Business Overview
Superior Industries International, Inc. (NYSE:SUP) is a leading global manufacturer of aluminum wheels, serving both original equipment manufacturers (OEMs) and the aftermarket. The company has undergone a strategic transformation, consolidating its European operations and positioning itself for long-term profitability and growth.Superior Industries is one of the world's largest aluminum wheel suppliers, with a diversified global customer base that includes major automakers such as BMW, Ford, GM, Honda, Jaguar-Land Rover, Lucid Motors, Mazda, Mitsubishi, Nissan, Peugeot, Renault, Stellantis, Subaru, Suzuki, Toyota, Volkswagen Group, and Volvo. The company's OEM aluminum wheels account for approximately 92% of its sales, while the remaining 8% comes from the European aftermarket under the ATS, RIAL, ALUTEC, and ANZIO brands.
Superior's North American and European operations represent its two reportable segments, with the company's principal markets being North America and Europe. The company's success is largely driven by light vehicle production levels in these regions, as well as customer take rates on specific vehicle platforms and wheel SKUs.
Transformation and Operational Efficiency
In the first quarter of 2024, Superior successfully executed on a key strategic initiative to exit its high-cost German operations and relocate production to its lower-cost facilities in Poland. This transformation, which was completed with precision and without disruption to customer deliveries, is expected to provide a significant profitability uplift and strengthen the company's competitive position.The deconsolidation of the German facility, known as Superior Industries Production Germany (SPG), impacted Superior's year-over-year financial results in the first quarter of 2024. Specifically, the exclusion of SPG's operations resulted in a $34 million decrease in net sales and a $21 million decrease in value-added sales compared to the same period in 2023. However, this strategic move is anticipated to deliver an annual EBITDA uplift of $23 million to $25 million, as well as a $10 million reduction in annual capital expenditures.
Financials
For the first quarter of 2024, Superior reported net sales of $316.3 million, down from $381.0 million in the same period of 2023. This decline was primarily due to the normalization of aluminum costs and the deconsolidation of SPG. Value-added sales, which exclude the pass-through of aluminum and other costs, decreased from $202.7 million in Q1 2023 to $172.2 million in Q1 2024, a 15.5% decline.Adjusted EBITDA for the quarter was $30.8 million, compared to $45.5 million in the prior-year period. The decrease in adjusted EBITDA was largely attributable to lower unit sales, partially offset by favorable product mix. The adjusted EBITDA margin for the quarter was 17.9%, down from 22.4% in the same period of 2023.
Net loss for the first quarter of 2024 was $32.7 million, or $1.52 per diluted share, compared to a net loss of $4.0 million, or $0.49 per diluted share, in the first quarter of 2023. The increase in net loss was primarily due to higher non-cash taxes and the impact of the European transformation.
Liquidity
As of March 31, 2024, Superior had $191.1 million in cash and cash equivalents and $630.2 million in total debt, resulting in net debt of $439.1 million. The company's liquidity totaled $205.2 million, consisting of cash and cash equivalents and available and unused commitments under the Revolving Credit Facility.Unlevered free cash flow for the first quarter of 2024 was $8.0 million, a decrease of $26.0 million compared to the prior-year period, primarily due to lower cash from operating activities, partially offset by reduced capital expenditures.
Deleveraging the balance sheet and improving unlevered free cash flow remain top priorities for Superior. The company is actively engaged in refinancing its senior unsecured notes, which mature in 2025, and is evaluating various capital structure solutions to optimize its financial position.
Outlook
For the full year 2024, Superior expects net sales in the range of $1.38 billion to $1.48 billion and value-added sales between $720 million and $770 million. The company anticipates adjusted EBITDA of $155 million to $175 million, with the expectation of exiting 2024 at approximately $190 million in adjusted EBITDA due to the benefits of the European transformation.Superior expects to deliver unlevered free cash flow in the range of $110 million to $130 million for the full year 2024, highlighting the cash-generating power of the business. The company also anticipates capital expenditures of approximately $50 million as it strategically invests in finishing and light-weighting capabilities.
Geographic and Segmental Performance
In the first quarter of 2024, Superior's North American segment reported net sales of $193.5 million, a decrease of 8.6% compared to the same period in 2023. This decline was primarily due to lower aluminum cost pass-throughs and unfavorable pricing and product mix, partially offset by higher unit shipments.The European segment reported net sales of $122.8 million, a decrease of 27.5% compared to the first quarter of 2023. This decrease was largely attributable to lower aluminum pass-throughs, the deconsolidation of SPG, and unfavorable pricing and product mix.
Risks and Challenges
Superior faces several risks and challenges, including volatility in automotive industry production volumes, supply chain disruptions, rising input costs, and the successful execution of its European transformation. The company's financial performance is closely tied to the health of the automotive industry, and any prolonged downturn or disruptions could adversely impact its results.Additionally, the company's ability to effectively manage its capital structure and refinance its senior unsecured notes will be crucial in maintaining financial flexibility and supporting its long-term growth initiatives.