well aligned, partnering to make both companies stronger, and the enthusiasm is contagious.