Stoneridge Inc. (NYSE:SRI) Q3 2018 Earnings Conference Call - Final Transcript

Oct 29, 2018 • 09:00 am ET

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Stoneridge Inc. (NYSE:SRI) Q3 2018 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good day, ladies and gentlemen, and welcome to the Stoneridge Third Quarter 2018 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Matt Horvath, Director of IR. Mr. Horvath, you may begin.

Executive
Matt Horvath

Good morning, everyone, and thank you for joining us to discuss our third quarter results. The release and the company presentation was filed with the SEC on Friday evening and is posted on our newly designed and refreshed website at www.stoneridge.com in the Investors section under Webcasts and Presentations. Joining me on today's call are Jon DeGaynor, our President and CEO; and Bob Krakowiak, our CFO.

(Forward-Looking Cautionary Statement)

After Jon and Bob will finish their formal remarks, we will then open up the call for questions. I would ask that you keep your question to a single follow-up.

With that, I will turn the call over to Jon.

Executive
Jon DeGaynor

Good morning, everyone. Friday evening, we released our results for the third quarter, in which we delivered another quarter of strong financial performance. Let me begin on page three with a summary of the quarter.

Our third quarter sales of approximately $209 million resulted in a gross margin of 30.3% and an adjusted operating margin of 9%. Adjusted EPS for the quarter was $0.47, an increase of $0.11 or 30% relative to the third quarter of last year. Each of our segments contributed to our success during the quarter, delivering adjusted operating margin performance that exceeded the same period last year. More specifically, despite challenging customer production volumes on certain key platforms, Control Devices delivered 2% revenue growth relative to the third quarter of 2017.

Quarter-over-quarter, gross margin and adjusted operating margin expanded by 70 basis points and 10 basis points respectively, despite additional tariff expenses in the quarter of approximately $1.3 million or 1.2% of sales. Electronics revenue increased by 13% quarter-over-quarter as the global commercial vehicle and off-highway markets remained robust in our recently launched driver information system and connectivity products continue to ramp up. On the cost side, we reduced D&D as a percentage of sales by 60 basis points relative to the third quarter of 2017. Additionally, we were able to reduce SG&A expense by 100 basis points quarter-over-quarter, which contributed to the segment's adjusted operating margin improvement of 190 basis points relative to the third quarter of last year.

At PST, unfavorable currency conditions and lower demand for our aftermarket audio and alarm products contributed to revenue decline in the third quarter. Despite reduced revenue, adjusted operating margin improved by 70 basis points quarter-over-quarter. In addition to our strong financial performance, I'd like to highlight a couple of important events that occurred during the quarter. We welcomed Laurent Borne, as our Chief Technology Officer, a newly created position for the company. Laurent will help the company continue to shape our technology road