Motorcar Parts of America Q2 Earnings Call Highlights

Key Points

• Motorcar Parts cut its fiscal 2027 sales forecast to $715 million–$740 million from $780 million–$800 million, citing delayed customer orders, softer demand and slower new-program launches. Second-quarter sales were $169.2 million.
• The company has secured nearly $60 million in incremental annualized business awards, with programs expected to launch in the second half of fiscal 2027 and ramp during fiscal 2028. A further roughly $25 million opportunity was discussed, but management did not clarify whether it was separate from those awards.
• Second-quarter gross margin increased to 24.2% from 19.3%, though it included one-time benefits such as tariff refunds; management estimated margin at about 22.7% excluding specified effects. The company expects fiscal 2027 operating income of $37 million–$44 million.

Motorcar Parts of America NASDAQ: MPAA cut its fiscal 2027 sales forecast after delayed customer orders and slower-than-expected new business launches weighed on its second-quarter results.

The automotive aftermarket parts supplier now expects annual net sales of $715 million to $740 million, down from its previous forecast of $780 million to $800 million. Chief Financial Officer David Lee said the revision reflects a challenging ordering environment and the timing of new program launches.

For the quarter ended Sept. 30, 2026, net sales were $169.2 million. Chief Executive Officer Selwyn Joffe attributed the near-term weakness to delayed orders, inventory realignment at certain customer distribution centers and lower tariff pass-throughs. The prior-year quarter also included $14.8 million in core revenue associated with the distribution-center realignment, Lee said.

Order Delays and Recovery Expectations

During the question-and-answer session, Joffe described three factors behind the sales disruption. A shift in business between warehouses at one customer resulted in a slower-than-anticipated ramp at the new locations, creating a revenue gap. He also said customers purchased liquidated inventory from First Brands, delaying the ramp-up of brake business awarded to Motorcar Parts.

Joffe added that demand had softened, particularly in the do-it-yourself market, where some orders were deferred. He said the company had seen greater activity across its product categories in the preceding four weeks.

Lee said October sales had increased from the trend at the end of the second quarter and that orders were picking up. Joffe said the revised guidance assumes improvement in existing business, but not a significant boost from customers catching up on deferred repairs.

For the second half of the fiscal year, the company expects net sales of $378 million to $403 million, compared with $380 million a year earlier. Excluding $19.9 million in prior-year core revenue tied to the distribution-center realignment, the forecast implies growth of approximately 5% to 11.9%, Lee said.

New Business Awards and Brake Expansion

Joffe said the company has secured nearly $60 million in incremental annualized business awards from existing and new customers. Small initial shipments have begun, and management expects all the programs to launch in the second half of fiscal 2027, most toward year-end, before ramping during fiscal 2028.

In prepared remarks, Joffe said the company anticipated approximately $25 million in incremental annualized sales by the end of March. Later, in response to an analyst’s question about a $25 million opportunity, he described it as additional to the $60 million in firm commitments and based on advanced discussions rather than awards. The company did not clarify whether those references concerned the same opportunity.

Motorcar Parts also sees potential in relaunching its Centric Parts brand in the professional brake aftermarket. Joffe said potential Centric sales are not included in the company’s current incremental growth estimates. He also cited opportunities as customers expand in Mexico and Canada, and said the company sees South America as a potential market.

The company has completed the relocation of its heavy-duty rotating electrical operation from Canada to an existing facility in Mexico, where production has begun. Management expects the move to reduce costs and improve efficiency.

Margins, Cash Flow and Outlook

Second-quarter gross margin rose to 24.2% from 19.3% a year earlier. Lee said the latest quarter’s margin included a 2.8-percentage-point impact from noncash expenses and a 5.7-point benefit from one-time items, including approximately $11.1 million in IEEPA tariff refunds. Unfavorable foreign exchange rates reduced margin by about 1.4 points. Excluding those effects, gross margin was approximately 22.7%, he said.

Lee said margins on the new business should be comparable to recent levels, while increased volume, improved overhead absorption and cost reductions could lift overall margins.

The company used approximately $4.1 million in operating cash during the quarter, partly reflecting an inventory buildup for new business. At Sept. 30, it had $20.8 million in cash and $126.6 million outstanding on its revolver, resulting in net bank debt of $105.8 million. Total liquidity, including cash and revolver availability, was approximately $104.8 million.

For fiscal 2027, Motorcar Parts expects operating income of $37 million to $44 million. The forecast includes approximately $30 million in noncash expenses and $5 million in costs associated with the heavy-duty relocation, while excluding approximately $11 million in tariff refunds recognized in the second quarter.

About Motorcar Parts of America (NASDAQ:MPAA)

Motorcar Parts of America, Inc is an automotive parts manufacturer, remanufacturer and distributor serving the North American aftermarket. The company supplies replacement components for passenger vehicles, light trucks and other applications through automotive retailers, distributors, warehouse distributors and e-commerce channels.

Its product portfolio includes rotating electrical products such as alternators and starters, as well as wheel hub assemblies and a range of braking products.

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