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Summary

  • Solid Q2 earnings, diversified sales and positive automotive outlook promise continued growth.
  • The long thesis continues to work well, with growth speeding up, debt decreasing compared to sales, although the stock price keeps fluctuating a lot.
  • I reiterate my long thesis and keep my price target unchanged at $32 per share which should be achieved within two years.

Remy international, Inc. (NASDAQ:REMY) reported solid Q2 2014 earnings (SEC filing, conference call). Sales rose 6% Y/Y to $299.3M, missing slightly the $300M estimates. EPS was $0.32. Adjusted EPS was $0.34, missing $0.39 estimates. The sales increase was driven primarily by increased volume and mix of $19.9M, including $8.5M from the acquisition of USA Industries earlier this year, and favorable foreign currency tailwinds of $4.1M. The increase in net sales was partially offset by negative pricing impact of $7.1M. Net income was $10.0M during the second quarter of 2014, a decrease of $1.5 million over the same period in 2013. The decrease in net income was primarily driven by higher interest as a result of the impact of REMY's undesignated interest rate swap and income tax expense. Quarterly dividend remained at $0.10 per share. Net debt outstanding was $247M, virtually unchanged from last year but based on higher sales. The S&P ratings agency upgraded REMY's corporate credit rating from B+ to BB- in May. Fidelity National Financial Ventures, LLC, a subsidiary of Fidelity National Financial, continued to hold 51% of shares of REMY and also held a substantial portion of REMY's debt.

The strong demand in the commercial vehicles and automotive aftermarket segments continues. Automotive aftermarket sales grew 12% Y/Y and now account for 51% of sales. The light-duty vehicle sales grew 16% Y/Y while heavy-duty aftermarket was up 5% Y/Y. Heavy-duty OEM sales were up 12%. Sales outside of North America accounted for 35% of sales. The anticipated negative impact of the recent pricing negotiations is expected to be 1% to 3%, consistent with prior years. However, the company was still able to maintain the same margins as last year, showing continued focus on cost effectiveness. REMY is, finally, one company, which was positively impacted by the severe winter weather. Extreme cold conditions increased failure of alternators and starters, which positively impacted REMY.

I reiterate my long thesis and the two-year price target of $32 per share, based on the company's dominant position in the U.S. alternators and starters market, the solid financial results as well as the positive outlook of REMY's management.

Source: Update: Remy International Q2 Earnings Solid, Outlook Positive- I Remain Long