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Stoneridge Inc. Reports Operating Results (10-Q)

November 07, 2011 | About:
10qk

10qk

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Stoneridge Inc. (SRI) filed Quarterly Report for the period ended 2011-09-30.

Stoneridge Inc. has a market cap of $197.45 million; its shares were traded at around $7.72 with a P/E ratio of 11.52 and P/S ratio of 0.31.

Highlight of Business Operations:

Our third quarter 2011 results were positively affected by improvements in the North American and European commercial vehicle markets. Production volumes in the North American automotive vehicle market were relatively consistent for the third quarter of 2011 with the third quarter of 2010. The commercial vehicle market production volumes in North America improved by 55.9% during the third quarter of 2011 when compared to the prior year third quarter, which resulted in increased net sales of approximately $16.6 million, primarily within our Electronics segment. Our net sales were also favorably affected by increased European commercial vehicle production volumes of 28.1% during the third quarter of 2011 as compared to the prior year third quarter, which had a positive effect on our net sales of approximately $6.3 million, principally within the Electronics segment. Our 2011 third quarter net sales were further favorably affected by approximately $5.8 million, primarily within the Electronics segment, due to production volume increases within the agricultural vehicle market. Our net sales to the agricultural vehicle market as a percentage of total net sales increased from 15.5% for the third quarter of 2010 to 16.0% for the third quarter of 2011. The automotive vehicle market production volume had a positive effect on our North American automotive vehicle market net sales of approximately $0.7 million, primarily within our Control Devices segment. Overall net sales were favorably affected by foreign currency exchange rates, primarily at our European Electronics operations, of approximately $3.3 million during the third quarter of 2011 when compared to the third quarter of 2010.

Our Electronics segment was positively affected by increased volume in our served markets by approximately $27.9 million for the third quarter of 2011 when compared to the prior year third quarter. The increase in net sales for our Electronics segment was primarily due to volume increases in our North American and European commercial vehicle products. Commercial vehicle market production volumes in North America and Europe increased by 55.9% and 28.1%, respectively, during the third quarter of 2011 when compared to the prior year third quarter. The increase in North American and European commercial vehicle production positively affected net sales in our Electronics segment for the third quarter of 2011 by approximately $15.9 million, or 32.8% and $6.2 million, or 24.9%, respectively. Net sales within our Electronics segment were also favorably affected by approximately $5.3 million as a result of production volume increases in the agricultural vehicle market during the third quarter of 2011 when compared to the prior year third quarter. In addition, the Electronics segment net sales were favorably affected by foreign currency fluctuations of approximately $3.2 million for the third quarter of 2011 when compared to the third quarter of 2010.

Cost of Goods Sold. Although we benefited from increased sales during the third quarter of 2011 when compared to third quarter of 2010, the increase in cost of goods sold outpaced our increase in net sales on a percentage basis. The primary drivers of the increase in cost of goods sold as a percent of net sales are certain unfavorable foreign exchange rates, higher commodity prices and operating inefficiencies, primarily within our North American wiring locations in our Electronics segment. The unfavorable movement in the Mexican peso compared to the U.S. dollar has negatively affected our 2011 gross margin. This negative foreign currency exposure has increased our cost of goods sold by approximately $1.9 million during the third quarter of 2011. Commodity prices, principally copper, have increased significantly from the third quarter of 2010, which had a negative impact of approximately $1.2 million during the third quarter of 2011. Our gross margin percentage was further negatively impacted by higher copper purchases to support higher production volumes as the increase in copper prices outpaced our increase in net sales. Also, during the third quarter of 2011 we experienced operating inefficiencies, primarily in the form of unfavorable labor variances in order to meet higher sales level customer demands. Labor inefficiencies at our North American wiring facilities further negatively affected our results by approximately $1.3 million. We are executing plans including reducing direct labor headcount and developing more efficient manufacturing processes to address these operating inefficiencies. These plans have reduced, and we expect them to continue to reduce, these types of costs in the future. Our material cost as a percentage of net sales for our Electronics segment for the third quarter of 2011 and 2010 was 58.6% and 56.3%, respectively. This increase is largely due to higher commodity prices, primarily copper, incurred during the third quarter of 2011. Our materials cost as a percentage of sales for the Control Devices segment increased from 52.2% for the third quarter of 2010 to 54.6% for the third quarter of 2011. The increase in direct materials as a percentage of net sales for the Control Devices segment is primarily a result of higher commodity prices incurred, principally precious metals, rare earth magnets and resins, during the current quarter. In addition, during the current quarter we experienced higher scrap rates related to a new manufacturing process introduced in 2010. We expect that these scrap rates will be reduced in the future.

Our Electronics segment was positively affected by increased volume in our served markets by approximately $68.0 million for the first nine months of 2011 when compared to the prior year first nine months. The increase in net sales for our Electronics segment was primarily due to volume increases in our North American and European commercial vehicle products. Commercial vehicle market production volumes in North America and Europe increased by 55.4% and 42.3%, respectively, during the first nine months of 2011 when compared to the prior year first nine months. The increase in North American and European commercial vehicle production positively affected net sales in our Electronics segment for the first nine months of 2011 by approximately $26.2 million or 17.8% and $22.4 million, or 29.9%, respectively. Net sales within our Electronics segment were also favorably affected by approximately $17.2 million as a result of production volume increases in the agricultural vehicle market during the first nine months of 2011 when compared to the prior year first nine months. Our Electronics segment net sales also increased by $9.4 million due to increases in net new business primarily for North American wiring products. In addition, the Electronics segment net sales were favorably affected by foreign currency fluctuations of approximately $11.1 million for the first nine months of 2011 when compared to the first nine months of 2010.

Cost of Goods Sold. Although we benefited from increased sales during the first nine months of 2011 when compared to the first nine months of 2010, our increase in cost of goods sold outpaced our increase in net sales on a percentage basis. The primary drivers of the increase in cost of goods sold as a percent of net sales are certain unfavorable foreign exchange rates, higher commodity prices and operating inefficiencies, primarily within our North American wiring locations in our Electronics segment. The unfavorable movement in the Mexican peso compared to the U.S. dollar has negatively affected our 2011 gross margin. This negative foreign currency exposure has increased our cost of goods sold by approximately $5.5 million during the first nine months of 2011. Commodity prices, principally copper, have increased significantly from the first nine months of 2010, which had a negative impact of approximately $4.0 million during the first nine months of 2011. Our gross margin percentage was further negatively impacted by the increase in volume in 2011, resulting in higher copper purchases as the increase in copper prices outpaced our increase in net sales. Also, during the first nine months of 2011 we experienced operating inefficiencies, primarily in the form of unfavorable labor variances and premium freight charges in order to meet higher levels of customer demand. Labor inefficiencies at our North American wiring facilities further negatively affected our results by approximately $3.7 million. Premium freight charges between the periods presented increased by approximately $2.6 million. We are executing plans to address these inefficiencies including reducing direct labor headcount and developing more efficient manufacturing processes. We have reduced, and expect to continue to reduce, these types of costs in the future. Our material cost as a percentage of net sales for our Electronics segment for the first nine months of 2011 and 2010 was 57.8% and 56.3%, respectively. This increase is largely due to higher commodity prices, primarily copper, incurred during the first nine months of 2011. Our materials cost as a percentage of sales for the Control Devices segment increased from 52.3% for the first nine months of 2010 to 55.2% for the first nine months of 2011. The increase in direct materials as a percentage of net sales for the Control Devices segment is primarily a result of higher commodity prices incurred, principally precious metals, rare earth magnets and resins, during the first nine months of 2011. In addition, during the first nine months of 2011 we experienced higher scrap rates related to a manufacturing process introduced in 2010. We are executing plans to reduce these scrap rates in the future.

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