Standard Motor Products Q4 2024 Earnings Call Transcript

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Provided by Quartr
February 27, 2025
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Operator

Please note this call is being recorded and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Tony Cristello, Vice President of Investor Relations. Please go ahead.

Tony Cristello
Tony Cristello
Vice President, Investor Relations at Standard Motor Products

Thanks, Nikki, and good morning, everyone, and thank you for joining us on Standard Motor Products' fourth quarter twenty twenty four 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 and 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.

Tony Cristello
Tony Cristello
Vice President, Investor Relations at Standard Motor Products

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 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.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

Well, thank you, Tony, and good morning, everyone, and welcome to our fourth quarter earnings call. It's good to be with you today. But overall, we are 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.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

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 nondiscretionary 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.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

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.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

With such outsized demand, we are very pleased with our distribution and operation folks who were 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 dampens their purchases from their plug suppliers like us. It's important to note that our volume reduction is solely due to these slowdowns, we have not lost any business.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

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 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 1 and for the two months that it was part of S and P, it performed as expected recognizing that these are typically low months for a business that's semi seasonal.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

First, let me remind you a bit about the business. NISTANCE is a leading aftermarket player in Europe and go to market with similar strategy as S and 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 and 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.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

On the cost reduction front, we have teams working closely together to seek best cost across a host of inputs. The biggest areas for savings is product cost identifying supplier consolidation and leverage, make first buy opportunities and so on. There are many other areas of savings as well. As we stated at the time of the acquisition, we are targeting 8,000,000 to $12,000,000 in run rate cost reduction synergies within twenty four 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 NISTAs.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

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.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

So we look forward to keeping you abreast of our success. So with that, I will turn it over to Nathan who will provide more details.

Nathan Iles
Nathan Iles
Chief Financial Officer at Standard Motor Products

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 summarize results for the full year at a consolidated level. I'll cover some key balance sheet and cash flow metrics 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 this slide that net sales of $187,400,000 in Q4 were up 4.9% with the increase driven by solid demand for our products.

Nathan Iles
Nathan Iles
Chief Financial Officer at Standard Motor Products

Vehicle controls adjusted EBITDA in the fourth quarter was down from last year driven by a lower gross margin rate, but partly offset by better leverage of operating expenses. The gross margin rate was impacted by higher cost inputs as well as some different product mix, but given higher sales, our gross margin dollars increased over Q4 last year. The improved operating expense leverage was also the result of higher sales volume and we were pleased to see factoring costs decline as a percent of sales as interest rates are slightly lower than last year. Turning to Temperature Control, net sales in the quarter for that segment of $58,000,000 were up 30%. The fourth quarter benefited from another year of favorable weather patterns that started early in the season and continued through the summer with demand staying elevated into the fourth quarter.

Nathan Iles
Nathan Iles
Chief Financial Officer at Standard Motor Products

Temperature controls adjusted EBITDA increased in Q4 to 9.5% as higher sales volumes led to higher gross margin rates and improved operating expenses as percent of sales for the quarter. Sales for Engineered Solutions segment in the quarter were down 7.9% and were impacted by slowing customer production schedules as they react to softness across various markets. We've noted the markets we serve can cause lumpiness in our sales in a given quarter, but we were pleased to see our sales for the full year increase 1% as new business wins with both existing and new customers offset some of the market softness. Adjusted EBITDA for Engineered Solutions in the quarter of 8.5% was up from last year as we saw a better mix of products sold, which improved the gross margin rate and operating expenses remained well under control. Last but not least for operating segments, let me talk about Nissin's Automotive.

Nathan Iles
Nathan Iles
Chief Financial Officer at Standard Motor Products

We closed on the acquisition of the business on November 1, as Eric noted, and have included two months of sales and profit in our results. Nissens added $35,700,000 of net sales in the quarter and $3,200,000 of adjusted EBITDA. The business is performing as expected, but I should point out that it does have a seasonality aspect to it similar to our temp control segment given the nature of certain products. As you know from being familiar with the seasonal business, the fourth quarter can be and usually is different from a full year. So timing of our acquisition coincided with the slowest months of the year in November and December.

Nathan Iles
Nathan Iles
Chief Financial Officer at Standard Motor Products

We expect sales volume and EBITDA to pick up as we go through 2025 in line with prior expectations, which is that Nissin is about a $260,000,000 business in sales annually with mid teens EBITDA. One other point regarding Nissin's gross margin and SG and A expenses, you'll notice a different profit profile than our other segments. As this is more of a distribution business in manufacturing, we'll see higher gross margins, but also some higher distribution expenses in SG and A that when combined will result in an adjusted EBITDA in the mid teens range for the full year as I noted. Putting the results altogether across the four segments for Q4, consolidated sales increased 18.1% and adjusted EBITDA increased to 8.4% of net sales, while non GAAP diluted earnings per share were up 27% versus last year. Turning to our full year consolidated results, you'll see we turned in a solid overall performance.

Nathan Iles
Nathan Iles
Chief Financial Officer at Standard Motor Products

Net sales were up 7.8% and when excluding NISTINs were up 5.1% with sales up across all segments. Our gross margin rate increased to 29.1% on the strength of our temp control business and the addition of Nissens. While consolidated SG and A expenses excluding factoring were up for the year, the year contained additional costs related to the Nissens business and startup of our new distribution center. Excluding $14,200,000 of Nissens SG and A and $4,600,000 of DC startup costs, SG and A as a percent of sales would have been 18% showing improved performance on higher sales volume. On the bottom line, sales growth, margin improvement and well controlled operating expenses helped us achieve an 8.6% increase in non GAAP diluted earnings per share for the year.

Nathan Iles
Nathan Iles
Chief Financial Officer at Standard Motor Products

Turning now to the balance sheet, accounts receivable were $210,700,000 at the end of the year, higher than last year due to the addition of Nissin's receivables of about $38,000,000 and higher Q4 sales for the legacy business. Inventory levels finished the year at $624,900,000 up from last year, mainly due to the addition of Nissen's inventory of $92,000,000 and also higher levels needed to satisfy increased sales lines. Our cash flow statement reflects cash generated in operations for the year of $76,700,000 as compared to cash generated of $144,300,000 last year. Please note the cash generated in operations last year was aided by a reduction in inventory balances that did not recur this year after we brought inventory levels back down to normal. Our investing activities show capital expenditures increasing this year to $44,000,000 but that includes $20,600,000 of investment related to our Shawnee distribution center.

Nathan Iles
Nathan Iles
Chief Financial Officer at Standard Motor Products

Financing activities show payment of $25,300,000 of dividends and $10,400,000 of share repurchases as well as borrowings for the year of $392,600,000 which were used primarily to fund our acquisition of Nissens. Our net debt of $517,900,000 at the end of Q4 was higher than last year after borrowing funds for the acquisition. We finished Q4 with a leverage ratio of 3.7 times EBITDA, but keep in mind this includes just two months of results from Nissens and pro form a for twelve months would mean leverage was actually under three times EBITDA. While we may see a slight uptick in leverage in the first half of twenty twenty five due to seasonal working capital needs, we expect our leverage ratio to improve as we add EBITDA from NISTAs into the ratio and pay down debt in 2025. We continue to target leverage of less than two times EBITDA by the end of twenty twenty six.

Nathan Iles
Nathan Iles
Chief Financial Officer at Standard Motor Products

Before I finish, I want to give an update on our sales and profit expectations for the full year of 2025. Regarding our top line sales, we expect to see percentage growth in the mid teens for the full year, which reflects growth from the addition of Nissan's Automotive and continuing favorable North American aftermarket dynamics, but also a slight headwind from the sale of our ACI product line, which was about 50 basis points of consolidated 2024 sales and sales and engineering solutions, which are currently soft as end markets remain lower and customers reduce production to work through inventory. We expect our adjusted EBITDA for 2025 to be in a range of 10% to 11% and that includes growth from Nissan's Automotive as we'll have twelve months of results versus two months in 2024. In connection with our adjusted EBITDA outlook, we expect interest expense on outstanding debt to be about $32,000,000 for the full year, our income tax rate to be 27% and depreciation amortization to increase to $40,000,000 to $45,000,000 as we amortize Nissan's intangibles and place distribution center investments in sales. Regarding operating expenses, keep in mind these expenses are incurred more ratably across the year, but do have some variability with sales and as such will fluctuate in seasonality in the business.

Nathan Iles
Nathan Iles
Chief Financial Officer at Standard Motor Products

We anticipate total operating expenses inclusive of factoring and additional mission expenses will be approximately $97,000,000 to $103,000,000 each quarter in 2025. Finally, please note that our 2025 outlook does not include any impact from the recently announced and potential tariff actions. U. S. Government continues to announce potential actions, but things change constantly creating uncertainty in the market.

Nathan Iles
Nathan Iles
Chief Financial Officer at Standard Motor Products

Whatever the impact is on our business, we plan to address higher costs by passing them through in price dollar for dollar. To wrap up, we were very pleased with our sales growth in both the quarter and full year of 2024 as well as our earnings growth. Given our results, we were pleased to raise our quarterly dividend to $0.31 per share, an increase of almost 7%, continuing a trend of increases over many years. We're also happy to have the Nissen's team on board and are looking forward to working together, creating exciting opportunities for 2025 and beyond. Thank you for your attention.

Nathan Iles
Nathan Iles
Chief Financial Officer at Standard Motor Products

I'll turn the call back to Eric for some final comments.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

Thank you, Nathan. So to close, let me just spend a minute on how we're thinking about the future. Needless to say, we are in complex times making things difficult to predict, but overall, we believe that our business largely resides in the same harbor. The aftermarket, which represents over 80% of our business, tends to be highly resilient in times of instability. As people across the globe feel a sense of uncertainty, they tend to resist major purchases.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

The car park tends to age during these cycles and motorists have no choice but to make the necessary repairs to keep their cars operational. We've seen this to be the case here in North America and with our exposure in Europe with missus, we expect similar dynamics. We're also headed into a period of uncertainty related to tariffs. Only time will tell which get implemented and to what extent and as such, as Nathan said, we have not accounted for them in our 2025 outlook. But with history as our guide, we anticipate the ability to pass these through at cost and as we are largely sell non discretionary repair items, we would not expect any destruction of demand.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

Meanwhile, if tariffs increase the cost of new cars, we would expect that to dampen new car sales and thus benefit the aftermarket further. Our Engineered Solutions business can experience different trends. Certain end markets and customers will perform well, while others may see temporary contraction. And while we are experiencing some near term headwinds, we expect the long term trend for us to be favorable as our new business awards take shape. Meanwhile, we continue to implement many initiatives to make us a stronger and more diversified global company and we have the best group of people to make it all happen.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

And so we do feel very good about the future. That concludes our prepared remarks. At this point, we will open it up for your questions.

Operator

We'll take our first question from Brett Jordan with Jefferies. Please go ahead. Your line is open.

Bret Jordan
Managing Director at Jefferies LLC

Hey, good morning guys.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

Good morning, Brad.

Bret Jordan
Managing Director at Jefferies LLC

Could you talk about,

Nathan Iles
Nathan Iles
Chief Financial Officer at Standard Motor Products

I guess, how you see the Nissin's contribution to your guided growth for 2025?

Bret Jordan
Managing Director at Jefferies LLC

Are there synergies in the North American business from adding that product to the portfolio?

Nathan Iles
Nathan Iles
Chief Financial Officer at Standard Motor Products

Yes, Brett, thanks for the question. So as we look at 2025 and I think we've said some of this before when we signed the deal last summer, we expect some of the cost synergies to roll through in terms of just looking at product cost across the different portfolios. But in terms of revenue synergies, this will probably take a bit longer to come, and that would be further out. And then I guess just to remind you, Eric mentioned the synergy target that we were looking at, that was more around the product costs than the revenue synergies themselves.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

Yes. Just to add to that, and to add to that, because it is largely about product cost reductions, there can be a timing lag before it hits the P and L as you have vendor lead times and has to go through the balance sheet and so on. So while we're getting a lot of the decisions made and making nice progress, there is an offset in timing. So we don't expect tremendous amount of it to hit, certainly not in the near term, but hopefully we'll see some towards by the end of the

Bret Jordan
Managing Director at Jefferies LLC

year. Okay. And can you just talk about the sort of POS data at the customer level versus your sell in, obviously a very strong temperature control. Is that product is could you talk about customer inventory levels there? And do you see any of that being purchasing ahead of potential tariffs just given a lot of that product comes from Mexico?

Bret Jordan
Managing Director at Jefferies LLC

Or is it really sort of aligned with what the underlying demand is?

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

So just to be clear, you're obviously asking about the North American aftermarket business. And what we've seen with POS and related inventory, I'll talk about the two divisions separately. Vehicle control, what we saw in the quarter was basically flat POS from the big guys. And so as you saw our sell in being slightly higher than that, that was really what I was referring to as kind of this ongoing inventory expansion as they're adding hundreds of stores and then broadening their assortments. And again, those trends we would expect to continue.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

On the temperature control side, what we saw, we saw strong POS in the fourth quarter, but not quite as big as the 30% growth we saw in sell in. That was a bit of a rebuild of their inventory because it had been such a strong selling season throughout, that that was the beginnings of them preparing for 2025. And as we look at the pre season orders continuing right now, we see it as roughly comparable to the last few years. As it relates to whether there is a pull forward of any purchases ahead of the potential impact of tariffs, we're not seeing that per se. We think that it's that the purchasing is still pretty rational.

Bret Jordan
Managing Director at Jefferies LLC

Okay. And then one last question. I guess, how do you see inflation ex tariffs? What would you sort of think same SKU inflation looks like in 2025 versus 2024?

Nathan Iles
Nathan Iles
Chief Financial Officer at Standard Motor Products

Yes. Let me take it from the cost side, Brett. I guess we see inflation across the markets just as everyone else is seeing. We don't expect to offset that price where we can, But I think the inflationary environment is largely back to normal sans tariffs.

Bret Jordan
Managing Director at Jefferies LLC

Okay. I mean, most of your customers have been talking about 1%. Is there expectation? Is that sort of aligned with where you're thinking?

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

So that's reasonable. It will be in that very low single digit range.

Bret Jordan
Managing Director at Jefferies LLC

Okay, great. Thank you.

Operator

Thank you. Our next question comes from Scott Stember with Roth MKM. Please go ahead. Your line is open.

Scott Stember
Executive Director & Senior Research Analyst at Roth Capital Partners, LLC

Good morning, guys.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

Hi, Scott.

Scott Stember
Executive Director & Senior Research Analyst at Roth Capital Partners, LLC

Regarding tariffs, I know this is obviously a hot topic and nobody knows what's going to happen. But could you just remind us where your exposure versus all the regions are versus Mexico, Canada, China and Europe, just so we have an idea of how things could unfold if things accelerate on that front?

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

Sure. I'm not going to get into specific details, but we are as you know, we're a global company with manufacturing across multiple continents here in North America, as well as a significant amount in Europe and in Asia, as well as the supply base that is global. So as we think about both the announced and potential future tariffs, we see exposure throughout, but not necessarily overly concentrated in any particular area. And even then, a lot of the details have been are still being developed in terms of how tariffs are even going to be accounted for in places like Mexico. So, we're staying nimble on it while we pay very close attention to the announcements that are being made.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

And as we said in the prepared remarks, the intent will be to pass them through. There may be a bit of a timing offset as the tariffs get announced and we then have to work it through our inventory. But the plan is, as we did in 2018, to accommodate it. We'll work with our suppliers as well to say how can we share in some of the pain, but to largely pass it through.

Scott Stember
Executive Director & Senior Research Analyst at Roth Capital Partners, LLC

Got it. That's helpful. And then with the new addition of Nissans, maybe just go through the three individual segments, air conditioning, engine cooling and energy efficiency. Just remind us what each one is doing and how each is performing, I guess, from a sales perspective? I know that this is the first quarter, but just give us a sense of how each segment is performing on a year over year basis, if you could?

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

So first, in terms of the split between the three categories, engine cooling is the largest of the three, and it has various product types in it, but the single biggest needle mover within it is radiators, which is very big and healthy business over in Europe. Air conditioning being the second biggest category, roughly a third of the volume, that's very much of a similar offering as our temperature control division. And the last being what they call engine efficiency, it's what we would call vehicle control. This is a newer business for them. And so it's one that they have been adding as opposed to going wide like our vehicle control.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

It's subcategory by subcategory began with turbos where they've done very well. After that, they lost EGR valves and now are getting to electronic throttle bodies. So they are looking really subcategory by subcategory where they believe they have something to sell and where they believe that the market has an opening for them. And it's really been very impressive to us their ability to launch these and gain scale in that sub segment where really they were unheard of not more than five years ago. All three of the categories are performing well, performing as expected.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

The temperature control, the air conditioning one being the most seasonal of the three. So right now it's in the off season, but there's every expectation that it will perform as ours does rise and fall to a degree with the weather, but they are a significant market share player in Europe and are doing very well with their legacy categories and are now seeming to do very well with their engine efficiency as well.

Scott Stember
Executive Director & Senior Research Analyst at Roth Capital Partners, LLC

Got it. Very helpful. And then last question, just give an update on the new facility and movements over in Kansas.

James J. Burke
James J. Burke
COO & Director at Standard Motor Products

Okay. Hi, Scott.

James J. Burke
James J. Burke
COO & Director at Standard Motor Products

Yes, we're progressing very well there. The automation, we're doing the installation there. As recall for everybody, we're expanding our capacity. We're within a few miles of our existing Edwardsville, Kansas distribution center there. But we're putting product in from both vehicle control, temperature control and then moving the wire from our Edwardsville facility, which gives us much more risk avoidance that we have in there.

James J. Burke
James J. Burke
COO & Director at Standard Motor Products

The automation is going in. We believe by the end of twenty twenty five, we'll be prepared to move the final pieces in there and then we'll be scheduled to put the existing facility in Edwardsville, Kansas, which we own on the market and then we plan to exit that hopefully early twenty twenty six.

Scott Stember
Executive Director & Senior Research Analyst at Roth Capital Partners, LLC

Got it. That's all for me. Thank you.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

Thanks Scott.

Operator

Thank you. We will move next with Carolina Jolley with Gabelli. Please go ahead. Your line is open.

Carolina Jolly
Senior Research Analyst at Gabelli Funds

Good morning. Thanks for taking my call. Just to start, with your guidance of mid teen growth, obviously, we're to exclude the contribution from Nissan. Can you talk a little about maybe some of the puts and takes of the growth there? And are you expecting growth in your underlying vehicle control business?

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

Good morning, Carly. It's Eric. I'll give you some flavor, but we typically don't give guidance at the segment level. But yes, so Nissan's obviously being the majority of that mid teens growth, just in that it's new business for us. And as we look at the basic market trends within our other three segments, we see on vehicle control side, we had a good year last year.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

Trends, it's early days, but as of now, trends seem to be continuing along those lines and the market remains healthy for this non discretionary category. On the temperature control side, what we see is, as Nathan mentioned, we're starting with the absence of that, the ACI business, the window lift business that we sold last year, which is a few percentage points backwards just to start with and going up against a very strong season, we have expectations it'll get hot again, but as you know as well as we do, it's going to rise and fall a little bit depending on when it gets hot and how hot it gets. Engineered solutions is starting the year as it ended last year. So you could really say all three of these segments are kind of the trends have continued coming out of the fourth quarter, but it can be very it can be lumpier. And so we hope that we'll see some bounce back of certain end markets.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

It's difficult to predict, but we're assuming that we can see some level of softness as the markets continue, as their end markets continue on their trajectory. So I realize that's a long winded answer that says that we see different puts and takes. It's not even the February yet, so we'll see how the year rolls out. But overall, we think that our legacy business continues to be healthy as a whole.

Carolina Jolly
Senior Research Analyst at Gabelli Funds

Perfect. Thanks. And then just a quick follow-up on the guidance. I just want to make sure this is right. Within the 10% to 11% EBITDA forecast, there are some costs that are will be attributed to Shawnee that aren't going to necessarily be adjusted out, but you would expect to, I would, I guess, improve in 2026 once there's no duplicate of costs.

Carolina Jolly
Senior Research Analyst at Gabelli Funds

Is that kind of correct to think about?

Nathan Iles
Nathan Iles
Chief Financial Officer at Standard Motor Products

Yes. Hi, Kieran, it's Nathan. That's correct. We continue to have some of those startup type costs in the numbers and we're not going to adjust them out. But we think it's still a couple of million dollars in 2025 and then those will come out in 2026.

Carolina Jolly
Senior Research Analyst at Gabelli Funds

Great. Thank

Carolina Jolly
Senior Research Analyst at Gabelli Funds

you.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

Thank

Operator

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

Analyst

Thanks. Good morning. Thanks for taking my questions.

Nathan Iles
Nathan Iles
Chief Financial Officer at Standard Motor Products

Good morning.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

Good morning.

Analyst

I know you're opportunistic, but is it fair to say that at this point in time that you would not be too interested or aggressive in further acquisitions until you pay down some of your debt?

James J. Burke
James J. Burke
COO & Director at Standard Motor Products

Hi, Robert. This is Jim Burke. Yes, that's a fair assessment. While we're our plans are and the capital allocation, our intent is to pay down the debt levels. I think Nathan may have talked where on a pro form a basis, we're at year 3x today and by the end of twenty twenty six, we expect to get down to two, two-zero.

James J. Burke
James J. Burke
COO & Director at Standard Motor Products

But with that said, we always stay abreast of what's in the market, nothing to announce nor do we have any initial plans. Our immediate intent there is to pay down the debt, maintain our dividend.

Analyst

Yes. By the way, thanks for the dividend increase. Could you describe how you're examining the potential efficiencies from artificial intelligence and perhaps who you're working with or I know it's early stage, but how are you approaching this?

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

Well, I think that we are looking at where the potential applications can be, whether it makes us a more efficient company or it makes us helps us with our product offering or our future. So I think we're looking at it similar to a lot of other companies in the space. What are the different tools at our disposal that can be relatively easily deployed to seek a benefit? We have a handful that are underway. Some of them, for example, within our demand planning, which frankly we never used to call it artificial intelligence, but that's basically what it was.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

It was predictive analytics, has now gotten much more sophisticated in its algorithms. And so we continue to deploy that sort of artificial intelligence to make us a better company. So a lot of different small pieces, no giant advancements, but we're working on that, which makes sense for us.

Analyst

Are you working in it with any particular company or program at the present time?

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

We work with various third parties, but none that I would feel comfortable advertising.

Analyst

Okay. Understood. All right. Thanks so much. Good luck.

Eric Sills
Eric Sills
CEO, President & Chairman at Standard Motor Products

Thank you, Robert.

Operator

Thank you. And there appear to be no further questions at this time. I will turn the call back to our presenters for any closing or additional remarks.

Tony Cristello
Tony Cristello
Vice President, Investor Relations at Standard Motor Products

Thanks, Nikki. And we want to thank everyone for participating in our conference call today. We understand there is a lot of information presented and we'll be happy to answer any follow-up questions you may have. Our contact information is available on our press release or Investor Relations website. I hope you have a great day.

Tony Cristello
Tony Cristello
Vice President, Investor Relations at Standard Motor Products

Thank you.

Operator

And this does conclude today's program. Thank you for your participation. You may disconnect at any time.

Executives
    • Tony Cristello
      Tony Cristello
      Vice President, Investor Relations
    • Eric Sills
      Eric Sills
      CEO, President & Chairman
    • Nathan Iles
      Nathan Iles
      Chief Financial Officer
    • James J. Burke
      James J. Burke
      COO & Director
Analysts
    • Bret Jordan
      Managing Director at Jefferies LLC
    • Scott Stember
      Executive Director & Senior Research Analyst at Roth Capital Partners, LLC
    • Carolina Jolly
      Senior Research Analyst at Gabelli Funds
    • Analyst
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Earnings Conference Call
Standard Motor Products Q4 2024
00:00 / 00:00

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