Larry Sills - Executive Chairman Eric Sills - President and CEO Jim Burke - CFO.

Scott Stember - C.L. King David Kelley - Jefferies Carolina Jolly - Gabelli & Co.

Good day everyone and welcome to today's Standard Motor Products Second Quarter Earnings Release. At this time, all line participants are in a listen-only mode. Later you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] It is now my pleasure to turn the program over to Mr.

Larry Sills, Executive Chairman from Standard Motor Products. Please go ahead sir..

Good morning everybody and thank you for attending. Welcome to our second quarter earnings call. Attending from the company in addition to myself are Eric Sills, President and CEO; and Jim Burke, Chief Financial Officer.

Our agenda for today, Jim Burke will review the numbers, Eric will review some of the highlights of the quarter and then we'll open for all your questions. So with that let's begin, I will turn it over to Jim..

Okay, thank you, Larry. 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.

Now to begin, we are very pleased with our second quarter results which include good sales performance, strong earnings momentum and our ignition wire acquisition completed on May 27, 2016. Looking at the P&L, consolidated net sales in Q2 '16 were $289 million up $19.6 million or 7.3%.

Inclusive in our quarterly results were $8.5 million net sales from our acquisition of General Cable Corporation's North American automotive ignition wire business. Excluding our wire acquisition sales in the quarter, Q2 '16 sales were up $11.1 million or 4.1%.

Consolidated net sales year-to-date were $527.9 million up $30.9 million or 6.2% excluding our acquisition sales of $8.5 million to year-to-date increase would have been up $22.4 million or 4.5%.

By segment Engine Management net sales in Q2 '16 were $198.8 million up $21.9 million or 12.3% and without wire acquisition sales of $8.5 million were up $13.4 million or 7.6%. Engine Management net sales year-to-date were $379.5 million up $25.4 million or 7.2% and without wire acquisition sales of $8.5 million were up $16.9 million or 4.8%.

Eric will delve deeper into our sales, our customer purchases compared to their POS sales. Temperature Control net sales in Q2 '16 were $87.5 million down $1.6 million or 1.8% and year-to-date were $144.3 million up $6.5 million or $4.7%.

As we previously stated, our customer temp control sales in the first half of the year primarily reflect preseason orders. We are pleased with the six month growth of 4.7% and await July and August sales results to define how good the 2016 season will be.

Temperatures have spiked up in July and we look forward to hopefully hot weather throughout August. Consolidated gross margin dollars in Q2 '16 were up $14.3 million at 30.1% up 3.1 points and year-to-date were up $23.4 million at 30.3% up 2.8 points.

By segment Engine Management gross margin in Q2 '16 was 32.1% up 2.6 points and year-to-date was 31.9% up 2.5 points. As we pointed out in our earnings release and last year, the first half of 2015 Engine Management margins were impacted by one-time costs to enhance our remanufacturing diesel fuel injector line.

We are very pleased with our rebounce of roughly 32% gross margin levels and strive for continuous improvements. Temp control gross margin in Q2 '16 was 23.5% up 4.1 points and year-to-date was 24% up 4.3 points.

Similar to Engine Management 2015 first half gross margins were negatively impacted by one-time costs related to higher than normal unfavorable manufacturing variances carried over from 2014 into the first half of 2015.

We anticipate temp control gross margins in the 25% range in Q3 and full-year margin for 2016 at or above the top of the 23% to 24% margin levels previously disclosed. Consolidated SG&A expenses in Q2 '16 were $54.8 million up $3 million at 18.9% of net sales versus 19.2% in Q2 '15.

And year-to-date were $107.8 million up $6.8 million at 20.4% of net sales versus 20.3% last year. Our spend level in 2016 through the first half is within the $52 million to $54 million quarterly level we forecasted.

We anticipate our SG&A spend level will increase in the second half 2016 due to our wire acquisition with higher sales to the $56 million to $58 million range.

Consolidated operating income for restructuring and integration expenses and other income net in Q2 '16 was $32.3 million, 11.2% of net sales versus $21 million at 7.8% of net sales in Q2 last year. And for the first half '16 was $52.3 million, 9.9% of net sales versus $35.7 million at 7.2% of net sales last year.

Excluding the impact of one-time costs incurred in Q2 '15 of $3.8 million and $8.5 million for the first half 2015 consolidated operating income before restructuring and integration expenses and other income net increased $7.5 million for the quarter or 30% and increased $8.1 million year-to-date or 18%.

The net effect of our operational results is reported on our non-GAAP reconciliation was Q2 '16 diluted earnings per share of $0.88 versus $0.59 in Q2 '15 and year-to-date diluted EPS of $1.43 versus $0.98 last year.

In summary, we are very pleased with the strong sales and profit performance both for both Engine Management and Temperature Control segments. Looking at the balance sheet, accounts receivable increased $44.6 million from December '15 level reflecting the seasonal nature of our business.

The increase was only $7.8 million against June '15 levels which is all related to the wire acquisition completed in May this year. Inventories increased $31.6 million from December '15 which included $12.6 million from our wire acquisition.

Goodwill and other intangibles increased $51.6 million from December, the wire acquisition accounted for an increase of $54.9 million offset by intangibles amortization. And total debt increased $52.7 million from December which is inclusive of the $67 million spend for the wire acquisition.

Our cash flow statement reflects roughly $24 million cash generated from operations compared to $26 million for the six months 2015. By year-end, our seasonal increase in working capital will be reduced generating additional cash from operations. Investing activities included our $67.3 million wire acquisition.

Eric will provide additional color on our wire acquisition and also update on the previously announced Grapevine Texas plant restructuring. Thank you for your attention. I'll turn the call over to Eric Sills..

Well, thank you, Jim and good morning everybody. I appreciate you spending the time with us today. So Jim has gone over the numbers and as you’ve heard we are quite pleased with the results both in terms of our growth in revenue as well as our profit improvement.

So regarding sales going forward as we said in the press release and as we've mentioned many times on these calls, there are always some timing differences between when our customers order product from us and when they sell it out the door.

And in that context within Engine Management we do believe that in the second quarter our customers purchases from us slightly exceeded their sales out. But as we have always said we feel that this tends to balance out in the long run and we do expect with an Engine Management ongoing low single-digit sales growth.

On the temp control side, as Jim mentioned really in the first half of the year is almost entirely preseason orders as our customers get ready for the summer. And now we’re into that selling season as you know it has been quite hot around the country and sales in July have been strong.

Here it’s early to predict, there's a couple months left of the summer but we do feel pretty good about the division. To be on that in terms of top line growth the big news is our recent acquisition of General Cable's North American ignition wire business while we had it for a couple of months and we haven't begun to integrate it yet.

But within these first couple months it is performing to our expectations, it’s doing quite well. All of the employees that came over to Standard Motor products are doing a terrific job and then we welcome them to the Standard family.

Over the next year or so we will begin to integrate it into our existing wire business and we’ll keep you posted on our plans and our progress. The first step of it has now been announced which is the relocation of distribution from their DC in Altoona, Pennsylvania to out wire and cable distribution center in Edwardsville, Kansas.

And this will be complete by the end of October of this year.

I would like to add that that the people at General Cable that we've been working with have all been terrific not just in terms of working through the deal but even pulls close they continue to performed various transition services for us and remained dedicated to doing a good job for us and we thank them for that.

This deal was really a perfect fit as part of our acquisition strategy as a bolt-on acquisition we're able to tuck-in it very easily and seamlessly into the rest of our wire and cable business, should be able to rapidly integrate it with minimal disruption out in the field, achieve some nice synergies and do so with great confidence we’ll be able to satisfy the need of our customers.

So we're very excited about the future of the General Cable acquisition. Our other area for growth has been to understand our offering, finding nice complementary lines, complementary product categories with several of these in the works each one in of itself is relatively small but they're all showing very nice growth and great potential for us.

One of these that we are especially excited about is our diesel program. We believe we have far and away the best program out there. It’s the most comprehensive full-line program in the aftermarket and we’re really growing it very nicely both through customer adoption and through our expansion of the offering.

And we are up in the line 35% year-over-year and are very pleased with how it is doing.

Turning to profits, we’ve been discussing, some of the improvement this year is attributable to the fact that a lot of the one-time cost from last year are now in our rearview mirror but we also do have a lot of profit improvements through our ongoing focus on cost reduction activities which we pursue in all areas of our business.

Amongst them as we’ve talked in the past, our initiatives to expand our engineering departments and tool more product become a more basic manufacturer and be a manufacturer of a higher percentage of what we sell, as well as all of our activities in global sourcing as we look to expand purchases in low cost areas working with our high quality partners over there.

So we have a lot of these ongoing initiatives but every now and then we do also undergo major one-time event and we did recently announce one of these which is relocation of various manufacturing operations into our low cost plants.

So to remind of what we’re doing here, we will be relocating all the products out of Grapevine, Texas into both Mexico as well as Greenville, South Carolina which concurrently moving a major line from South Carolina to our low cost plant in Poland. At the end of this we will be closing Grapevine facility. We’re still in the earlier stages of this.

It’s going to take through the end of 2017 to complete but so far we are on schedule, we are on budget and when this is all complete by the end of next year as previously announced we’re expecting to have ongoing pretax savings in the $6 million to $7 million range and it will cost us about $9 million to $10 million in one-time cost to get there but that does not include the sale of our Grapevine plant and property which has been apprised in the $4 million to $5 million range, so that will offset some of those one-time costs.

So in closing we’re having a very solid year. We’re very pleased with it so far. We do have a lot going on but we believe we have a strong team here at Standard Motor to execute and we’re quite excited about the future. So with that I’ll turn it back over to the moderator and we will open it up for questions..

[Operator Instructions] And we'll go ahead and take our first question from Scott Stember with C.L. King. Please go ahead. Your line is open..

Good morning guys and nice quarter.

Talking about Engine Management, you did say that you did get some benefits from - sounds like some pull forward of sales, but during the quarter was there any impact on weather or lack of winter like a lot of your customers had generally been talking about and maybe just talk about what the sell through rates look like on that?.

Well, Engine Management is not a particularly weather dependent category, a little, some of the products within it do have some impact but for the most part weather does not have a dramatic impact on Engine Management.

It’s much more related to just order cycles of our customers and not some - a lot of our customers who are reporting that they were having some difficult or some difficult comps because it was a relatively mild winter coming into the second quarter. Within Engine Management it’s much less affected by that..

Okay, got you.

And sell-through rates?.

Sell-through rates of our customers?.

Yes, just in general they’ve been pretty consistent it sounds..

Yes, we look at it pretty closely and they continue to perform in that same level that we’ve been discussing which is in the low single-digit rates..

Got it.

All right and moving over to general cable business, the $95 million of sales that came in, maybe just talk about, is there any duplication, any elimination of sales between the two divisions, is this all additive, and maybe just talk about the margin profile of the wire business you bought versus the wire business you already have?.

I’ll tackle the first half and Jim will take on the second piece. In terms of whether it’s additive yes, it’s completely additive. There was a very little bit of inter, sales between the two organizations but that was very minor, essentially it’s all additive..

I just finished [indiscernible], there were some, I’m going to guess maybe about $10 million or $15 million that the sales we may have had selling into [GC] [ph] that was there so that will be eliminated, that’s in there, in wire.

Now on the second piece we’re forecasting that this line with wire as we pointed out previously that this because it’s moving off of new vehicles, it’s probably declining in the neighborhood of 5% to 6% per year and would estimate that the annual volume that we’re looking at on this would be about $85 million that we’d be looking for as incremental sales.

I’ll point out the $8.5 million that we have for, that was included in our second quarter and that was inclusive of about 5 weeks so again we’re pleased the volume there annualized is approximately in that $80 million to $85 million..

Got you. And temperature control Jim just last question and I’ll get back in the queue. You talked about a 25% gross margin for the third quarter if I heard correct and last year you were 25.7%.

Just remind us was there anything one-time in nature that [indiscernible] last year which makes the comparison a little more difficult this year or is there something else in there?.

No, I am not looking at it that specific Scott, that's in there, I was just bringing that, we had guidance out there that was 23% to 24% previously and that it would be upwards into the 25% range. So nothing specific that it would be necessarily down from the prior year but we would be within that 25% range..

Okay, got you. That’s all I have right now. Thank you..

[Operator Instructions] Our next question come from Bret Jordan with Jefferies. Please go ahead. Your line is open..

Good morning gentlemen, this is David Kelley on for Bret, thanks for taking my questions. Just first on the consolidated profit. If you back out some of the nonrecurring expenses, you still had a really healthy margin improvement in both businesses.

Just wondering if you can provide us with some additional color on some of the initiatives you are taking that drove those specific gains in the quarter?.

Well, there are several things that we have been working on throughout most divisions really in [indiscernible] it’s not just in cost of goods but in SG&A as well but specifically in cost of goods the biggest initiatives have been a combination of tooling additional products and we add thousands of SKUs each year to our offering and when we first bring them into our portfolio, they come in typically with high cost suppliers and then we as the demand starts to pick up, these moves into our engineering department’s SKUs and when they tool this product and bring it in-house, we see some fairly substantial cost improvement at that time.

So we’ve been investing heavily, we have nine different engineering departments around the company. We've been growing those departments over the last several years, adding a lot of staffing, giving them essentially as much capital as they need to complete their projects and we’re seeing the fruits of their labor. So that’s a biggie.

We have been working diligently on our global sourcing initiatives. We have about a dozen people in Hong Kong mostly engineers who are working with our suppler partners over there, transferring purchasing from high cost domestic suppliers to them and that has had a significant benefits as well.

And within all of our plans we have various lean manufacturing activities going on we just have a - we believe a culture of cost improvement throughout and we’re working on it..

All right great, that's very helpful.

And then I guess honing in on temperature control, what are your thought on customer in-stock levels at the end of quarter maybe relative to historic levels you typically see June, early July or end of August here?.

We’re looking at the customer levels at more of a macro level and we believe that they enter the selling season in good stead and so we think that they are well positioned to take care of the season..

All right, great and then final one from me and I’ll jump back into the queue here. Nice organic growth really on the Engine Management side.

Just wondering if you are seeing any structural change in that market whether it be engine complexity or something that might drive some longer term benefit from that typical low to mid single-digit growth we see?.

Well nothing happens that fast in this industry where you are going to see technology change having step-wise impact on our sales or profits.

I think in the long run there is definitely evolution of technology which provides some challenges but also provides a lot of opportunities for us, it allows us to expand into new categories, you have more and more systems on vehicles that we believe we can effectively play in but quarter-to-quarter, year-to-year again more it’s much to do with our customer order patterns as what’s happening out in the car [parking] [ph]..

All right, great. I appreciate the color. Thanks guys..

Thank you. And our next question come from Carolina Jolly with Gabelli. Please go ahead. Your line is open..

Good morning. Thanks for taking my questions.

Just to delve a little more into Engine Management segment, are you able to elaborate on [some of the sub][ph] segments that worked or outperformed during the quarter?.

What we break out we have the - on the wire business that we had obviously that we disclosed for the incremental sales that are in there. But we do say that the wire business will be on an annual basis decline in the 5% to 6% area. There is many categories.

Eric spoke of diesel, that’s one category that's in there but there is across 40,000 SKUs there is 50 plus categories many of the older ignition may be declining which would include points condensers, caps and rotors and that’s offset by other growing categories.

So when we look at the mix of everything that’s in there, that’s where the tendency has been to see low to mid single-digits Carolina..

Great, thank you..

[Operator Instructions] We’ll take a follow-up from Scott Stember with C.L. King. Please go ahead. Your line is open..

Eric a follow-up question on the Grapevine move. Is there any update on the ultimate cost savings and potential cost related to this year into next year or is everything on track..

It’s on track and I mentioned in my opening remarks but we’re looking at $6 million to $7 million in saving ongoing but that will really kick in after all moves are complete at the end of '17 and in the $9 million to $10 million to get us there and as you recall in terms of those one-time cost some of them we will be able to show as specific CapEx, or cost associated with discontinued ops.

Some of it is just going to get lost in inefficiencies and so on of having redundant operations and it will just flow through the P&L but at the end of it those would be our numbers..

Got it. And just last question Jim on foreign exchange. It sounds as if the comps got easier in this quarter, was there anything meaningful on that front..

No, I didn’t call it out. It had a slight negative impact on the sales but it was very small, it wasn’t necessary to call that out as a significant adjustment, again and that’s primarily related to the Canadian dollar..

Got it. That’s all I have. Thanks for taking my questions..

[Operator Instructions] And speaker it does appear we have no further questions at this time. I will hand the program back over to you for any additional comments..

Okay, thank you. Well again we thank everyone for attending. Just to summarize, I think you’ve heard that we’re quite pleased with the first six months. The industry is healthy. We have many exciting initiatives in place and we are optimistic about the future. So again thank you very much for attending..

That does conclude our program for today. We like to thank you for your participation. Have a wonderful day and you may disconnect at any time..