Kerry Shiba - Executive Vice President and Chief Financial Officer Don Stebbins - President and Chief Executive Officer.

Tristan Thomas - Sidoti & Company Jimmy Baker - B. Riley & Co.

Good day everyone and welcome to the Superior Industries Second Quarter 2015 Earnings call. For opening remarks, I would like to turn the call over to Mr. Kerry Shiba. Please go ahead, sir..

Thank you, Erica, and good morning, everybody, and welcome to our second quarter 2015 earnings call. During our discussion today, I will be referring to our earnings presentation, which now is available on our website at www.supind.com. Joining me on the call today is Don Stebbins, our President and Chief Executive Officer.

I am going to start as usual with the Second Slide of the presentation, where I would like to remind everyone that any forward-looking statements contained 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 which include value-added sales, EBITDA and adjusted EBITDA, reconciliation of these majors to the most directly comparable data presented in accordance with GAAP may be found in our financial tables included with our second quarter 2015 earnings press release.

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

Don?.

Thanks, Kerry. Good morning, everyone, and thank you for joining us today.

Please turn to Slide 3, the second quarter demonstrated that the strategic actions we are taking to improve our profitability and strengthen our competitive position are beginning to take effect as the company showed strong performance from an earnings, margin and cash flow perspective.

We reported earnings per share of $0.24 in the second quarter compared to $0.18 in the same period last, a 33% increase. This was driven by an almost 30% improvement in adjusted EBITDA. As a percentage of valued added sales, adjusted EBITDA increased to 23% from 15.7% in the same period last year, the 730 basis point improvement.

This was coupled with strong cash flow where we more than doubled our operating cash flow year-over-year. Our strong profitability this quarter was largely driven by the steady progress in operation improvements across our business.

We continue to realize the benefits of further shifting of our manufacturing footprint with the closure of our Rogers facility in the fourth quarter of 2014, the reallocation of production to other manufacturing facilities and the continued ramp up of production in our new Mexican facility.

The increase in profit this quarter also reflected improved cost performance across all of our other manufacturing facilities, driven by our teams enhance focus toward operational excellence.

The bottom line improvement this quarter was achieved despite an 8% decline in net sales, which were $184 million in the second quarter compared to $199 million in the same period last year and in line with our expectations that we share with you on our last earnings call.

The biggest contributor to the sales decline was a decrease in unit volumes which were down 9% as compared to the same period in 2014, but increase 7% versus the first quarter of 2015. Value-added sales for the second quarter were $88.2 million down from $99.7 for the same period last year.

Consistent with our comments last quarter, we continue to expect unit shipment volumes to improve in the back half of 2015 in line with our full year sales guidance driven by the production ramp up of some key customer programs further supported by new program models coming online.

As we previously discussed given that the lead times in our business are two to three years, we are aggressively pursuing programs which will begin production predominantly in 2018 and we are pleased with the contracts we have secured year-to-date. We will provide additional detail on these new wins when we release 2016 guidance.

Kerry will provide a more detailed overview of the financials in a moment, but first I’d like to provide you with an update on the progress we’ve made on our key strategic priorities during the second quarter of 2015.

The ramp up of our new Mexican facilities progressing well and we now expect to be at full operating capacity in late October versus our original expectation of year-end. Additionally expansion of the plant to allow for production of an incremental 500,000 wheels per year also remains on track.

To drive more capacity and efficiencies, we have begun addition incremental shifts to many areas of our plants. These actions are an example of the team’s progress towards further strengthening our global competitiveness while expanding our production capabilities with limited capital investment.

We’re also pleased that the launch of our new finishing facility with our long term supplier partners going very well. This joint venture demonstrates our commitment to continue to pursue opportunities for discipline growth and further value creation.

The partnership allows us to strengthen our customer relationships and capture a larger portion of the value stream proving increased levels of product customization while maintaining our cost competitiveness. Additionally, our customer relationships are being further strengthened by our headquarters moved to Southfield, Michigan.

The transition to our new office is progressing well and we expect to be fully moved by year-end. I would also like to share with you a number of significant operation initiatives we are currently undertaking.

These include progress towards a more favorable corporate tax strategy, new program and process management systems, new ERP systems and finally the upcoming launch of a new shared service center in Mexico.

Most of these initiatives will be completed by early to mid-2016 and we expect these projects to significantly improve the operating efficiency throughout the business. Moving on as we’ve shown, we’ve remained committed to maintaining a balanced approach to capital allocation and returning cash to our shareholders.

During the quarter, we paid a quarterly cash dividend of $0.18 per share and repurchased 286.000 shares for our total cost of $5.5 million. Since our $30 million share buyback program was approved in October of 2014, we have repurchased a total of 558,000 shares just over a third of our authorization.

Now turning to Slide 4, I’d like to turn your attention to our five strategic priorities. As I’ve just discussed we are making significant progress towards achieving each of those goals.

With that said, they’ve remained significant opportunities for improvements throughout the business and I am confident that we are making the right investments today in our people, our programs and our processes to drive continued growth and deliver strong shareholder returns. With that I will now turn the call over to Kerry Shiba..

Thanks Don, and again good morning to everyone. I now would like to provide you with a more detailed look at the financial results for the second quarter of 2015. So let’s start please with Slide number 5. Superior shipments declined 9% to 2.71 million units from 2.98 million units in the same period last year.

This compares with an increase in North American production of 2.8%. As you know, it is helpful to look below the surface of overall vehicle production rates to understand the changes in our unit volume. The largest unit shipment decline in the second quarter occurred for the Chrysler Town & Country.

Our unit shipment declined basically mirror the decrease in production for this model which fell by 75% and reflects the timing of a major platform redesign. We continued to expect production volumes and our shipments for the Town & Country to improve in the second half of the year reflecting a ramp up in production of the redesign model.

Similar to the first quarter, our second largest shipment decline in Q2 occurred for the Ford Edge which was followed by a reduction for the Nissan Maxima. These unit shipment declines a reflect of either partial resourcing in the case of the Edge or the loss of a program in the case of Maxima.

The 9% K2XX decline which compares to a 2% increase in vehicle production reflects the impact of current line mix for this program which we have talked about in the past. These declines were offset partially by nice shipment increases for the Ford Focus and Mazda 2 both of which were new programs for Superior.

We also had significantly higher shipments for the Toyota Highlander where vehicle production rates also continue decline and a nice increase for the Ford Fusion as our trim line has been very favorable. I also would like to point out that our unit volume improved on a sequential basis.

Total unit shipments were up 7% in Q2 versus the first quarter slightly outpacing 6% growth in overall North American vehicle production for the same period.

The biggest sequential story was reflected in 20% overall increase in our shipments to Ford our largest customer, Over 80% of our overall increase of Ford was driven by higher shipments for the F Series which is our largest program overall thus far in 2015.

But beyond F Series, we also have solid sequential increases for most of our other Ford programs. As we discussed last quarter, we continue to expect that our overall shipment volume in the second half will be improved when compared to the first six months.

Higher production for the F Series and the redesign Town & Country will be key contributors to the expected second half improvement. There are also new program wins including the Chevy Malibu, Nissan Altima and a K2XX polished wheel which are expected to add to the second half improvement.

Turning now to Slide 6, let’s take a look at the chains in sales dollars. Total sales dollars were almost a $184 million in the second quarter, the decline of about $15 million when compared to the same period last year.

The decline resulted entirely from lower unit volume which had a negative impact of $16.5 million; $5.6 million of higher aluminum value partially offset the impact of lower volume. The other changes were relatively minor. For the first half of the year, sales declined almost %25 million year-over-year.

Similar to the second quarter comparison, lower unit volumes drove the decline, while the value of the aluminum component of sale was higher versus last year. Slide number 7 outlines the year-over-year increase in EBITDA for the second quarter.

As Don mentioned, despite lower unit volumes and net sales, EBITDA increased a very nice 22% to $19.2 million and reached 21.7% of value-added sales. The EBITDA rate was up 600 basis points when compared to last year.

Adjusted EBITDA for 2015 which include - I am sorry - which excludes the impact of restructuring cost increased almost 30% to $20.3 million or 23% of value-added sales. The adjusted EBITDA rate was 730 basis points higher than in the prior year.

While keeping in mind - excuse me - this was one quarter of results we nonetheless are very pleased with our progress toward achieving overall margin expansion. When looking at the second quarter waterfalls analysis on Slide 7, which stands out very clearly is the significant contribution of improved cost position of the business.

As Don mentioned earlier, this improvement resulted from a number of factors, we estimated almost 60% of our cost improvement reflects the benefit of strategic manufacturing footprint changes namely the previous plant closure and reallocation of production to our other manufacturing facilities include of course our new plant in Mexico.

While our improved operating cost also reflects the benefit of lower energy rates especially in Mexico, the second quarter also demonstrated strong cost control across all of our other manufacturing facilities. We expect to continue to see favorable operating cost comparisons when compared to last year.

However, timing of the 2014 manufacturing footprint change is expected to make second half comparisons a bit more challenging them for the first half. The Rogers manufacturing facility ran relatively efficiently in the second half of last year prior to the closure.

High production rates to build inventory prior to the shutdown contributed to the temporarily improved efficiency. Also higher labor rates at Rogers drove out of the comparisons starting late in the fourth quarter. Partially offsetting the favorable cost comparison for Q2 were lower unit volumes and slightly unfavorable product mix.

The timing impact when comparing the value of aluminum passing through sales versus cost and higher SG&A cost.

The largest single item driving the increase in SG&A was the combined effect of a 2014 favorable impact from collecting aged accounts receivables previously reserved for combined with an expense for the write down of aged accounts receivables in 2015.

Higher legal and consulting expenses related to the recent proxy contest and increased employee termination costs also contributed to the SG&A comparison. Turning to Slide 8, EBITDA drivers for the first half of 2015 were largely the same of those discussed for the second quarter.

These again included improve d cost performance of the largest factor driving higher EBITDA, offset partially by the impact of lower unit shipments and slightly negative product mix, the impact of metal timing and higher SG&A cost as explained in the quarterly analysis.

While there is not a slide on this, I also would like to comment briefly on the sequential quarterly EBITDA comparison. Second quarter EBITDA was up roughly $7 million when compared to Q1. A little over than one half of the sequential improvement was driven by stronger cost control in all of our plants aided partially again by lower energy rates.

Higher volume and the improved product mix in the second quarter contributed to most of the remaining sequential improvement, a verity of smaller items largely offset each other. Turning to Slide number 9, I have a few remaining comments on cash flow for the quarter.

Our operating cash flow during the second quarter more than doubled to about $26 million, which compares to approximately $12 million for the same period last year. The change primarily reflects lower accounts receivable in the current year quarter.

Operating cash flow year-to-date was a little over $24 million compared to $1.5 in the same period of last year. Capital expenditures were approximately $8 million in the second quarter 2015 almost $28 million lower than for the same period last year.

The high spending in 2014 reflects the investment being made for the new manufacturing facility in Mexico. Excluding the impact of spending for the new facility, capital expenditures for the second quarter were about the same as for the prior year period.

Lastly as Don mentioned at the beginning of the call, we continued to return capital to our shareholders as on August 3rd, 2015 and as part of the $30 million share buyback program approved in October last year, we repurchased nearly a third of our authorization at approximately 558,000 share for a total of $10.4.

We also have paid $9.6 million in dividends thus far this year. With that I would now like to turn the call back over to Don to walk you through our expectations for the year before we open the call and the line questions..

Thanks Kerry. Turning to Slide 10, as Kerry mentioned, I’d like to walk you through our 2015 guidance which remains unchanged from the original guidance that we issued back in January. We expect net sales to in a range of $725 million to $800 million with EBITDA margin as a percentage of net sales to improve by a 100 to 200 basis points.

We expect value-added sales to be in a range of $325 million to $360 million with EBITDA margin as a percentage of value-added sales to increase by 350 to 500 basis points. Capital expenditures are expected to reach $40 million where working capital is expected to be a use of $10 million.

Lastly we expect to payout approximately $20 million in dividends. This guidance is predicted or predicated on the assumption that North American light vehicle production will increase 2.2% to 17.4 million units in 2015. Year-to-date production of light vehicles in North America has increased by 2.3%.

In conclusion, we’re encouraged by a solid performance in the second quarter, we believe the increases in unit volume we anticipate in the back half of the year coupled with improved execution against our strategic priorities will allow us to deliver strong financial performance and meet our 2015 guidance targets.

Importantly, we are on track to achieve our long term goals of double-digit EBITDA margins by 2017. With that I now like to turn the call back over to Erica to open it up for questions..

[Operator Instructions] And we’ll go first to the sight of Tristan Thomas from Sidoti. Please go ahead..

Hey guys.

How you doing?.

Great, thank you.

How you doing today?.

Hi Tristan..

Too bad. First question, I know you most of the margin improvement was due the cost performance.

Could you maybe give a little inside into one, to succeed your expectations for the quarter; two, what we can kind of look for moving forward and I guess kind of that is how much room do you really have to improve margins?.

I guess I’ll go first in terms of how much room. As I mentioned in the prepared remarks, I think there is a lot more that we can do throughout the organization specifically on the margin improvement level there is we’ve got a number of initiatives inside the plans to continue to improve our efficiencies.

And in terms of our program management and the information that we can get out of our system is as we move to new systems will also provide us additional opportunities to improve the financial performance of the company. So I think it’s a fair - we’ve got a fair amount left to accomplish in terms of that margin improvement..

Yeah, Trist that I think I’d also add our plant in Mexico is still on a ramp up mode performing very, very well but still on a ramp up mode, so there is some inefficiencies still there as that occurs.

But I’ll go to comment I made that by the time you get to the very end of this year, keep in mind the better fit from the manufacturing footprint change, the broad change from U.S. to Mexico starts to become a light kind of comparison year-over-year.

So depending on the timeframe, you are thinking about still obviously some great room for improvement, but the comparisons get little bit tougher as time goes on..

Okay, just regarding the Mexico plant, the additional capacity has been accelerated as well or is that - or is down the same timeframe from our last call?.

I’d say we’re still on the same timeframe, although things are going very smoothly at this point. I wouldn’t say we’re ready to announce that it’s a short timeframe but things are going very well..

Okay.

Just regarding the tax rate, I know - I don’t know if you meant to imply that that’s something now it change in ‘16 so we can continue to look at the back half of the year kind of similar with the first half or would you say that’s not accurate?.

We’re working very hard on implementing some changes that we would hope would start to affect us in the fourth quarter, but I don’t think we are ready to commit to that yet, Tristan it’s a bit premature, the changes that we’re working on we fairly as we are looking out 2016 forward should have an ongoing favorable impact for us from an effective rate and a cash tax perspective.

Just not ready to give you the prediction yet at this point..

Okay, sounds good.

Just one final question regarding the F Series, should we look for an additional production ramp in the second half of the year or just for effect of kind of the order enough inventory?.

Well, I think it will continue to go well for the Kansas City plant came up part way through the second quarter and they got run a real fast ones it opened up. We didn’t see a full second quarter of benefit of Kansas City running. So that comparison should continue to be a positive one..

Alright, thanks guys..

Thank you..

Thanks..

[Operator Instructions] We’ll go next to the sight of Jimmy Baker from B. Riley & Co..

Thanks. Good morning, Don. Good morning, Kerry..

Morning, Jimmy..

Congrats on the outstanding quarters here. Just a couple of questions, I wanted to circle back on margins. When you look at the performance in the second quarter and then I guess couple that with your expectation for better volume in the back half.

I guess maybe I am a little bit surprise that you are not raising the guidance today, could you just talk about, I understand the comparison issue, but maybe you could just speak to kind of your expectations for margin performance sequentially as we move through the balance of the year?.

Well, I hear what you are saying Jimmy as far as the challenge on raising guidance right now. I guess a couple of things that stand out in my mind.

Number one - two or three things maybe, we do have some tailwinds from energy that clearly is not by far not doing reason, we are seeing improvement but we still have some tailwinds there and we don’t control energy rates, hopefully those will hang in there very well.

As we continue to go through the ramp up of our net plant in Mexico, I think we always need to little bit cautious as to how additional steps up in production continue to go. Again very, very proud of how the operations been running thus far, but we’ll on a continued incline of volume going through the third quarter.

And then I think otherwise beyond that as I mentioned our comparisons that took the last year get a little bit tougher as far as improvement is concerned.

Rogers plant did run very well, all the way through the closure in the back half of last year, we’re running high production rates to produce inventory for the shutdown and crossover programs to other plants. So that efficiency was temporary, but it was definitely a market improvement last year..

The other thing I would say Jimmy is that if we just remember back six months ago, it was the first time the company ever provided guidance. And so it’s very important for us to make sure that we do what we say we are going to do and so if that brands us as a little bit conservative in a situation like that that’s fine, we’ll take that brand..

Understood. Okay.

And then could you just provide a let’s a rough expectation for 2016 CapEx, I guess either in dollar terms or as a percent of sales? And then is it fair to look at 2016 as more of an appropriate capital spend rate on kind of a long term go forward basis? And then maybe you could tie that into how you are thinking about capital allocation as you start to generate some more meaningful free cash flow on the other side of the new plant ramp?.

Yeah, I’d say it’s still too early to give you guidance on CapEx for 2016. And the reason is we are as I mentioned looking at every opportunity to bring efficiencies into the existing plants. Do I expect that to be huge numbers? No.

But we need to really get that figured out and what we are going to do and how we are going to do it and what that’s going to cost before we give guidance. I mean I think as we talked probably before, certainly we should be coming down from the 40 absent any additional moneys that we are going to spend for efficiency.

It’s just too early to commit to a number..

Okay and then thoughts on capital allocation between returning capital to shareholders, M&A and kind of how you are prioritizing?.

I would say that from our perspective we continue to be active in terms of M&A exploration and that is a feature of what the company wants to be. We know we need to bring that top line up as well as the margin and we are going to do part of that certainly going to be through acquisitions..

We’ve also talked about kind of directionally continuing to look at projects that can upgrade the value of our product offering and the small example that we mentioned, but an important one was co-investment with supplier partner in polishing capability.

We’ll continue to look for those kinds of opportunities as time goes on in the future and some of those may and for quarter some investment also..

Okay, great.

Last question for me, I realize you are not going to be updating this 2017 margin goal every quarter, but given that you are already there and yet it sounds like you are finding more opportunities for margin upside from current levels, is there a point in time whether it be annually or otherwise you might revisit those or that 2017 target specifically?.

Well absolutely. Absolutely, each year we will with the 2016 guidance, we’ll look out and give you our expectation for what the margin should be, absolutely. Now the only think I would say is that one quarter doesn’t make it right, so yes, we’re there on the quarter, but in terms of the full year, we haven’t achieved what we need to achieve, yeah..

Understood. Thanks very much..

Thanks Jimmy..

[Operator Instructions] And it appears we have no further questions at this time. And do the presenters have any closing remarks that you like to share..

I don’t think so. Thank you again. Thank you very much your attention in joining the call and we look forward to talking to you in another quarter..

Thank you..

We’d like to thank everybody for their participation on today’s conference call. Please feel free to disconnect your line at any time..