Jim Burkes – VP and CFO Larry Sills – Chairman and CEO.

John Lovallo – Bank of America Merrill Lynch Bret Jordan – BB&T Brian Sponheimer – Gabelli & Company Robert Smith – Center For Performance Investing Happy Ace – Standard.

Good day and welcome to the Standard Motor Products First Quarter Earnings Release Call. Currently, all lines are in a listen-only mode. Later there will be an opportunity to ask questions during the question answer session. (Operator Instructions) Please be advised today’s program maybe recorded. It is now my pleasure to turn the program over to Mr.

Jim Burkes. You may begin sir..

Okay, thank you very much. Good morning and welcome to Standard Motor Products First Quarter 2014 Conference Call. In attendance from the company are Larry Sills, Chief Executive Officer and myself Jim Burke Chief financial Officer.

As a preliminary note, I would like to point out that some of the material we will 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 risks and uncertainties that could cause our actual results to differ from our forward-looking statements. I will review the financial highlights, and then turn it over to Larry followed by Q&A.

We are pleased with our operational performance in the first quarter 2014, reflecting a 27% operating income improvement. Operationally TS increased from $0.42 to $0.53 and three acquisitions completed to-date in 2014, Pensacola Fuel Injection completed in January and two very recent acquisitions announced in April.

Larry will discuss each in a little more depth. Looking at the P&L, consolidated net sales in Q1 2014 were $232.8 million, up $2 million or 0.9%. By segment Engine Management net sales were $179.3 million, up $3.8 million or 2.2%.

Net sales were up 7.7% in Q1, 2013, a difficult comp, but more recently net sales were up 14.4% in Q4 2013, as certain customers accelerated some pipeline orders into Q4 versus Q1 this year. We believe the industry demographics remain positive and anticipate low to mid single-digit growth going forward.

Temp control net sales were $51.5 million, down $1.2 million or 2.4%. As we have stated in the past, Q1 Temp sales in any given year primarily reflects pre-season stocking orders. It has been cold in many parts of the country through April and customers remain cautious on the back of a weak 2013 season.

Consolidated gross margin dollars in Q1 improved $2.1 million at 29.2%, up 0.7 points. Engine Management gross margin improved $1.5 million at 29.7%, up 0.2 points. Temperature control gross margin improved $0.9 million at 23.1% up 2.3 points.

Due to the cold start of the 2014 season, we have scaled back production which will pressure gross margins in the coming quarters. More positively, in May, we will begin to source products from our 50-50 JV in China, but these benefits will not materialize later in the year and fully in 2015 as inventory turns on the balance sheet.

Consolidated SG&A expenses in Q1 decreased $2 million to 20.4% of net sales versus 21.5% last year reflecting a 1.1 point improvement. Consolidated operating profit before restructuring and integration expenses and other income net in Q1was $20.3 million up $4.1 million at 8.7% of net sales reflecting a 1.7 point improvement.

The net effect of our operational results is reported on our non-GAAP reconciliation was Q1 diluted earnings per share, increasing from $0.42 last year to $0.53 this year. Looking at the balance sheet, accounts receivable was essentially flat in Q1 compared to December 2013 levels.

We normally have a seasonally our increase in Q1, but this did not happened because of a 14% sales increase we experienced in Q4 2013. Inventory increased $15 million from December 2013 levels. This reflects a normal seasonal build in our Temperature Control line.

Total debt was $33.1 million at March 14, which reflects an increase of roughly $12 million from December 2013. Our cash flow statement reflects $9.2 million positive cash from operations in Q1 2014 compared to $26.8 million cash used in operations during Q1 2013.

This net $36 million positive swing is a result of not experiencing a normal AR seasonal increase as explained earlier and smaller inventory seasonal increase than the prior year. In 2014, we have invested roughly $38 million through April 2014 in the three acquisitions announced, which have been fully funded from operational positive cash flows.

Over the past 12 months, from April 2013 to April 2014, we reduced total debt of approximately $14 million while completing three acquisitions and also funding our dividends and share repurchase programs. In summary, we are pleased with the operational performance in Q1. Thank you. I'll now turn the call over to Larry..

Good morning everybody. Well, as we normally do, let’s begin with sales. Engine Management up 2.2% for the quarter, which is on the low end of our stated forecast. And as we said in the release, this is related to a very strong fourth quarter of 2013 with sales up 14% for that quarter.

This was caused by several customers who normally place pipeline orders in the first quarter, moved it forward because they had very strong demand. This had the effect of increasing the fourth quarter volume and has had a slight dampening effect on the first quarter this year.

Engine Management business remains healthy and we continue to continue to forecast growth in the low to mid single-digit range. Temp, as Jim said, in the first quarter, what you are dealing with is primarily pre-season orders. Now last year was cold and damp. It was a poor selling season.

Several customers wanted up with slightly higher inventories than usual and it’s we do step pre-season orders. Speaking of wet and cold, this year has started out in a similar manner. And it's still wet and cold just look outside. As one of our salesman told me recently, it’s hard to write order when it’s snowing in April.

But it’s still early in the season and we'll know a lot more in 60 days. But overall, looking at the Temp line. There are going to be hot summers and there are going to be cold summers. And sales can vary plus or minus 20% in any given year based on the weather. We can’t control that.

What we can control is to structure the business so that we do well in a cold summer and very well in a hot summer. And you’ll see we’ve taken some good steps this year to accomplishing that. Okay, let’s move to profit which is a very strong story. Our earnings per share up 26% from $0.42 to $0.53.

Two main factors, first improved gross margin where we just see the continuing efforts of the prior year’s continuing to bear fruits. To refresh everyone’s memory, we continue to increase production in low cost areas primarily in Mexico and Poland. We continue to manufacture products we used to purchase.

We continue to reduce purchase cost, we are now making good use of a excellent Hong Kong engineering office. And we have done a good job of integrating recent acquisitions. That will help the gross margin. And we've done the same with SG&A.

For example, in distribution, I believe we are already one of the most efficient in the industry in this area, but we keep working to make it worth it. For example, in Virginia, we just introduced voice picking which has led to a major improvement in productivity, and we hope to introduce this in other areas in months to come.

So all these improvements that we talked about are the results of the efforts of our people and we congratulate them. And that's the profit story. Now let’s talk about acquisitions. Three since January. Let me go over each one for a minute, First Pensacola Fuel Injectors, they are a rebuilder of diesel fuel injectors and related products.

They were our supplier for this product line and we represented the bulk of their business. We are in the process of relocating this operation to Grapevine, Texas, which is our primary rebuilding facility in the U.S.

We’ll get some savings and efficiency, but equally or maybe even more important I think we can improve the operation by merging it with our sophisticated rebuilding operation in Grapevine. So, this is vertical integration, We are now a basic manufacturer in a growing business and we think this has an excellent future. That's the first one.

Second, Gwo Yng. We have established a 50-50 joint venture with this company. They are the premium manufacturer in China for accumulators, filter dryers, hoses or to put it another way essentially, what’s left in the temp line excluding compressors. They are a very well went company. They have good management.

We’ve been purchasing from them for a long time and this management will run it day-to-day. We feel this places us in a very strong position. We now have our compressor manufacturing in Reynosa, Mexico. Now we have most of the rest of the line in China but we control these manufacturing operations.

And with that we think we can compete with anyone in the world. Plus, we now have a footprint in China. A footprint with a good solid company and we see this as a potential for future growth. Okay the final acquisition is Annex Manufacturing, located just down the road from us in Fortworth Texas. They developed a nice niche.

They are essentially the North American distributor for Asian manufacturers supplying temp control parts to the OES and heavy-duty customers in North America. They had sales in 2013 of $22 million. We represented 40% of that or about $10 million.

We plan to relocate this from Fortworth to our Louisville operation 30 miles away and we believe this will achieve significant operating savings and that this company will be a nice addition to our temp division.

All of these acquisitions, all three will be accretive to earnings in 2014 exclusive of one-time move costs, it will help us become low cost basic manufacturer, one of our main strategic goals and help us expand into other markets which is another one of our major strategic goals.

And as Jim pointed out, they have been paid for out of operating cash flow and thus no increase in debt. We feel this is an excellent model for future acquisitions. So that’s our story for the first quarter. We like the weather to be warmer, but with that exception things are going very well. And now let's open for questions..

(Operator Instructions) And we will first go to the side of John Lovallo with Bank of America Merrill Lynch. Your line is open..

Hey, guys. Thank you for taking the call..

Okay, good morning, John..

First question would be, operating leverage was very solid in the quarter and you guys pointed to a number of things including you are manufacturing more parts and shifting labor to lower cost footprints.

But we also start to see a benefit from the new vehicle recovery, kind of getting past its third year and now, perhaps you are buying less parts from the dealer or the Tier-1s where you are not making margin and your margin improving from this. And then this is something that I would imagine would continue into the next few years.

I mean, am I thinking about that correctly?.

Yes, that’s true. Your basic premise is correct. When the part first is available, we fill the obligation to get it in the line as quickly as possible. And typically that – the only place you can get it at that point is the car dealer. And so, that's how we begin.

Then as quickly as we can, we try to resource it, or if the volume is large enough to start manufacturing it. And, I don’t think that has to do so much with the change in car population, because that doesn’t changed that much. But, I think we gotten better and better at sourcing.

And so yes, part of the improvements in gross margin is shifting from buying from the car dealer to buying from other sources and we will continue to do that.

Okay?.

That's helpful, thank you. If I can, maybe just get one more in here. Some of your – some of the larger retailers and some of the customers have talked about the ability to kind of press more on payment terms and according to them we have made some headway there.

I mean, are you guys seeing any more pressure on this front?.

It’s a good question. All our top customers, this relates back to the factoring program avail themselves to factoring and we feel that we have – and it's obviously very competitive. But we feel that we have a complete program in there with all of our major customers. And I don't feel there is further expansion on that – in that area..

Great, thank you very much guys..

(Operator Instructions) We’ll next go to the side of Bret Jordan with BB&T. Your line is now open..

Hey, good morning guys..

Hello Bret..

In the quarter, what was the contribution to revenues from any acquisitions, just sort of a non apples-to-apples comparison year-over-year?.

There was not – that we had Pensecolo which we Pensacola, which we purchased in the first week of January, they were a vendor. So we were already experiencing any of the sales, we just distributed it. So now we are in the manufacturing of it. So there was incremental sales from acquisitions..

Okay, great. And then on channel inventory in Temperature Control, do you have a feeling for where we stand at the retail level going into the season? And I think you mentioned that you scaled back some production.

If it does warm up, is there any issue as far as ramping back up to fill the channel or it gives your adequate inventory in the books right now?.

We have adequate inventory that’s in there when we are still producing, because we want to keep the level loaded production in our facilities, but just as you tailor it back your fixed cost increased slightly. So, we are contiguous building throughout the season.

We feel that where we have very high shipping levels that will continue to service our customers and it would not be any problem if the little bit we scale back to size it back up hopefully..

How does what you are seeing in the channel today compare to a year ago today, just given the fact that they'd laid off ordering? If it does warm up, is there potential for sort of an accelerated selling cycle for you?.

What was the first part of the question Bret? I missed it..

How is the retail inventory looking as far as if it does warm up?.

I think what they have done is, we don’t know precisely down to the dollar, but obviously by ordering less in the first quarter, they’ve got their inventories now based on what they think will happen to the year. Now it depends what their forecast is. If their forecast was based to poor season then they are going to have to scramble.

But even if they do, I think we are in a good shipping position to handle the needs if it comes up..

Okay. And then a question on the advanced consolidation with CARQUEST.

How does that set up for you? Are you over-indexed to one versus the other? Is there potential to pick up incremental volume in that deal? And I guess where are you seeing them on pricing? Have you begun to renegotiate your supply arrangement?.

We don’t discuss individual customer situations, but, so I’d rather, but we will just say that we have some good relations with both customers at that point and that’s it. Okay,.

Then one last question and how about TechSmart could you certainly look at that how it grew year-over-year?.

I don’t know the exact number, but it was pretty good that was starting from the low base, but we think this has a very nice potential growth and we continue to invest in this business..

Could you give us a ballpark sort of figure for what TechSmart might have contributed to sales in Q1?.

I don’t have that handy in front of me. Again, it’s from a small base and so as a percentage it maybe a large percentage in absolute sales dollars it’s not that significant..

All right. Thank you..

Okay, welcome,.

And we will next go to the side of Brian Sponheimer with Gabelli & Company. Your line is open..

Hey, guys.

If I were to think back to when O'Reilly bought CSK, at what point in that process was there any sort of discussion about pricing terms with your supply there?.

O’Reilly bought CSK?.

Brian, we have that’s – we need to test our memory now for you guys,.

You are talking about O’Reilly when they bought CSK?.

Yes, obviously, I am trying to figure out what the price impact is going to be when CARQUEST finally gets fully integrated with Advance and just my impression is that there hasn't been any sort of price discussion yet, but I'd be crazy to think that if that wasn't coming?.

Again, those questions are obviously more appropriate for Advance that’s doing the consolidation and they are working in their timing. So many of the manufacturers are trying to work with the customer as we did with O’Reilly and everybody is looking to hopefully gain some business. But again, those discussions are more for the customer than us..

Okay, as far as channels, you guys have gone to look to grow in OES and you made a number of acquisitions, how does the internet play into, I guess, the next 5, 10 years as relates to your business?.

I am not sure how you are defining that, the internet. Obviously much….

The Amazon as competitor to your customers?.

You are talking about direct to the end-user?.

Yes..

There is some business there but it isn’t from us. It is, we have several of our customers who have developed pretty good internet businesses. But we wouldn’t do it because we are competing with our customers and that's something we won’t do but several of our customers have developed a decent internet business.

However, for our products, and it will vary by product line but the most of our parts are demand parts and you need it immediately. The only way you can it immediately is to get over to that store and have it delivered to you.

So if you have things that can wait, make sure what happens you can wait a week or something like that to get new windshield wipers there may some. But we don’t envision it being ever a major factor in our business the internet to the end-user..

Okay, all right, thank you guys..

Okay thanks Brian..

(Operator Instructions) We will next go to the side of Robert Smith – Center For Performance Investing. Your line is now open..

Hi, good morning..

Good morning Bob..

Alright, I have a couple of questions. First, as the Chinese market continues to grow domestically, is there an opportunity there in the aftermarket, I mean, without commenting on quality control thereabout with their original equipment stuff.

Is there something that's in the link so to speak?.

You are talking about the domestic market in China..

Yes..

Is that what you are talking about?.

Yes..

Okay. It’s in its infant stages..

I know..

But will it become a factory one day, I think it’s a reasonable expectation. But it’s very, very, early in the game. But we are happy to see that we now have a footprint there with this company going and maybe that will help us one day. But it’s – you are talking it’s into the future I think before this becomes a major event.

Sure. Understood.

So now I think I would dare just to understand $1 billion here $1 billion there, so just looking at your profile?.

$1 billion here $1 billion there will be good, yes..

When you're looking at three or five-year plan, whatever you do internally, what kind of an opportunity – market opportunity is there in the sectors that you are in right now?.

The current sectors in the US market, North American markets, Yes, I think what we said is, in our current sectors, which you want to define as aftermarket North America. We are saying mid to single – low to mid single-digit growth. That's the secular growth of our basic industry based on growth of car population..

Well, I meant the market size, Larry..

.

.

Yes..

That number exists but I don’t have it in my head. If you – I’ll try to look it up in. But there is a number, it’s a big, big, big number. Big number, big number..

And by any stretch of imagination you guys would play on global warming?.

Okay. Global warming..

And it’s very cold outside..

Well I know.

Actually I'm out in California and it's 90 degrees down here?.

Oh, you are getting a bias to you. Come back to you..

Okay, good luck guys..

Thank you..

Thank you..

(Operator Instructions) And we’ll next go to the side of Happy Ace with Standard. Your line is open.

Good morning gentlemen, how are you doing?.

All right..

Hey, a quick question about the Chinese acquisition. Why did you decide to go with a joint venture as opposed to an outright acquisition of the whole company? Thanks..

Okay. Again, this is a – they are a supplier to us and a very good opportunity, but again, they have the feet on the ground and managing the business there and it’s an entry for us to step into a business as opposed to where we look to able to go across the world and try to run a business from scratch.

So there are opportunities for the future for us to grow, but that was our plan, we have an excellent management team that’s in place..

Okay..

All right, thank you..

(Operator Instructions) And at this time, there are no additional questions in queue..

Okay, I want to thank everybody for joining our conference call this morning. Thank you..

This does conclude today’s program you may disconnect at any time..