Good day and welcome to the Standard Motor Products Fourth Quarter Earnings Release Conference Call. [Operator Instructions] Please note today’s call is being recorded. It is now my pleasure to turn the conference over to Larry Sills, Executive Chairman. Please go ahead..

Okay. Thank you and good morning everyone. Welcome to Standard Motor Products fourth quarter conference call and we thank you all for attending.

Here for the company are Eric Sills, President and CEO; Jim Burke who I am happy to announce is now Chief Operating Officer and we all congratulate him on his promotion and myself, Larry Sills, Executive Chairman.

Our agenda will be as we typically do, Jim Burke will review the numbers, then Eric will go into a few subjects in greater detail, and then we will open for questions. So with that in mind, let us begin. Mr.

Burke?.

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. Okay.

So look at the P&L, consolidated net sales in the fourth quarter were $247 million, up $7 million or 2.9% and for the full year were $1.921 billion, down $24.1 million or 2.2%.

By segment, Engine Management net sales, excluding wire and cable, in Q4 ‘18 were $165.6 million, up $7.1 million or up 4.5% and for the full year 2018 was $648.3 million, down $9 million or 1.4%.

Wire and cable net sales in the fourth quarter were $37.4 million, down $2.1 million or 5.4% and for the full year were $155.2 million, down $16.9 million or 9.8%. Lastly, Temperature Control net sales in Q4 were $41.8 million, up $1.5 million or 3.7% and for the full year were $278.5 million compared to $279.1 million in 2017, essentially flat.

Consolidated gross margin in the fourth quarter 2018 was 29%, up 0.1 points versus Q4 ‘17 and for the full year 2018 was 28.6%, down 0.7 points versus 2017. By segment, Engine Management gross margin in Q4 ‘18 was 28.8%, up 0.4 points versus Q4 ‘17 and for the full year ‘18 was 28.6%, down 0.8 points versus 2017.

The phase-in of our tariff pricing and costing reduced our Q4 2018 margin percentage by approximately 3/10 of a point. We expect pricing to offset tariff costs in 2019. While gross margin dollars will not be affected, our gross margin percentage is estimated to be down approximately 0.4 to 0.5 points.

Despite the tariff impact on our gross margin percentages, we anticipate full year 2019 margins in the 29% to 30% range. However, we believe Q1 ‘19 margins will be lower due to the timing of customer returns and other expenses. Our longer term projection for Engine Management gross margins will be in the 30% to 31% range.

Temperature Control gross margin in Q4 ‘18 was 22.9%, down 3.7 points versus Q4 ‘17 and for the full year ‘18 was 25.3%, down 0.9 points versus the full year ‘17. Our fourth quarter Temp Control sales are typically low due to seasonality and margin percentages are subject to swings based on accruals.

Hence, we believe only the full year margin is indicative of the business performance and not the individual quarters. Similar to Engine Management, Temperature Control booked gross margin dollars are expected to have a minimal impact from the pass-through of tariff pricing and costs.

However, gross margin percentages will be dampened approximately 0.7 points due to the broader impact of tariffs on the Temp Control products. Despite the tariff impact, we continue to maintain that our 2019 forward guidance will be in the 25% to 26% range.

Consolidated SG&A expenses in Q4 ‘18 were $55.7 million, an increase of $4.2 million and for the full year were $231.3 million, up $7.1 million. The 2018 SG&A increase was primarily due to costs related to our Temperature Control automated distribution system.

Many of the Temp Control DC implementation challenges from 2018 are behind us and we anticipate significant savings in 2019 compared to 2018. Our 2019 estimated SG&A spend will be in the $59 million to $62 million range per quarter.

Consolidated operating income before restructuring and integration expenses and other income net in Q4 ‘18 was $15.9 million, 6.4% of net sales compared to $17.8 million, 7.4% of net sales last year, and for the full year ‘18 was $81.5 million, 7.5% of net sales versus $102.4 million, 9.2% of net sales versus 2017.

Our full year reduction in operating profit was impacted by lower sales volumes from the first half of 2018, up against large pipeline shipments in the first half 2017, slightly lower gross margin percentages and higher SG&A spending in our Temperature Control segment.

Going forward, we anticipate organic sales increases in the low to mid-single digits, improving gross margin percentages in both Engine Management and Temperature Control and improved operating margins. We had a couple of one-off items impacting our P&L below the non-GAAP operating income.

Other income net included a gain of $3.9 million in the fourth quarter from the sale of our Grapevine, Texas property. The closing was on December 31 with net proceeds of $4.8 million received in January 2019.

Other non-operating income expense net included a non-cash impairment charge of $1.7 million in the quarter related to our minority investment in Orange Electronics.

The net effect of our operational performance from continuing operations, as reported on our non-GAAP reconciliation, was diluted earnings per share of $0.52 in the fourth quarter ‘18 compared to $0.54 in the same quarter of 2017 and for the full year $2.55 in diluted earnings per share in ‘18 versus $2.83 for the full year 2017.

Looking at the balance sheet, accounts receivable was $157.5 million, up $17.5 million against December ‘17 levels. Receivables included $5 million from the sale of our Grapevine, Texas property with cash proceeds received in January 2019. Inventories were $349.8 million, up $23.4 million from December ‘17.

Inventories were increased to support anticipated 2019 Temperature Control preseason orders and 2019 planned pipeline orders. Unreturned customer inventory was $20.5 million, which reflects our review of a revenue recognition pronouncement recording anticipated customer returns at gross and recognizing the inventory held at customers.

Accounts payable was $94.4 million, up $16.4 million against December ‘17, which will offset some of the working capital increase in inventories. Total debt was $49.2 million, down $12.6 million from last year. In December 2018, we amended our $250 million bank revolver, extending the maturity for a new 5-year deal to December 2023.

We increased our asbestos liability to $46.7 million at December 2018 compared to $34.9 million at December 2017. This increase was triggered due to a California asbestos lawsuit, whereby the jury returned the verdict in favor of the plaintiff for $8.6 million compensatory damages of which we were responsible for $7.4 million.

We strongly disagree with the jury verdict and we will pursue all rights to appeal. We estimate the appeals process will take 2 to 3 years. In the fourth quarter, we had our actuarial firm update our asbestos liability study. Based on the updated study, we increased our liability reserve to $46.7 million.

This amount is the low end of the range for the undiscounted amount for settlement payments. The range was a low of $46.7 million to a high of $83.9 million for a period through 2061. Legal fees are expenses incurred in discontinued operations.

The updated actuarial study estimated future undiscounted legal fees in a range from $45 million to $83 million over the same period through 2061. Our cash flow statement reflects $70.3 million cash from operations in 2018 versus $64.6 million in 2017. Changes in net earnings and working capital accounted for the $5.7 million increase.

Investing activities reflected $29.9 million use of cash in 2018 for capital expenditures and JV investments. Financing activities included dividend payments of $18.9 million, share repurchases of $14.9 million, and debt reductions of $12.2 million. In summary, we feel positive looking forward into 2019.

Industry demographics remain healthy for the industry, and the recent harsh weather can only help. We have seen improvements at our wire assembly operation in Reynosa, Mexico and anticipate improved gross margins going forward. Operating margin should improve from further savings at our Temp Control distribution center.

And finally, our balance sheet is very healthy and cash flow is very strong. Thank you for your attention. I’ll turn the call over to Eric..

Well, thank you and good morning, everybody. First off, I would like to open by offering my congratulations to Jim Burke on his promotion to Chief Operating Officer. Jim’s been an invaluable asset to SMP for decades. And while he rose through the financial ranks, he always played a significant role in all aspects of our business.

As such, he is uniquely qualified for this appointment, and I’m very excited to work with him in his expanded role for many years to come. Secondly, I would like to take a moment to recognize that SMP has now achieved a significant milestone. 2019 marks our 100th year.

We attribute this longevity to a stability of focus and culture, our participation in a terrific industry and to the thousands of employees, past and present, who have devoted their time and energy to making us who we are. Okay. On to the quarter’s performance, Jim went through the numbers, so I will only add some color on a few of the pieces.

Overall, we’re satisfied with our performance. After a challenging first half, some of the positive trends we saw in the third quarter have continued. And as a result, while the year remains unfavorable to 2017, we are pleased with the momentum. I will review the business by operating division starting with Engine Management.

The division’s sales were up 2.5% for the quarter. Now our wire and cable product line was down 5.4%, but as we have previously discussed, this category is an older technology and we can expect this type of gradual decline.

Meanwhile, the balance of the Engine Management business increased 4.5% over last year, which is on the higher end of our stated expectations of low single-digit growth. Our full year sales in the non-wire portion of Engine Management remained behind 2017.

However, as previously explained, this was entirely due to a larger-than-normal pipeline orders placed by a few customers in 2017, which did not repeat in ‘18. Excluding this non-recurring event, sales would be ahead of last year. And now that we have lapped this, we expect more normalized year-over-year comparisons.

Perhaps more importantly, our customer sell-through continue to be robust, with about a 4% increase both in the quarter and the full year, which tends to be a good leading indicator of things to come. Turning to Temperature Control, sales for the full year were essentially flat to 2017. However, the 2 years differed substantially in their dynamics.

2017 was very strong in the first half as customers rebuilt their inventories from the previous year’s season. Then sales tapered off significantly for the second half of ‘17 due to a mild summer. 2018 was the opposite. We had a weak first half, down 11% from the previous year.

Customers have ample inventory and as such, their preseason purchases were lighter than typical. We then experienced a robust second half with a warm selling season and were up 14%. So due to the ordering dynamics of our customers, our sales year-over-year were flat. However, their POS was up 6% to 7%, which bodes well for 2019.

And as expected, we are seeing stronger preseason orders. And as Jim pointed out, we have increased our inventory in preparation for it. So while 2018 had certain challenges, it’s important to note that many were short term in nature, are largely behind us and are all geared to making us a stronger company.

Within Engine Management, integrating the General Cable Wire acquisition into our Reynosa plant proved to be more difficult and take longer than anticipated for reasons previously discussed, but we’ve reached an inflection point. Our workforce has stabilized and are coming up to speed.

This was an excellent acquisition for us and we now have a very strong business. We also relocated our electronics operations in Orlando to Independence, Kansas. And while disruptive and expensive while it was happening, we’ve illuminated the facility and achieved major synergies. In Temperature Control, we have completed all of our plant moves.

And with our two recent joint ventures in China, we now have the vast majority of our production in low cost regions. We made a major investment in our distribution center. And while this caused us some temporary pain, we will emerge with a stronger operation more capable of dealing with a seasonal business in a low unemployment environment.

We are also seeing positive development elsewhere, all geared towards a stronger future. Speaking of our 2 Chinese JVs, not only are they helping us with our cost structure here in the U.S., more importantly, they have provided us with a solid beachhead in the high growth region and are making inroads in Chinese original equipment markets.

Our Poland operation continues to be a major contributor. Now with over 700 employees, including over 50 engineers in a low-cost, high-tech area, we are seeing developments into newer technologies. Our compressed natural gas fuel injectors manufactured in Greenville, South Carolina are doing terrific, mostly going into the heavy-duty market of China.

Now, these are just a few examples, and along with various other initiatives, are positioning us for the future. So in closing, while the first half of the year had various challenges, the second half saw real signs of improvement. We obviously still have a lot of work ahead of us but the trends are positive.

Our customers’ POS in both divisions have been strong, which is a far better indicator than their purchases, which can vary significantly year-to-year. Industry dynamics continue to be very favorable and we have a very strong position in the market, as is evidenced by winning Vendor of the Year awards at several major accounts.

So we are very optimistic about the future as we enter our second century. And that concludes my remarks. At this point, I will turn it back to the moderator and open it up for questions..

Thank you. [Operator Instructions] We will take our first question from Scott Stember from CL King & Associates..

Good morning, guys..

Good morning, Scott..

A question on the outlook for the gross margin in Engine Management, I appreciate the – I understand the dynamics behind the tariff impact of 40 basis points. So I guess, 29% to 30% versus the 29.4% – I am sorry, the 28.6% this last year.

So I am just trying to figure out, I know there is – you are not 100% done with seeing some of the benefits from the Mexico consolidation, but I was under the impression that we will probably see a little bit more of a net benefit from that even with the tariffs in 2019. Maybe just talk about the timing of that and maybe just size that up? Thanks..

Okay, again good morning, Scott. As we are trying to provide guidance as we improve in there, Eric correctly stated the inflection point, we are seeing improvements but this is still built in for continuous improvement as we go throughout 2019 with the margin. So we’re stating in there we will be in the 29% to 30% range.

We don’t quantify each of the individual pieces that we have there. We did – I also pointed out that the first quarter will be lower than that as we amortize cost with returns and other expenses in Q1, but then we feel we finished the year at 29% to 30%. Again, it’s a competitive marketplace.

We have product mix that goes on, some of the mix of OE, OES business. Eric talked about CNG comes with lower margins, but lower SG&A expenses that are there. Our longer term is 30% to 31% that’s on there and we are always looking for continuous improvement..

Got it. That was very helpful.

And as far as pricing in general, obviously, you are able to get pricing for tariffs and I know it’s very competitive market, but with regards to freight and labor, can you maybe talk about your ability to get pricing with your customers?.

Sure. This is Eric. And you are right, this is a difficult and competitive industry, so pricing is never easy. However, what I would say is really for the first time in several years, we have been essentially flat on pricing for the last several years and I believe we are now entering a period where it’s much better received.

For all the reasons that you are referring to, not only are our costs going up but so too are our customers. And so I think it’s a much more favorable environment and we are having some better discussions along those lines..

Got it. And just lastly, just on the industry, obviously I guess the weather from last year certainly helped the industry on the Engine Management side, maybe not for you guys but the industry as a whole.

And it seems as if the number of vehicles entering the industry’s sweet spot of 6 plus years should increase as the year progresses heading into next year.

So maybe just talk about your expectations for the growth of the industry, would you expect to see even better growth than we saw this last year just because of the factor of the vehicle population or maybe just frame that up first?.

Sure. And you are hearing from all of the other publicly traded companies that it is perhaps a slightly better tailwind than in previous years.

I would say, in terms of that sweet spot for us as opposed to other product categories where the sweet spot can be really pretty tight, our diversity of products, it’s not like once it hits 6 years old all of a sudden rates jump up.

So we don’t have that sort of significant shift based on that sour trough and what the industry is seeing as more things move into the industry sweet spot. That said we do see that our customers’ POS, specifically on our product categories is ticking up a bit. You go back a year it was a couple of percentage points lower. So we think that’s favorable.

We think that, that does tend to be a good leading indicator of what they are going to buy from us. So we are cautiously encouraged..

Got it. That’s all I have. Thank you..

Thank you, Scott..

Thank you. [Operator Instructions] We will move next to Bret Jordan with Jefferies. Please go ahead..

Good morning, guys..

Good morning, Bret..

When you think about your low to mid single-digit sales growth target for ‘19 and this is sort of along the line of how much contribution from inflation versus core growth in that expectation?.

Again, I think Eric had just pointed out there, the diversity with all our product groups that are in there. Bret, we continue to look to the low to mid-single digits in the organic growth period that’s in there. I think the better indicator pointed out was how well the major distributors are doing with the POS and we should follow and support them.

So again, we stay with the mid single-digits, low to mid single-digits that are there..

Okay.

So low to mid single organic growth and guys like O’Reilly are talking about 2% of inflation on top of growth, is that more focusing towards mid single-digit and low single-digit?.

Yes, would be and add the impact of some tariff noise on there also to get over to high single-digits..

And then, I guess, in past years, we’ve talked about various retail partners that may be stocking or destocking erratically.

Are we seeing anything extraordinary going out, out there as far as customers that are buying more or less than usual?.

No. We haven’t really seen that recently, I would say as we look at the 2 different divisions separately as they do have different dynamics. On the Engine Management side, as we’ve explained a couple years ago, there was a lot of increased stocking going on.

Since then, it’s essentially stabilized, a little bit of flexing here and there but we haven’t seen any of our major accounts doing major stock-ups or destocking outside of the normal pipeline planogram update type of changes.

Temperature Control, what we have seen, which is to be expected, is they entered this season a bit lighter on inventory than they entered last season, really just because of the previous summer’s dynamics. And so, we are, therefore, seeing a better preseason dynamic than we did last year.

We encouraged with actually with some of our accounts to help smooth out that volume dip and better prepare it for the season. And so, we are seeing that type of activity now in the first and second quarter..

Okay. And I guess, you talked about that strong Temperature Control preseason orders.

Are those orders that would ship in the first quarter or the second quarter as far as the top line impact?.

It’s going to be both. It’s really hard to predict if it ships in March, it ships in April, it can swing it quarter-to-quarter. So, I think it’s better to look at it at the half..

I’ll just add to that a little bit, Bret, that because the first half of ‘18 was so soft, again, we’ve had this up seesaw effect going year-to-year that’s in there. So even though it’ll be even those are across Q1 and Q2, I expect that it will be a stronger Q1 ‘19 versus ‘18 from preseason order impact..

Okay. And then the impact we saw on the Temperature Control category, obviously, margins around distribution impact in ‘18.

That’s cleaned up, so we should, with the volume, see the benefit in ‘19?.

Yes. Jim Burke again. Again, we had again, the purpose we get automation in there, low unemployment, and you can imagine the amount, of seasonal workers that we have to put in there. So, we wound up struggling through last year’s and incurred significant cost.

We feel we’re in a much better position starting off this year, smoothing out the preseason orders. We’ll get a large portion of that savings back, but this will continue to be a continuous improvement project that we work on..

Okay great thank you..

Thank you, Bret..

Thank you. We’ll take our next question from Robert Smith with Center for Performance Investment. Please go ahead..

Good morning. Thanks for the dividend increases as always. Two questions.

One, looking at gross margins on a longer-term good planning assumption, do you see any possibilities of moving the needle more than traditionally in areas of automation or supply chain management or distribution? Or how do you look at longer term?.

Robert, this is Jim Burke. We’re continuously looking at opportunities there, a number of the initiatives that we’ve won between low-cost sourcing, manufacturing to low cost areas, supply chain improvements throughout value engineering.

But again, we’re in a very competitive marketplace, so as we automate, as we make all of these improvements that are there, we look to continue to be a long-term supplier, a full-line supplier, but there’s no needle mover that’s going to move it 5 points or anything like that. So, I would say consolidated, we’re in that 30% range that are in there.

We think, year-over-year, our initiatives will build to have incremental improvements each year on a longer term. But there’ll be no there’s no sudden cliff change that is significantly one way or the other..

Okay.

And is there any more color that you could give us about China that might have developed in the last several months?.

Sure. So really, the three main things we have going on in the region, we have our two joint ventures there. The first one, [indiscernible] which is or both of our joint ventures are on the air conditioning side. [indiscernible] was back a few years already. They are more recently making inroads into the Chinese OEM market, so it’s still very small.

The other joint venture, the more recent one, FGD, the compressor manufacturer, when we first entered that JV, they already had a bit of a footprint there that we were building on and actually using the 2 joint ventures to partner into that space. So, while it’s still very small in sales, we’re seeing nice year-over-year percentage growth.

It’s obviously a very fast-growing market. You got 25 million vehicles-plus going into the market each year. And so, while there are a lot of players there for sure, we’re starting to make a bit of a name for ourselves and so, we see tremendous upside potential. Again, it’s still very early. This will typically be in the OE space.

The aftermarket in China, it’s still very new and fragmented. The average vehicle there is only about 4.5 years old, so any aftermarket that is happening there is really more on things like fluids and brakes and things that are early vehicle age-type products. But the OE market there is a nice avenue for us.

The other one which I mentioned in my prepared remarks, is the compressed natural gas injectors where, in China, there’s a lot more adopters of this alternative energy than here in the U.S., largely due to government regulations presented.

And so, we developed this product several years ago, adoption was slow but in the last couple of years, it’s really hockey sticked up, and 2019 is starting really quite strong in that. We sell indirectly into China. We sell to a system integrator who builds an entire fuel delivery system but then it all goes to OE heavy-duty other vehicles in China.

So, you add all the little things together, while still relatively the small, the future is pretty bright..

And so, 2019, how do you see the landscape for possible acquisitions or joint venturing?.

Well, we’ve always been reasonably active in M&As, sticking with our basic approach, which is looking for targets that both strengthen our core business but also do help us get into something new. As Jim mentioned in his remarks, our balance sheet is in great shape to be able to do these types of deals.

We’re always looking and there continue to be opportunities..

Is that improving or the opportunity is getting more apparent or no?.

This is Jim Burke. There’s always a list of things that are for sale out there but again, we try to stay focused in our key categories where we can bring value and improvements that are in there. So, I’d say that the pipeline or deals and things that we look at is fairly stable, constant..

Okay thanks very much good luck going forward..

Thank you..

Thank you. [Operator Instructions] We will move next to Christopher Van Horn with B. Riley FBR. Please go ahead..

This is Dan Drawbaugh on the line for Chris thanks for taking the questions most of it’s been addressed already. Just wanted to close out with a couple more here.

I think last quarter, you had mentioned that you guys were a bit differentiated in your sourcing from some of your ignition coil competition in that a lot of it’s coming out of Poland where some of your competitors may be sourcing from China.

Can you maybe elaborate on any potential share gain opportunity there could be there, if any of that has begun to materialize or how you might go about that?.

Sure, Dan. First of all, it’s not just on coils, it’s that is one example. As a general statement, our footprint is less in China than potentially some of our competitors, whether it’s out of Poland or whether it’s out of our Mexico operation. In the long run, we do believe that this is a competitive advantage.

In terms of any specific gains or losses, we don’t get into that type of discussion..

Okay, fair enough. And then I also wanted to I know this was asked earlier. I know you guys have talked about the fourth quarter gross margin in Temperature Control, but I wanted to make sure that I understand sort of the cadence through the balance of 2019 here.

I mean, what should we be thinking about as far as the year-over-year performance for that gross margin for Temperature gross margin in kind of the first half? Because I know that the first quarter was a bit light last year relative to the kind of the middle of the year. And I think historically, the first half has been a bit lighter.

So, kind of how should we think about that cadence for 2019?.

Well, first, I want to again, caution everybody looking at any individual quarter. So, our strongest quarters are obviously Q2 and Q3. And what we do throughout the year, is because we’re having to anticipate all of the returns and other allowances in that, so we’ll have some true-ups at year-end that are there. Overall, we said 25% to 26%.

I think the first quarter will be more normalized and we’ll experience in there.

And again, I think you have to really look at the full year rather than the because Eric even pointed out a big swing can happen, that the sales go out in the month of March so they flip over into April and what is the absorption that we’re having on fixed cost in that there. But I would say look towards the full year at 25% to 26%..

Okay great. Thanks for the color. I will jump back in queue..

Thank you, Dan..

[Operator Instructions] We’ll move next to Kyle Kavanaugh with Palisade Capital. Please go ahead..

Yes, hi good morning and thanks.

I was wondering if you could kind of walk through the tariff impacts and if that could you explain a little more how you expect it to do? Is it from [indiscernible] cost of the tariffs and how much it can impact the tariff on cost of goods sold?.

I’ll address what our process has been with our customers and Jim can help with any of the numbers associated with it. So, we have successfully worked out a process with all of our customers where it’s a direct pass-through. So that will it won’t have any impact on us from a dollar standpoint.

You’re going to see a little bit of a hit on margin percentage because we’re basically passing it on that cost. But we do have a program now with all of our customers where they’ve accepted it. And going forward, if there is any changes to the tariff landscape, we have a process in place to continue to roll with it.

So, we feel like we have it well under control..

And then how it’s like on both Temperature Control and Engine Management, how much of the cost is being affected by the tariffs?.

Yes. Kyle, this is Jim Burke. Yes, we haven’t quantified what the absolute dollars are but it’s basically the we’re looking for the same number that we’re going to that would increase the selling prices through for what we’re going to have in the cost of sales.

That’s why we have a little bit of a margin percentage erosion, but the gross profit dollars will be the same. And again, it’s in flux also between what’s happening and with tariff percentages and everything else that we watch and wait to hear and learn..

And basically, at the quarter, it’s just the steel input, right, into the products?.

No. Actually, the steel and aluminum tariffs, the 232 code, 232 tariffs have negligible impact on us. It’s the China tariff that is called Section 301 tariffs where there were 3 different rifts. As you recall, the first 2 rifts went in over last summer. They combined to $50 billion of U.S. purchases and the tariff percentage was 25%.

The third rift went in later, that is the tariffs on those are 10%. Those are the ones, as you may recall, if they don’t work out some kind of arrangement do go there in the 25% in March. We have products on all 3 of these rifts, and so we’re passing along that tariff expense on all affected products..

Okay.

And then just one more question on Reynosa, I don’t know if I missed it but the startup expenses that affected this quarter, are they continuing into the first quarter?.

Yes. Again, this is Jim Burke. And Kyle, the Reynosa cost really impacted us really across from 2018 this full integration. Just to put it in perspective again, this was closing down a facility in Nogales with 400 to 500 people and bringing them all and consolidating, actually even building and leasing out a new building attached to our existing one.

So, the costs we incurred were throughout 2018 and to a lesser extent now, so that we did recognize and see improvements as we move forward through 2018. We feel now that it’s stabilized. The key there was the significant turnover and low unemployment that we would have there. But now we feel the labor force is more sustainable.

They still have turnover but we’ve been through a much lower degree, and the efficiencies and productivity improvement. So again, we’re optimistic looking into 2019 from where we were, costs we incurred throughout 2018..

Okay right thank you..

Thank you, Kyle..

[Operator Instructions] We’ll take our next question from [indiscernible] with EBMR Holdings..

I’m sorry, I joined the call late that’s so I apologize if this question has been asked. I’m wondering what’s going in terms of a stock buyback.

I know the stock’s down, let’s call it 12% today?.

Yes, hi Nick. Okay, we currently have an authorization of $20 million. We had an earlier one in 2018. We added on $20 million. We’re very we have acquired roughly $9.3 million against that, roughly half. So, we have, again, roughly $10.7 million open into 2019. And we will continue to evaluate it as we move forward and [indiscernible]..

And you’re inclined to continue your activity at the previous pace?.

We have a number of when we look at our use of cash, we invest in the business with capital expenditures first for our core business that we’re looking at. Obviously, pay down debt, but we’re in very good shape in that fashion also. We look for opportunities on acquisitions.

And dependent upon that, then we’ll do the share buybacks, so that our share buyback program really is to mirror roughly equity awards that we have to our employees. So again, we’ll evaluate this on an annual basis with our board..

And I guess my final question since I missed the first part of the call.

Has there been any change to the overall ‘19 guidance?.

I’m sorry.

Could you repeat the question?.

Has there been any change?.

Yes, well, we don’t put out formal guidance, Nick, on down to an earnings per share number. But what we do is because we have 2 primary segments there, Engine Management, Temperature Control, on the Engine Management business, we said that we would be within the 29% to 30% range in 2019 and more forward-looking, going increasing to the 30% to 31%.

And in Temperature Control, we be in the 25% to 26% range and then drop it down to SG&A expenses because the bulk of those expenses are quasi-fixed that’s there and it’s not true 100% variable to sales by quarter. We say that we’ll be in a spend level in the $59 million to $62 million range for 2019 on SG&A spend..

Okay, alright. Thanks very much. I appreciate that..

Thank you..

And we will take a follow-up from Bret Jordan with Jefferies..

Good morning again. Just a quick follow-up on the Temperature Control margin, I think you’re sort of bucketing 370 basis points of year-over-year decline between labor and efficiency and production scheduling and sort of shifting things around in Mexico.

Could you sort of talk about the largest couple of factors there?.

Are you talking about going forward?.

No, no, I am really sort of just looking at what we are bouncing back from or sort of really what was not recurring that might be impacting now..

And I think Jim kind of mentioned this, but we caution against looking at any individual quarter but especially the fourth quarter within Temperature Control, because it is a very light sales quarter and being at the end of the year, it’s also where we true up a lot of returns and so on.

So you can have those types of swings but it’s I don’t know 13%, 14% of our year’s sales happened in that quarter for the division. So I wouldn’t look at that as in and of itself..

Right. And I think the $40 million in sales that are there were off 4 points and its $1.5 million that are in there.

It’s really a true-up between everything that we are doing for customer returns, but I think your original question on there for manufacturing variances, we are very pleased with the performance in our Temperature Control group in Reynosa, Mexico and look for continued savings going into 2019 that’s there.

So, it’s really more a function of how well do we estimate where we are on returns and what inventory levels and what we will have for truing up the year end numbers. Again, it’s seasonality, it’s volatile between the high sales Q2, Q3 and the lowest in Q4..

Okay, thank you..

You’re welcome..

Thank you. And it looks like we have no further questions at this time..

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