Kerry Shiba - CFO and EVP Don Stebbins - President and CEO.

Jimmy Baker - B. Riley Mark Close - Oppenheimer Brian Sponheimer - GAMCO Investors Tristan Thomas - Sidoti & Company.

Good day everyone and welcome to the Superior Industries First Quarter 2015 Earnings call. For opening remarks, I would like to turn the conference over to Kerry Shiba, Executive Vice President and Chief Financial Officer. Please go ahead, sir..

Thank you and good morning everyone, and welcome to our first quarter 2015 earnings call. During our discussion today, I will be referring to a PowerPoint presentation, which is available on our Web site at www.supind.com. Joining me on the call today is Don Stebbins, our President and Chief Executive Officer.

I will start as usual with Slide Number 2 with the presentation, where I would like to remind everyone that any forward-looking statements contains in this presentation are commented on today are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Actual results could differ materially because of issues and uncertainties that need to be considered in evaluating our financial outlook. We assume no obligation to update publicly any forward-looking statements. Specific conditions, issues and uncertainties that may present forward-looking statements are noted in detail on the Slide.

I also would like to point you to the Company's SEC filings including our 2014 Annual Report on Form 10-K, for a complete discussion on forward-looking statements and risk factors that may cause actual events to differ from these forward-looking statements.

We're also will be discussing or providing certain non-GAAP financial measures today including value-added sales, EBITDA and adjusted EBITDA, reconciliation of these majors are the most directly comparable data presented in accordance with GAAP may be found in our first quarter 2015 earnings press release.

I now would like to turn the call over to President and CEO, Don Stebbins for his opening remarks.

Don?.

Thanks, Kerry. Hello, everyone, and thank you for joining us today. Turning now to Slide 3 I would like to begin with an overview of our first quarter financial results. Consolidated net sales were $173.7 million, down 5% from $183.4 million in the first quarter of 2014.

Value-added sales which is a new non-GAAP metric we're reporting this declined 12.4% to $82.3 million from $93.9 million in the same period last year. Value-added sale remove from net sales the value of aluminum and outsourced process cost that are passed through to our customers.

Despite the over 12% decline in value-added sales, we saw 52 basis points improvement in adjusted EBITDA highlighting our continued comment to implementing operational improvements throughout our business. Adjusted EBITDA was $13.4 million or 16.3% of value-added sales compared to 14.8 million or 15.7% during the prior year period.

We believe measuring margin as a percentage of value-added sales is a more acute measure of profitability because of the pass-through or non-margin nature of the aluminum and associated revenue.

Net income for the quarter was $4.3 million or $0.16 per diluted share compared to net income of $4.8 million or $0.18 per share in the first quarter of 2014. The quarter was marketed by lower unit volumes, which was partially driven by lower demand in two of our largest programs and restructuring cost from the closure of our Rogers facility.

As a reminder, our sale cycle is such that today we're selling and shipping product for programs that we bid on 2 or 3 years ago. Today we continue to bid aggressively on programs for which we will start shipping product in late 2017 and 2018.

We feel confident in the programs we're winning and look forward our future market share reflecting today's strategy investments and hard work. Kerry will provide more detail around the financials in a minute but I first like to offer some color on the first quarter of 2015.

While our financial performance was lower than last year we continue to make excellent program in executing against our strategy initiatives and improving operational efficiency throughout the business. The ramp up our new plant Mexico remain track aw we mentioned on our last call we began shipping limited wheel model at the end of four quarter.

We have begun shipping our full range of wheel models as planned. Expansion of the facility to allow for an additional 500,000 wheels per year is also progressing smoothly and our target day for completion remains early 2016.

In addition we will soon be opening a new finishing facility in Mexico with long-term supplier partner and we are pleased to announce that we recently won a new Conquest wheel program because of the increased competitiveness that this facility represents.

This light truck wheel program is set begin in the fourth quarter of 2015 and represents an annual increase of 200,000 wheels per year. As part of our commitment to continuous improvement, I am pleased to announce that year-to-date we have released that 20% improvement in safety and a 50% improvement in quality.

These increases reflect operational improvements across the business and our promise to our employees and to our customers to product industry leading products in the safest possible manger. We look forward to continuing to improve on these metric.

During the quarter we also successfully moved of headquarters from Van Nuys, California, to Southfield, Michigan. I'm pleased to announce that we recently signed a lease on new office base in Southfield and look forward to creating jobs and strengthen our relationships here in Michigan.

As you know we declared a quarterly cash dividend on January 16 of $0.18 per share highlighting our continuing commitment to returning capital to shareholders. I'm also please to announce that during the quarter we repurchased 109,000 shares for a total $2.1 million as part of our share buyback program approved by the board in October of 2014.

Additionally we are pleased with the outcome of our Annual Meeting yesterday. The preliminary result show that all of Superior’s nominees received overwhelming support from our shareholders thus in resulting all seven of Superior's director nominees getting re-elected to our Board of Directors.

Excluding shares voted by GAMCO affiliates to all of GAMCO's nominees received votes equating to less than 3% of the outstanding shares. We look forward to building on our achievements in the second quarter with our highly qualified and experienced Board of Directors and continue to work proactively with our investors going forward.

Turning now to Slide 4 I’d like to remind you of our five strategic priorities for 2015.

We remain committed to improving our global competiveness building on our culture of products innovation and technology evaluating opportunities for discipline growth and value of creation maintaining a balanced approach to capital allocation and increasing visibility within the financial community.

As I just described we continue to make solid progress towards achieving these goals and looking ahead to the second quarter and back half of the year we will continue to execute against this initiatives. We'll bring our new facility in Mexico to pull operating capacity by the end of the year to improve our competitiveness in global positioning.

We'll continue to work with our customers to provide industry leading products and services we will invest prudently in our people and our technology, we'll remain committed to returning capital to our shareholders through our dividend and share buyback programs and we'll increase our attendance at conferences and non-deal road shows in order to better educate the investment community on our story.

We now have the right leadership team in place and have set the ground work for future success and growth throughout the business. With that I'll now turn the call over to Kerry..

Thank you, John and again good morning to everybody. I'm going to spend a few minutes providing you a bit deeper look into our financial results for the first quarter 2015. If you now please turn to Slide number 5 we can take a look at our unit sales volume.

Superior shipments total 2.5 million units for the quarter compare to 2.8 million units in the first quarter of 2014. As usual let's take a brief look at some of the underlying reasons for the change in sales volume.

Overall changes in our unit volume are reflected in year-over-year differences in vehicle production rates for the programs we participate on our largest unit shipment decline occurred on the Ford S-series program which was down 160,000 units with 32% and represented over one half of the total unit volume declined we recognized in the period.

So I expect to aware the pace of ramping up production for the new Ford S series program is been reflected in a decline in vehicle production year-over-year and thus have been a negative impact on Superiors shipments.

Our second largest unit shipment decline to occur for Ford Edge our vehicle production level loss were down significantly when compared to first quarter of 2014. Similarly significant declines in our volume for Nissan Maxima in the Chrysler Town & Country were reflected in similar declines in production levels for these vehicles.

On a positive note our year-over-year sales were up 82,000 as we re-established business on the Ford focus and were plus 46,000 units over 31% on the Ford XR. A 10% increase on the K2XX program was right in line with the change in vehicle production levels.

Finally the growth in shipments for the Toyota Highlander was at about the twice the rate of the increased in vehicle production. Our current expectation is for the shipment comparison in the second quarter to remain challenging.

However we also are looking towards second half improvement in demand for our products reflected to a great deal and expected growth in F series and Chrysler Town & Country production rates.

As a result we expect year-over-year shipment volume comparisons to awesome approve which also keeps us within the financial targets we provided at the beginning of the year. While we don’t have a Slide in the deck I'd also like to comment briefly on the sequential comparison.

Our first quarter unit sales volume was down roughly 6% from the prior year. There are some differences in the underlying factors in the sequential comparison contrast to the year-over-year look.

Sequential S-series shipments were about flat as well our overall shipments to Ford while we were down significantly on the Edge program where we fundamentally are rolling off.

We had a significant shipment increase on the focus as we reinter that program as with the year-over-year comparison another major driver of the overall sequential volume decline was for the Chrysler Town & Country also reflected of the decline in the vehicle productions rates same goes for the Nissan Maxima.

Turning now to Slide 6 you can see the current net sales of roughly $174 million were down 5% from the prior year. Two key things stand out in the analysis first the sales decline was driven by lower unit sales volume; however, an increase in the value of the aluminum component of sales offset over 80% of the volume impact.

Moving to Slide 7 we can look at the year-to-date EBITDA comparison, in the first quarter of 2015 EBITDA was $12 million equal to 14.6% of value-added sales.

If you remove the current year impact of continuing restructuring cost of the closed Rogers Arkansas manufacturing facility, adjusted EBITDA for the current year was $13.4 million or 16.3% of value-added sales. The current year results compared to EBITDA of 14.8 million or 15.7% of value-added sale in the prior year period.

As you can see from analysis on Slide Number 7, the largest driver of lower EBITDA was a decline in unit shipments which when coupled with the change in sales mix negatively impacted EBITDA by 4.5 million when compared to the prior year. Next there was a negative impact in the quarter due to timing aluminum pass-through in sales versus cost to sales.

First quarter cost performance in our manufacturing operations was significantly favorable when compared to the prior year especially in the framework of the unit volume decline. The improvement partially reflects the benefit from the realigning of our manufacturing footprint as well as lower energy, maintenance and labor cost in our factories.

Finally the Rogers restructuring cost I believe is self explanatory while there is a long least of both positive and negative items following into the other category.

Also on EBITDA once again we don’t have a Slide on sequential comparison in the Slide deck but the themes of the sequential comparison are somewhat similar the year-over-year comparison. Volume clearly was a major driver of the fourth quarter to first quarter decline.

Cost performance on our factories the improvement was as large as we saw in the year-over-year comparison but still was marked the beginnings of our improved cost performance in our factories. Turning now to Slide $8, I will discuss a few more income statement items for the first quarter.

First to ensure the impact on gross profit operating income and pretax income is clear. The Rogers restructuring cost was 1.9 million including the impact of depreciation.

SG&A expense was down about $300,000 reflect delivery due severance cost and occurring year gain on the sale of an idle facility partially offset by an increase legal and employee transition related costs.

As I looked at the Slide this position, the next comment on Slide Number 8 in this place does refer the P&L impact; however, we did generate $1.8 million on cash proceeds from the sale of idle asses. Finally, we recognized an income tax benefit of 100,000 in the current year.

The net benefit resulted from the reversal of reserve for uncertain tax positions which yielded and overall effective tax of negative 21% for the quarter.

Effective tax rate for the same period last year was 40% expense and was impacted by changes in Mexico tax low, limiting the deductibility of certainly employee benefit expense, the unavailability of U.S. federal R&D credits and increases in reserves from certain tax positions. Slide Number 9 addresses a few perspectives on first quarter cash flow.

The improvement in year-over-year operating cash flow was $9.7 million.

The use of cash for operating working capital which we defined as account receivable inventory, prepared aluminum and accounts payable was $15 million less than in the prior year, capital expenditures still were impacted by spending on the new factory in Mexico but were down 10.4 million from the first quarter of last year.

Finally as I mentioned we repurchased share from the new $3 million that was proved and announced last year, Don gave you the first quarter buyback through yesterday we repurchased 319,000 shares for about $6.1 million. With that I'll turn the presentation back to over Don to walk you through expectations for the year and then we'll open it for Q&A..

Thanks Kerry. So now turning to the Slide 10, let me walk you through the guidance for the 2015 which remains unchanged from when issued it back in January. We expect net sales in the range of 725 day 100 million with EBITDA margins improving 100 to 200 basis points.

We expect value-added sales to be in the range of $325 million to $360 million with EBITDA margins as a percentage of value-added sales improving 350 to 500 basis points. Capital expenditures are expected to total around $40 million, working capital is expected to be a use of $10 million and dividend payments are expected to approximate $20 million.

Underpinning these expectations is the assumption that North America light vehicle production will be approximately 17.4 million units. Looking ahead to quarter 2 and the second half of the year, we are confident we will be able to achieve these targets.

We fully expect to see our shipments volumes improved in the second half of 2015 as a number of customers programs conclude their ramp up and become fully launched. These factors coupled with our commitments to executing against our five strategic priorities position superior for further improvement.

With that I now like to open the call for questions. Dan..

Thank you. [Operator Instruction] We'll go first Jimmy Baker with B. Riley & Company..

The cost performance in the quarter is very impressive.

Could you just break down that $6.8 million benefit between I guess the benefit between the Rogers closure and then some of the other items you discussed? And I guess embedded in that is just, I'm just wondering if the new Mexican facility is a tailwind yet or if that is still a headwind during the ramp-up?.

Jimmy let me try to take that one first. It’s a few items for you first off the ramp-up of the new facility in Mexico clearly is in a ramp-up phase.

So as you would expect there is going to be still be some in efficiency in that period that we have to invest in labor for training et cetera prior to really running the commensurate production across the production lines.

This is a very-very rough estimate Jimmy but I would say in the first quarter the impact of the operational inefficiency was somewhat in the range of $1 million that will improve steadily as we progress through the year and volume continues to ramp-up in that facility as we progress.

The bulk of the cost performance really was spread over several categories spending in the factories but there were some significant labor reductions and that’s really excluding the impact of the Rogers shutdown it decreases really across all of our facilities but in particularly in the Fayetteville facility in the U.S.

Fringe benefits went down as a result of that I mentioned repairs and maintenance were down quite a bit and then in utilities we had some nice reductions and saw quite honestly some favorable rates from the prior year.

So what we're showing to you on the Slide for cost performance I would characterize primarily as again just operations focus and hopefully with some further upside is the new facility in Mexico continues to ramp up..

Couple of specifics regarding that Jimmy I think we talked about the Mexican workforce kind of on the average the supplier community as somewhere in the neighborhood of 20% to 25% of the workforce as temporary employees. We started that journey just recently we were at 3% we're at 17% now.

So clearly we're moving in the right direction not only does that give us flexibility as our volumes changed throughout the course of the year or two years or whatever that period maybe. But also we get some initial cost benefit as well. The other things that’s occurring is our productivity as we measure it wheels per hour is up 10% so far this year.

So that’s running through there as well so the under penning as I mentioned in terms of the operational efficiencies and what we're doing inside the plants is starting to coming through as Kerry mentioned on that line..

And then could you just talk a little bit about the progress you have made filling the -- not just the incremental capacity from the Mexican facility but also this additional 0.5 million wheel expansion.

Have you been able to pick up any, let's say, one-off programs that maybe you could Slide in quicker than that typical two- to three-year lead time and how we should think about your ability to backfill that capacity when it comes online next year?.

Yes so as I mentioned we have picked a wheel program light truck wheel program about 200,000 units from one of our competitors in part because of our competitiveness in our new facility in Mexico as well as a new finishing joint venture that we've establishing down in Chihuahua.

Today we finish most of our wheels polish most of our wheels in Arkansas and we're just starting training in a new polishing facility in Mexico which is going to reduce our cost somewhere in the neighborhood of 20%. So obviously a significant some makes us more competitive than we have been and it's already showing in terms of that program being one.

There is another program that we had that we thought was going go away. But again we're going keep that through 2016.

So that also reflects the increase competitiveness I would caution everyone and that those are let’s say rare than the norm those normally we have very good competitors out there and so the ability for us to pick up a program of any significance size is more in the extraordinary category than an everyday opportunity..

Then just lastly, Don, how active would you say you are in the M&A markets today? And I guess if it's too early for you, could you maybe just talk about when or if you anticipate acquisitions being a more strategic focus for you?.

I think it's a strategic focus for us. I think in the loop so to speak in terms of what is for sale. My view on this is you have got to be in the pipeline to see what's coming at you and you don't quite know whenever the right opportunity is going to come our ways.

So I think you have to be ready to things certainly from an operational standpoint we're putting a lot of things in place that would allows us to say more seamlessly integrate an acquisition, but to be able to pick a point in time when that acquisition comes our way it is very-very difficult to do..

And we'll take our next question from Mark Close with Oppenheimer & Close..

Congratulations on the proxy outcome.

One question about the headquarters move, was there any meaningful expenses this quarter? And what do you expect for the full year for that?.

The expenses for the move are embedded in the guidance.

We do have significant opportunity given to us from the state of Michigan in terms of $900,000 grant that is based upon -- that will come in based up on the hiring levels, so as an example after the first 15 new jobs are created in the state of Michigan we'll receive some approximately $150,000 and then after the next 15 we receive a different installment.

So I don't see a measurable impact on the earnings stream this year or next year as we transition..

Okay. Thanks.

On the value-added sales, Kerry, can you give us what Q4's value-added sales were and what the adjusted EBITDA margin was for those?.

See the adjusted EBITDA margin for quarter would have been up 17.5%. The value-added sales number would have been just short of $89 million..

And we'll take our next question from Brian Sponheimer with Gabelli & Company..

A couple of questions here, if I'm looking at $6.8 million in cost performance in the quarter, that really stands out and you kind of bucketed it before for the quarter.

I'm just wondering as we go through Q2, Q3, Q4, how much of that can we potentially see be a recurring benefit? Does this annualize out to $25 million, or is it something that is significantly lower?.

I would not annualize that number or think again we gave you -- that was at the year-over-year comparison if for example if you look at sequentially from fourth quarter of last year to the first quarter, the number was much lower, I'd say south of $3 million somewhere between $2.5 million to $3 million.

So that trend will continue to narrow again that is reflective of the fact that we began to see some improvements and steady improvement starting in the fourth quarter of last year, so please don't take the number and multiply it by 4..

No, that's what we're trying to figure out. So basically, the comps get a little more difficult starting in the December quarter..

Yes..

All right, Kerry, could you take a couple of minutes to go over the tax items again in the quarter and just explain how much of that is potentially recurring and what we should expect there?.

I think maybe to try to short cut it without going through all the detail obviously first quarter again was hit with the anomaly of the discrete reversal of the accrual, so I love to be able tell you we got the benefit every quarter going forward that's not close.

I think right now overall looking at an effective tax rate in the range of 35% is a fair outlook.

I always have to caveat Brain there continue to be some discrete items to get recognized in the future I'm not going to be able to provide specific amounts but there is still a couple things that are on the shelf that is statues expire so to come down and hit the deck provision favorably.

But for kind of a medium turn outlook 35% is probably fair number to use..

Okay. And I guess last one for me, you've got about $45 million or so in net cash. You are seeing a pretty significant ramp down in CapEx.

How are you thinking about -- I guess this question is for Don -- where you stand with the balance sheet right now, what you want to do from a strategic perspective, and what the right leverage ratio as you see for this Company as we look into 2015, 2016, 2017. .

I think it dovetails Jimmy's question about acquisitions and certainly the timing of something like that if for some reason we saw that the opportunity for us wasn’t available then I think we have to shift our focus a little bit in terms of using that cash.

But I would also say that totally understand the balance sheet today is in a very conservative spot. But I would also say that we need to address in order to serve our customer some global issues that may generate a use of cash flow in the beginning. .

I think we've also commented overall being an auto supplier I think philosophically we're conservative or on the conservative side the spectrum would respect to the view of use of leverage I think keeping dry powder for the opportunities.

We do think is important a deal does arrive and it's out there we want to have access to liquidity that be able execute on this opportunities whether they be M&A or as sign offered look towards more global needs of our customers.

We have also mentioned before that I think right at the top of the list of our focus in this Company it is to improve our generation rate which is reflected in our guidance and the growth in EBITDA returns that we are projecting. No news to anybody as we generate more EBITDA our debt capacity is going to increase..

Yes, so last question from me.

Should I infer from those comments that there is actually a pipeline of potential acquisition that are out there that you are potentially waiting to pounce on, without tipping your hand too much?.

There are transactions that we're looking at absolutely..

[Operator Instructions] And we'll go next to Tristan Thomas with Sidoti & Company..

Just a couple questions, I'm not sure if you mentioned this, but the polishing operation in Mexico, do you have a time frame on that?.

It's going to be up in running by September 1 we're training some of the employees beginning on Monday I believe it is..

It won't be at fully capability at it will be kind of an operation that we can see expanding and capability in phases. So this will be the first phase where kind of the initial if you were rough cut part of the operations going to be the first focus.

We do expect to garner savings from that nonetheless it's still being Phase 1 and that will continue on into the future to expand the amount of operation in polishing function if you will that is going to be run about that operations..

Okay.

Could you also maybe provide a little more color on what you could do either in terms of improving operations or cutting costs at Fayetteville and your other Mexican facility? What else can you kind of try to wring out of the business?.

Yes I guess to start one of the things that we’re totally focused on is say the use of capital. In terms of provide more creative solutions rather than using capital as a way to solve issues. So from our perspective from my perspective some of the issues that we have are indirect to direct labor ratio is a little bit out of whack.

So we've got address that certainly we’re in the process but not complete yet in addressing the temporary workforce I mentioned the productivity increase of about 10% in terms of our wheels per hour that gets to the machines the cycle times both of the cast operation and the machining operation.

So we're working through just about every item in the factory to see how we can improve it reducing bottlenecks increasing up time one of the things that we're evaluating to see if it makes sense for us is to go a 24 hour seven days a week shift, if so which plan do we put that in that certainly is going to add capacity to our plants.

And so there are a number any number of items that we're looking at to improve and so there if the question is do we have a ways to go, yes, we a ways to go and so there is from my perspective significant upside in the operations of the business and I think one of the other advantages that we have now is our new head operations brings a fresh eye look a fresh approach and whenever you bring in a new individual, he brings with it new ideas and new looks to things.

I think when you combine that with the experience of some of our guys who have been in the business for the 25 years it's a really good blend. We've also made additional personal changes throughout the ranks if one of the reasons why our safety numbers are improving is because we've changed out some of safety managers in plant.

And our head of ops is doing safety walks once a week through the facility, so all of those type of things are going on our plants the quality improvement of 50% again that’s going to flow through in the operating margin as well not only do you get a customer benefit but you certainly get a production efficiency benefit and that's do impart due to some different equipment.

We've upgraded our x-ray machines to the latest technology that certainly plays a role working with our customers on specification that plays a role so there is a lot of thing going on..

Okay. And then just one final question for me, can you maybe comment on if any of your North American competitors -- are they at capacity, are they adding capacity? Maybe provide a little color there..

Certainly there Mexico both from an OE perspective and a competitive wheel perspective have added capacity, so if you look at we went back and if you look at the last 12 months, our customers have committed to adding some $12 billion of capacity in Mexico now that's not all assembly capacity but certainly there are number of new entrants, be it a Kia or be it an Audi.

Ford expanding there, as GM has committed $Number million to expand their Mexican facilities so certainly the OEs are committed to Mexico along that line some of our competitors have expanded or have plans to expand in Mexico to cover their customers..

And gentlemen we have no further questions at this time, I will turn the call back to you for any additional or closing remarks..

Right, appreciate the support and thanks for your questions and we'll talk to you next quarter. Thank you. Bye-bye..

Thank you and that does conclude today's conference. Thank you for your participation..