Standard Motor Products, Inc. (NYSE:SMP) Q1 2024 Earnings Call Transcript

Eric Sills: Well, we don’t go into the specifics of what’s behind it. That all other — there’s many different end markets in there from motor sports, to lawn and garden, hydraulic, stationary engines, there’s a lot of different pieces in there. And as we always say, there’s going to be some movement quarter-to-quarter based on the build schedules of the customers within these. So I wouldn’t read too much into the fact that any subsegment goes up or down in a quarter.

Scott Stember: Got it. And my last question is just on the margin side. You talked about, I guess, labor, wages and things like that. How are you addressing that? And what is a good margin? I guess, where we look for the margin to eventually land in a more normalized environment for this segment?

Nathan Iles: And Scott, just to be clear, this is on the Engineered Solutions segment you’re asking about?

Scott Stember: Yes. Yes.

Nathan Iles: Yes. Right. So I think, Scott, the gross margin we’d be looking at — and I guess, to give a little bit of history before I start, if you go back several years, the gross margins have kind of range between 18% and 20% over time. And so as we look at offsetting cost headwinds and cost reductions in this area, we look to be getting back into that range. I think on the very bottom line adjusted EBITDA and where we tend to talk about that number recently, we’d expect that segment to also continue to be in line with the aftermarket once the headwinds are onset.

Operator: We go now to Bret Jordan at Jefferies.

Bret Jordan: Could you talk about Temperature Control inventory at the customer level? And in Q1, how we are year-over-year?

Eric Sills: Sure. And I think you can’t just look at it after Q1, but as they’re building up their entirety of their preseason orders, which did continue into the beginning of Q2. And what I would say is that, basically, they’re in good shape for the season, maybe slightly above where they were going into last selling season, but they’re healthy and where they would want them to be. So now ultimately, it’s about what happens with the weather. And so really, we’re hoping that, that begins over the next few weeks and lasts for a long time.

Bret Jordan: All right. And you talked about new customers, was that primarily the Engineered Solutions or do you pick up new customers in the aftermarket as well?

Eric Sills: That’s correct, Bret. We’re referring specifically to within Engineered Solutions. And not so much new customers as new awards with existing customers, although there is a little bit of that as well. One thing just to kind of characterize what happens in that industry is it’s a lot of base hits, it’s not like you’re landing a new platform with a light vehicle manufacturer and all of a sudden, it’s a multi, multimillion dollar award. It’s a lot of base hits, and we have been getting those.

Bret Jordan: Okay. And then final question, I guess, on pricing outlook, we’ve seen most of the inflation pass-through, or is there still something to come to offset the continued high rates?

Eric Sills: Yes. So look, it’s a competitive market, as you well know. And so pricing is not easy to come by. We continue to work with all of our customers where we can to be able to share with them what we’re experiencing with cost inflation. And so nothing specific to report. We continue to work on it, but it is getting tougher.

Operator: [Operator Instructions] We’ll go next to now to Carolina Jolly at Gabelli.

Carolina Jolly: So just a quick question. In terms of kind of industry commentary, it sounded like in some areas in the industry, there was a kind of a weak start to the spring selling season. Would you — given your kind of inventory and category mix have exposure to that underlying trend?

Eric Sills: I’m not sure I completely understand your question. Are you asking whether we’re tracking with the overall numbers of the of the large public companies as they report?

Carolina Jolly: Just in terms of — it did sound like there was more of DIY mix…