Stoneridge, Inc. (NYSE:SRI) is a global designer and manufacturer of highly engineered electrical and electronic systems, components, and modules primarily for the automotive, commercial, off-highway, and agricultural vehicle markets. The company has demonstrated strong execution on its key priorities in 2024, positioning it for continued profitable growth.
Financials
In 2023, Stoneridge reported annual revenue of $975.8 million and a net loss of $5.2 million. The company generated $4.9 million in annual operating cash flow, while free cash flow was negative $33.6 million. These results reflect the company's focus on investing in growth initiatives and managing its capital structure.
For the first quarter of 2024, Stoneridge reported net sales of $239.2 million, a 3% increase compared to the prior year period. The company's net loss for the quarter was $6.1 million. However, when excluding the impact of incremental warranty costs and non-operating expenses, the company's adjusted EBITDA for the quarter would have been approximately $10.9 million, or 4.6% of revenue.
Business Overview
Stoneridge operates through three reportable segments: Control Devices, Electronics, and Stoneridge Brazil.
Control Devices
The Control Devices segment, which produces actuators, sensors, switches, and connectors, reported a 10.2% decrease in net sales for the first quarter of 2024 compared to the prior year period. This decline was primarily due to lower volumes in the North American automotive market, partially offset by increases in the China commercial vehicle and automotive markets. The segment's operating margin improved by 120 basis points to 2.8% in the quarter, driven by favorable product mix and lower material and logistics costs.
Electronics
The Electronics segment, which produces driver information systems, vision and safety systems, connectivity and compliance products, and electronic control units, reported a 6.1% increase in net sales for the first quarter of 2024. This growth was driven by higher sales volumes in the European and North American commercial vehicle markets, including the ramp-up of the SMART2 tachograph program in Europe. The segment's operating margin expanded by 330 basis points to 4.5% in the quarter, benefiting from the higher sales volumes and material cost improvements, partially offset by higher overhead costs.
Stoneridge Brazil
The Stoneridge Brazil segment, which designs and manufactures vehicle tracking devices, monitoring services, security alarms, and infotainment systems, reported a 14.3% decrease in net sales for the first quarter of 2024 compared to the prior year period. This decline was primarily due to the absence of certain one-time revenue opportunities in the local OEM market that occurred in the first quarter of 2023. The segment's operating profit decreased by $1.1 million in the quarter, driven by the lower sales volumes and reduced fixed cost leverage, partially offset by favorable sales mix.
Executing on Key Priorities
Stoneridge is focused on executing against five key priorities in 2024:
1. Driving continued growth and market outperformance: The company is maintaining its 2024 revenue guidance midpoint of $1 billion, which is expected to outperform its weighted average underlying end markets by 8 percentage points.
2. Expanding gross margins through material cost improvements and operational excellence: The company achieved a 170 basis point improvement in gross margin in the first quarter of 2024 compared to the prior year period, and it expects continued margin expansion as it focuses on quality-related costs and recognizes the run-rate benefits of its material cost and operational initiatives.
3. Leveraging the global footprint to maximize capabilities and output: Stoneridge achieved a 160 basis point improvement in operating margin in the first quarter of 2024, driven by its efforts to centralize global functions and drive synergies between its business units.
4. Efficient cash generation through effective inventory management: The company reduced its inventory balance by $7.9 million, or approximately 8%, during the first quarter of 2024, and it remains focused on further inventory reduction and cash performance.
5. Efficient capital deployment while maintaining an appropriate capital structure: Stoneridge is targeting approximately $40 million in capital expenditures in 2024, primarily to support its organic growth initiatives. The company's leverage ratio improved by approximately 0.25 turns during the first quarter, and it expects to maintain a leverage ratio between 2.0x and 2.5x by the end of 2024.
Growth Drivers
Stoneridge is well-positioned to capitalize on several key growth drivers in 2024 and beyond:
SMART2 Tachograph:
The company expects significant growth from its SMART2 tachograph program, which is being driven by new regulations in Europe that require the adoption of this next-generation tachograph technology. Stoneridge estimates the SMART2 tachograph revenue opportunity to be approximately $60 million in 2024, with the potential to reach $100 million in peak annual revenue.MirrorEye Camera Monitoring System:
Stoneridge's MirrorEye program, which provides camera-based mirror replacement systems, is also expected to be a significant growth driver. The company is launching new MirrorEye programs with Volvo in Europe and Peterbilt in North America in 2024, and it expects continued growth as it expands its OEM and fleet customer base.Operational Improvements:
Stoneridge's focus on material cost reductions, manufacturing efficiency, and organizational optimization is expected to drive continued margin expansion and earnings growth. The company's actions to centralize global functions and improve its engineering footprint have already contributed to a 160 basis point improvement in operating margin in the first quarter of 2024.Outlook
Stoneridge is maintaining its full-year 2024 guidance, with expectations for revenue to reach the $1 billion midpoint, representing an 8 percentage point outperformance of its weighted average underlying end markets. The company expects gross margin to expand by 140 basis points to a midpoint of 22.4%, and operating margin to improve by 130 basis points to a midpoint of 3.0%.
Additionally, Stoneridge anticipates EBITDA to reach approximately $67 million, a 170 basis point improvement and 39% growth over 2023. The company expects its revenue and EBITDA to be more back-half weighted, driven by the launch of new MirrorEye programs and the continued ramp-up of the SMART2 tachograph.
Conclusion
Stoneridge is executing well against its key priorities, positioning the company for continued profitable growth. The company's focus on driving market outperformance, expanding margins, optimizing its global footprint, and managing its capital structure are all contributing to its strong financial and operational performance. With a robust pipeline of growth opportunities, including the SMART2 tachograph and MirrorEye programs, Stoneridge is well-positioned to deliver significant value for its shareholders.