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Superior Industries International, Inc. (NYSE:SUP)

Q1 2008 Earnings Call

May 9, 2008 1:00 pm ET

Executives

Steven J. Borick - Chairman of the Board, President & Chief Executive Officer

Erika H. Turner - Chief Financial Officer

Bud Fanelli - VP & Corporate Controller

Michael J. O'Rourke - Executive Vice President, Sales & Administration

Analysts

David Leiker – Robert W. Baird & Co., Inc.

Joe Durham – Credit Suisse

Brett Hoselton – Keybanc Capital Markets

Jeff Linroth – Leaving it Better, LLC

[Jake Pramelmeyer – Ramsay Assets]

[Tom Fogerty – Silverstone Capital]

Operator

Good day and welcome to the Superior Industries’ first quarter 2008 earnings teleconference. For opening remarks and introductions I would like to turn the call over to Mr. Steven Borick, Chief Executive Officer.

Steven J. Borick

Good morning everybody and afternoon on the East Coast. Thank you for attending our first quarter 2008 conference call. We have a new addition to the team as I had announced I believe at the end of 07 for our year end. Erika Turner our new CFO has been online with us now for approximately two and a half months and is getting her feet wet so we’re going to let her do the first conference call of 2008. We’re very happy to have Erika on board as part of our senior leadership team here at Superior and I will be happy to respond to questions after Erika gives the opening remarks and gives the information on our first quarter.

Erika H. Turner

Good morning, good afternoon everybody. I’m very pleased to be here with Superior and as Steven noted I’m very new to the team here so I’ll start with the opening remarks and go into some financial information. When it comes to questions and answers I have some support people here helping me out so we’ll look to them to help with your piercing questions. Let me get started then and first as usual we have a comment from our lawyers.

Any comments made in this webcast are subject to the Safe Harbor for forward-looking statements as defined by 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. Issues and uncertainties that are of particular significance at this time relate to global competitive pricing, customer schedule volatility, potential declines in the production of cars and light trucks and successful completion of our strategic and operating plans. Please refer to the company's annual report on Form 10-K for a complete write-up on forward-looking statements and risk factors.

So with that this morning we reported net income for the first quarter of 2008 of $3.2 million or $0.12 per diluted share compared to a net income in 2007 of $2.1 million or $0.08 per diluted share. Consolidated revenues decreased $22.7 million of 9.2% to $222.2 million from $244.9 million in the same period a year ago. On this lower volume income from operations was $3.2 million compared to a loss from operations of $4.8 million in 2007. The major factor contributing to the increased profitability in 2008 was the significant improvement in overall gross profits which increased to 4.2% of net sales from 0.9% a year ago. Also contributing to the increase in net income was the equity earnings of our joint venture in Hungary which increased to $2.1 million in 2008 from $0.8 million in 2007. The joint venture’s increased profitability was due principally to a 9.2% increase in unit shipments in the current period, a reduction in raw material costs and the 13.9% increase in the value of the Euro which equated to $0.3 million of the increased equity earnings.

As indicated in the earnings release the tax provision in the current quarter reflects an estimated annual effective income tax rate of 51.9% or $1, 927,000 plus an additional provision of $693,000 for discreet tax liability adjustments applicable to the current quarter. The tax benefit in the same quarter a year ago represented an estimated annual income tax effective rate of 39.6% or $624,000 and included an additional tax benefit totaling $2,183,000 for discreet items during that period. The higher estimated annual effective income tax rate in the current period was due principally to the mix of US and Mexico pre-tax income and to the impact of permanent items.

With respect to discreet items these generally include adjustments to the tax liabilities for tax return differences, changes in valuation reserves and changes in liabilities for uncertain tax positions. In 2007 we reduced our tax liabilities for uncertain tax positions in the first quarter upon application of a statute of limitations. In 2008 the same application will result in the second quarter reduction due to the relative timing of our fiscal quarter end date.

Overall North American production of passenger cars and light trucks in the first quarter was reported by industry publications as being down approximately 8.7% versus the same period a year ago compared to a 9.8% decrease for our unit shipments in the same period. However production of specific passenger cars and light trucks using our wheel programs decreased 11.7% compared to our 9.8% decrease in unit shipments indicating an increased market share on those programs. North American production and our unit shipments in the current period were impacted negatively by the United Auto Workers strike against American Axle that idled approximately 30 GM plants. About half of our decrease in unit shipments in the current quarter compared to a year ago can be attributed to that strike. The other half of the decrease is primarily due to additional takeover business in 2007.

Our product mix in the first quarter is in line with consumer preferences for lower fuel consuming vehicles. For instance shipments during the quarter to Ford on the redesigned Focus increased 65% over the first quarter of 2007. On the Ford Fusion and Mercury Milan shipments increased over 100% from a year earlier and Altima shipments to Nissan increased over 70% in the first quarter of 2008 compared to the first quarter of 2007 and our business with Toyota more than doubled during the same period. We continue to see strong weekly shipments to GM on the redesigned Chevy Malibu and Cadillac’s CTS through the quarter and recorded increased shipments to Chrysler on the 300, Dodge Caravan and Jeep Liberty. These increases were the result of incremental business wins over the last two years. We also strong initial shipments to Chrysler for the Dodge Journey cross-over vehicle that launched in the first quarter of this year.

The second quarter of this year is clearly presenting significant business challenges as continued American Axle and GM plant specific strike actions take their toll on our anticipated shipments. We’ve been taking appropriate measures in those facilities affected by these actions and we are awaiting customer direction and schedule clarification as to what to expect going forward once these strike issues are finally resolved. Accordingly we will not be providing specific Q2 2008 guidance.

We believe the performance in the first quarter demonstrates that our previous restructuring actions, realignment of our senior management team and heightened focus on business improvements are delivering the intended results. Accordingly our business focus remains on effective operational management, continuing to diversify customer and platform product mix and maintaining as much flexibility as possible to deal with our industry’s current economic challenges.

Before reviewing some of the financial details for the quarter and then taking your questions I also wanted to mention that we will be filing our quarterly report on Form 10-Q with the SEC later today. Shortly thereafter it will also be available on our website at www.SUPIND.com.

I’d now like to review some of the financial highlights for the quarter. In each case I’m comparing the first quarter of 08 to the first quarter of 07. Our net sales on OEM wheels first quarter 08 was $222, 238,000 compared to $244,875,000 for a decrease of 9.2%. However during that same period our units shipped decreased by 9.8% which is largely an indication of favorable mix with respect to the larger wheels for the period. For the first quarter of 08 our net income was $3,179,000 compared to 07 of $2, 051,000 for an increase of 55%. This resulted in earnings per diluted share for the first quarter of $0.12 compared to $0.08 a year ago. Gross profit margin for the first quarter was 4.2% compared to last year’s same time of 0.9%. SG&A as a percentage of sales was flat for the two periods at 2.8% and net income as a percentage of sales was 1.4% in 08 compared to 0.8% in 07.

Switching to some balance sheet data our shareholders’ equity at the end of the quarter was $556,687,000 compared to $550,573,000 a year ago. Our current ratio was 3.8 to 1 compared 2.9 to 1. Our weighted average shares diluted $26,642,000 at the end of the quarter compared to $26,616,000 in 2007 and the actual shares outstanding were $26,643,065 compared to $26,610,191. Our actual depreciation for the first quarter was $11,255,000 compared to $10,134,000 a year ago and we’re estimating our full year depreciation for 2008 to be approximately $45 million. Capital expenditures for the first quarter totaled $3,095,000 compared to a year ago $14,494,000 and we’re estimating our full year capital expenditures to be approximately $27 million. Our interest income fort the quarter was $980,000 compared to $822,000 a year ago which reflects higher cash balances at the end of the first quarter totaling $105,559,000 compared to $58,629,000 a year ago. Our joint venture equity income for the first quarter was $2,085,000 compared to $818,000 a year ago and miscellaneous income and expenses totaled an expense of $442,000 for the first quarter compared to income a year of $2,374,000 which as we indicated back then was due to sale of an investment.

Moving to some balance sheet data and in this case I’m comparing the end of current quarter to the end of the fiscal year to the end of the first quarter of last year. Cash and cash equivalents totaled $105.2 million, I’ll be reading this in millions, compared to $106.8 million at the end of the fiscal year compared to $58.6 million at the end of first quarter last year. Our accounts receivable are at $143.9 million at the end of the quarter compared to $125.7 million at the end of the fiscal year compared to $170.9 million at the end of the first quarter. Net inventories have come down to $103.2 million at the end of the quarter compared to $107.2 million at the end of the fiscal year compared to $116.1 million at the end of first quarter last year.

Our total property, plant and equipment net is at $296.8 million at the end of March compared to $302.2 million at the end of the fiscal year compared to $312.5 million at the end of the first quarter. Our investment balance is $57.3 million at the end of the quarter compared to $51 million at the end of the fiscal year compared to $43.3 million at the end of the first quarter last year and our total assets are $740.2 million compared to $729.9 million compared to $747.9 million. Moving to liabilities and equity our accounts payable at the end of the quarter was $51 million compared to 451.6 million at the end of the fiscal year compared to $82.1 million at the end of the first quarter last year. Accrued expenses $45 million compared to $44 million compared to $44.3 million relatively flat. Total current liabilities $96 million at the end of the quarter, $95.6 million at the end of the fiscal year, $126.4 million at the end of first quarter last year.

Our non-current tax liabilities $65.9 million at the end of the quarter, $62.2 million at the end of the fiscal year, $57 million at the end of first quarter 07 and our retirement liabilities $21.6 million compared to $21.5 million compared to $21.8 million a year ago. Total shareholders’ equity at the end of the quarter $556.7 million compared to $550.6 million compared to $542.7 million a year ago and total liabilities in equity equal total assets of $740.2 million at the end of the quarter, $729.9 million at the end of the fiscal year and $747.9 million at the end of last year first quarter. Total working capital $271.7 million at the end of the quarter, $260.5 million at the end of the fiscal year and $243.5 million at the end of the first quarter of last year.

So, with that said I would like to open up the lines to start taking some questions.

Question-And-Answer Session

Operator

(Operator Instructions) We’ll take our first question today from David Leiker – Robert W. Baird & Co., Inc.

David Leiker – Robert W. Baird & Co., Inc.

A number of questions here first and where do you think your tax rate is going to end up at the year, you’ve got a lot of moving pieces right now, but where do you think the best guess is for a full year number?

Bud Fanelli

Again, David, due principally to the discreet items it’s awful difficult to project a cumulative effective rate including the discreet. As far as the effective rate before the discreet items we’re still estimating to be around 50% at this time.

David Leiker – Robert W. Baird & Co., Inc.

As your profits in Mexico increase that’s taking your tax rate lower or higher?

Bud Fanelli

It should be lower.

David Leiker – Robert W. Baird & Co., Inc.

The second item is do you have a cash of operations number for the quarter?

Bud Fanelli

Yes, it’s $5.5 million, a year ago it was a -$5.6 million.

David Leiker – Robert W. Baird & Co., Inc.

A couple other items here, I think in the comments you talked about shipments, the decline in shipments, half of it was attributed to the GM T900 and then the other half was attributed to takeover business from last year. Can you just walk through that a little bit?

Bud Fanelli

What we meant there was that actually the units shipments compared to our budget for the quarter, if you take the American Axle situation out, they’re pretty much in line. We had actually budgeted a lower unit shipment number than we had a year ago and because a year ago had a lot of this new takeover business in it.

David Leiker – Robert W. Baird & Co., Inc.

Is that just pipeline filling from last year, is that the issue or is that volume running at a lower pace in terms of end demand?

Michael J. O’Rourke

I’d say that some of that is volume is running at a lower pace if we look into 07 some of their programs that we’ve taken over just started gangbusters. Acadia would be an example where we get into the first quarter of 08 that tended to taper off a little bit.

David Leiker – Robert W. Baird & Co., Inc.

I think in the last call you made a comment that obviously this was before a strike with American Axle but the first half weak and second half stronger and overall they offset each other. I don’t know how you could exclude the strike, but is that characterization still fair or not?

Michael J. O’Rourke

That’s anyone’s guess I think in this business today. We talk to GM almost every single day, different angles. If somebody plans purchasing the platforms really we’ve got to get through the strike and then we have to readjust our schedules and we’ll let you know. That’s really the message we keep getting.

David Leiker – Robert W. Baird & Co., Inc.

To that comment, if you take your Hungarian joint venture today, what’s the end market for where those wheels are going today?

Michael J. O’Rourke

The majority is Europe.

David Leiker – Robert W. Baird & Co., Inc.

Are you still bringing those back to North America?

Steven J. Borick

There’s only one program, David, which is the GM T800 forged wheel and basically we’ve cut that production off totally. At this point we have enough inventory for a fairly lengthy period of time and of course that volume overall is declining as they’re changing their mix to more cast anyway so Suoftec is going to have some negative impact from that initially but the offset will be eventually that as that volume goes down the negative impact from the Euro that we’re getting here will sort of reverse itself in time and eventually as we see that volume continue to decline I look at it as a positive because right now that whole thing is a negative to the company in my opinion. The pricing of the product, the inability to raise the price and the Euro at 155 and those impacts because we’re not hedged against that position.

David Leiker – Robert W. Baird & Co., Inc.

You’ve expanded capacity there as well so as you do this where are you picking up volume in Europe?

Steven J. Borick

It’s coming from a number of places. Suoftec is overall completely full in the cat side more ore less and lots of business going forward on the forge side. As I said last time we’re installing a new 7000 ton press and all the in sundry items and we’ll look to start making some larger more stylized wheels but it’s not going to really impact us in 08, it will be 09 that we’ll pick up a lot of that forged volume that we’re losing. So it’s kind of a combination and they’re doing a great job at their cost controls and efficiency over there.

David Leiker – Robert W. Baird & Co., Inc.

What OE’s are you picking up volume with?

Steven J. Borick

Ford is one of them, BMW is fairly significant volume and there’s a lot of requests for quotes out from a lot of players over there.

David Leiker – Robert W. Baird & Co., Inc.

One last thing here on the cost side and the capacity as you look balancing that out, where are you at this point in terms of the US, Mexican volumes and capacities? Are those balanced or there are still moves that you need to make there?

Steven J. Borick

I think if it wasn’t for the strike we would have been pretty balanced this year and we’re looking at creating, I’m actually quite pleased with our overall budget process other than the fact that this strike has really had some negative impacts on us and the ability particularly in Mexico to react to some of that because of labor laws and being able to go to four day work weeks and some other things. But our US production on budget looks pretty good and we’re still probably 60/40 and we’re just going to continue to move as we look at what we need to do to rationalize while we’re working on our efficiencies.

David Leiker – Robert W. Baird & Co., Inc.

Just a last follow up on that, have you done any looking out a couple, three years as your volume grows for what your capacity plans are for the next step here?

Steven J. Borick

We’ve done an initial look out through 10, 11 and a lot of moving parts. I just got back from Asia on Wednesday, believe it or not, hard to believe but I actually saw some things that I was pretty interested in and so there is some things in the pipeline that we’re working on that will be pretty interesting for the company going forward.

Operator

We’ll take our next question from Christopher Ceraso – Credit Suisse.

Joe Durham – Credit Suisse

This is Joe Durham on for Chris. In the release it cites a 13.1% decline in total production versus a year ago and a 9.8% decline in unit wheel shipments, does that have any affect on the gross margin one way or another when you’re building fewer than you’re selling?

Bud Fanelli

Yes, it would.

Joe Durham – Credit Suisse

Directionally how does that work? Can you walk me through that?

Bud Fanelli

The more wheels you produce the more fixed costs you’re going to absorb into your inventory and then as you sell those wheels of course you get whatever your profit margin is on the wheels. So lowering the production has a negative impact on your profit.

Joe Durham – Credit Suisse

Can you give the difference in your penetration or your share of the pickups versus the full size SUVs on the TMP 900 platform?

Michael J. O’Rourke

A greater weight towards the pickups with GM.

Joe Durham – Credit Suisse

Is that much more heavy? I guess the SUVs held up pretty good last quarter and they seem to be coming down further. Is it skewed really heavily towards the pickups?

Michael J. O’Rourke

No, I’d say marginally towards the pickups versus the SUVs, but that tends to change as their lineups change. There’s new wheels coming in for 09 that will change that mix a little bit.

Joe Durham – Credit Suisse

What are you guys seeing so far in the quarter Q2 versus Q1, have the trends been getting worse in real time as sales have fallen on the truck side and are you seeing more volatility? In general what are you guys feeling so far a month in?

Michael J. O’Rourke

The big issue is we said the strike. We as Erika mentioned in the commentary take the Chevy Malibu, great numbers in the first quarter, strong numbers through April and then we come in Monday and the main plant, Fairfax, Kansas is on strike. So that throws a whole level of volatility that we weren’t expecting.

Joe Durham – Credit Suisse

Do you guys have any outlook for natural gas prices? I guess that would be the primary energy source for most of your plants. Do you guys hedge that? What do you see as your exposure there?

Steven J. Borick

We’re about 50% hedged right now at considerably lower prices in spot. Gas for the first time is running to a great degree with oil and of course as everybody knows today oil topped $125, it was trading above there today. Gas is in the 11.5 range. We’re actually looking at some hedging already for 2009 and 10 and I think it’s going to be a function of where oil prices end up as to what we see with gas. There’s plenty of storage of gas so it’s basically a trader’s market to the speculating market, my opinion today. It’s not a supply and demand issue.

Joe Durham – Credit Suisse

Mr. Borick, can you talk a little bit more about what you saw in Asia?

Steven J. Borick

Actually at this point, no other than as I told you before Superior continues to look to globalize our footprint. We’re being very cautious, being very careful with our capital and we’re looking at the opportunities as to how to become an even lower cost producer and how you mix that into our entire mix of the organization, the ability to supply more on a worldwide basis and that’s just the direction I’m taking and there’ll be more to come on that in the next couple of quarters I’m sure.

Operator

Our next question is from Brett Hoselton – Keybanc Capital Markets.

Brett Hoselton – Keybanc Capital Markets

This is [Bat Mishan] in for Brett. I had a question about the mix between Mexico and the United States with General Motors basically idling a couple plants in the United States and Axle really producing a lot in Mexico, is the mix shift more to Mexico than the US this quarter?

Erika H. Turner

No, in fact our Mexican plants were also impacted by the strike so it equally hurt us all over the place.

Brett Hoselton – Keybanc Capital Markets

So it was still at 40/60 moving towards 50/50 by the end of the year?

Steven J. Borick

That’s what we’re trying to look towards, yes.

Erika H. Turner

It’s a little bit better than, we’re about 59/41 as of today and sliding in the direction towards 50/50.

Brett Hoselton – Keybanc Capital Markets

A second question, were you guys looking at any more takeover business for this year? Is there any that you can point to and say that volume and shipments are going to expand?

Michael J. O’Rourke

I can’t say specifically anything that’s out there like we saw over the last couple years with some of the weaker players in North America. There’s always that possibility. Again as the vehicle mix changes that could present some opportunities or challenges depending on what the OEs determine what they’re going to build and when.

Brett Hoselton – Keybanc Capital Markets

Final question on the aluminum pass throughs, what’s the time lag on that?

Erika H. Turner

It varies by customer between a month and a quarter.

Steven J. Borick

Probably what, a 50 day overall? I don’t know. Is there an average number there guys?

Michael J. O’Rourke

It depends on the customer.

Steven J. Borick

GM as an example is every month so that’s a big bulk business. Ford is on a quarterly I believe. You kind of mix the two up. We’ve got a few that are six months but the big ones are month and quarter. So when you mix that all up it sort of just works its way through the process.

Brett Hoselton – Keybanc Capital Markets

Some of this new business that you’re winning is that still continued upon 100% pass throughs or are you seeing some push backs from some of the OEMs saying no to that?

Steven J. Borick

No, there’s nothing at this point, still 100% pass through.

Operator

We’ll take our next question from Jeff Linroth – Leaving it Better, LLC.

Jeff Linroth – Leaving it Better, LLC

Boy that was really nice to read in that release that you were outside of the exogenous event on 5% again on margins. If you would just talk a little bit about capacity utilization in light of what’s going on, how satisfied with where you’re at right now?

Steven J. Borick

I’m personally quite satisfied with the direction other than the strike again and it’s had an impact of, I don’t know what the volume number is but I know it’s significant.

Bud Fanelli

Sales volume is about $12 million in the first quarter.

Steven J. Borick

And more bulk in the second I believe.

Bud Fanelli

We have already surpassed it.

Steven J. Borick

But other than that we are running at a pretty good utilization rate but more importantly is our plants under the direction of Ken Staka. They’re really taking a strong hold on our new budgeting process and the creation of efficiencies. I’m feeling really comfortable that the company is moving in the correct direction in spite of the fact that we’ve got always a lot of issues on our table because of the industry that we’re in and particularly what we’re seeing today with energy, fuel in general, mix of vehicles and how we’re going to change that mix within the company. But overall everybody is working very hard to work toward budget and reducing costs and continuing to create efficiencies and from my standpoint I’m going to continue to use capital where necessary to really push that forward in 08 and going into 09 too.

Jeff Linroth – Leaving it Better, LLC

Not really specific to American Axle, but more of in a big picture view, in your microscopic view do you see some snap back when this strike dies down and things resume or do you imagine that the softness that we’re seeing in the economy in general, we might not get any snap back when things are really settled back down?

Steven J. Borick

I personally don’t believe we’re going to see a hell of a lot. I thought at first we were getting indications from our OE particularly GM that we’d see some new build but I think the reality of this whole strike is in my opinion the desire to reduce on GM’s part and why they didn’t enter the idea of $200 million six weeks ago is because they wanted to reduce their inventories which they’ve done a good job of at the dealer level and now it’s starting to impact them with the Malibu strike and it’s interesting how the Malibu strike all of a sudden brought $200 million to the table in very quick order. And I assume that we’ll see the strike over within a week.

Jeff Linroth – Leaving it Better, LLC

Lastly, that was quite a bump up in the Hungary outcome and if you’d add any color to that. Another question produced some discussion of it but the number by itself is very, very encouraging and any more color you’d like to add to that, I’d really appreciate.

Steven J. Borick

Hungary is just doing a very, very good job. It is a terrific plant. The management over there has their eye on the ball every single day. The one thing that we’re believing strongly in at Superior is what I call discipline in every facet of our business and that goes from the SG&A side all the way through the operational side. Hungary does an exceptional job and we keep learning from them how to do it better over here. I continue to send people to Hungary to learn and they are very full and as long as they stay full. As I said though with the GM T800 forged wheel that will have impacts on Hungary’s overall number but I hope to see an offset in the US eventually from that. It’s not going to come right away though.

Operator

We’ll take our next question from Jake Pramelmeyer – Ramsay Assets.

Jake Pramelmeyer – Ramsay Assets

Just one follow up on the natural gas hedges, is there a certain time or are they on a rolling basis or are we going to see them all start to roll off at a certain point in time here in the future?

Steven J. Borick

No, they’re volume driven by plant or by area of the country and so what you’ll see is that as we go forward into 09 you’ll see some new contracts put on and some of the old ones roll off but as I said we’re hedged at about 50% of our total needs in 08 and those will stay all the way through 08. We have not hedged anything else based on the price today for 08.

Jake Pramelmeyer – Ramsay Assets

When you guys refer to the raw material benefit over the European JV was that related to aluminum or is that pass through some of the US plants and related to something else?

Erika H. Turner

Those are on material improvements in Suoftec.

Bud Fanelli

They had a similar situation in that their selling prices decreased but not at the same rate that their purchase prices for aluminum had decreased so they had an aluminum profit. They also had over a 9% increase in unit shipments during the period which was a big part of the improved profits. And then of course you have to deal with the exchange rate which looking at their net income impacted it by about $500,000 and half of that came through as part of our equity earnings.

Jake Pramelmeyer – Ramsay Assets

On the North American SAR, obviously the SAR is all for 08. It’s probably reasonable to assume that across the board amongst you and your peers there is a little bit of extra capacity. In your view is that having any impact on pricing or is pricing still below what you guys would expect as a rational price in this current environment?

Steven J. Borick

You get these indications of pricing reductions from time to time but the reality is, is that overall we keep certainly bumping on the bottom of the bucket, my opinion on pricing. When I came back from Asia on Wednesday certainly I got the indication interestingly enough from a lot of discussion inside of the wheel world that there is a lot of players over there that are struggling very hard both domestically and on the export side with where prices are and what that tells me is that there is going to be a survivor game for a period of time and then you’ll see a oops and you’ll see some fall out in Asia as some of the players who are even pricing down today are doing it to try to keep cash flow going to survive wondering how they’re going to make it. Quite frankly they have a lot of the same issues we’re looking at. Their labor of course is their big plus but their energy costs are way high, in fact higher in a lot of cases because they don’t have natural gas, they’re using fuel oils instead, and transportation and all the same stories. So I anticipate seeing some fallout in Asia that might give us some small traction going forward but it’s nothing that’s going to happen overnight. It’s still the last man standing theory, in my opinion.

Jake Pramelmeyer – Ramsay Assets

On the wheel shipments stepping back for the full year, can you guys give us some color as to what you’re thinking? Obviously the strike, I’m sure it’s a one time event but as you said GM really used it instead of production cuts to reduce inventories and then came out a few weeks ago and said they’re going to reduce inventories in the second half as well on top of the strike. Can you guys give us a picture as to how you see wheel volumes for 2008 versus 2007?

Steven J. Borick

We don’t disclose that information.

Jake Pramelmeyer – Ramsay Assets

Are you guys thinking just directionally are they going to be more or less than 2007?

Steven J. Borick

Well we were anticipating I believe it’s fairly flat from 07 to 08. Now with the strike obviously we’re going to see some reduction there but other than that we’ve got a lot of launches coming up in the next couple of months that will have some positive impact and we’ll see how all that plays out. Your crystal ball is as good as mine as far as the SAR numbers.

Operator

We’ll take our next question from Tom Fogerty – Silverstone Capital.

Tom Fogerty – Silverstone Capital

My question has sort of been answered but I was wondering if you could break down the 60 basis point delta between the revenue and the units, how much of that came from price, how much was from mix and how much was from delays in aluminum?

Bud Fanelli

The aluminum impact on the average selling price was a drop of 3.5% which equated to about $7.7 million of revenue. So there was a 3.5% drop in aluminum in selling price and it was offset by approximately a 4% increase in the mix, larger wheels outweighing the smaller wheels this period over the last. So the mix of 4% offset the 3.5% drop in aluminum.

Tom Fogerty – Silverstone Capital

When there’s a delay between the price you pay for aluminum and the price you get for aluminum I guess that doesn’t really affect the revenue line there, it’s actually the gross margin line?

Bud Fanelli

Yes.

Tom Fogerty – Silverstone Capital

And how big was that impact?

Bud Fanelli

It was about $1.5 million.

Steven J. Borick

Prices were pretty flat, Tom, so you didn’t see a lot of craziness in aluminum.

Tom Fogerty – Silverstone Capital

With the mix I’m just a little bit confused because it seems to me that when we look at what’s being sold in greater and greater volumes it’s smaller vehicles and what’s being sold in lower and lower volume it’s the larger vehicles. So I’m just curious how you reconcile the end market vehicle demand with the increase in mix from you guys.

Bud Fanelli

I don’t think that we’re quite there yet because there has still been a lot of, there’s a lot of programs that are using 18 and 20 inch wheels. We’re picking up more business obviously with smaller wheels but 17s and 18s are still going to be more common than 15s and 16s at this point. Even new programs on Toyota or Nissan are still 17 or 18 inch wheels in a lot of cases. We’re going to have to wait and see how that plays itself out. As an example the 900 that’s coming out is a lot of 20 inch product. You know how that’s going to sell other than filling the pipeline is a good question right now.

Tom Fogerty – Silverstone Capital

But for the time being it’s safe to say that the increasing wheel size on cars is offsetting the decreasing mix of cars versus trucks?

Michael J. O’Rourke

To some degree.

Erika H. Turner

It’s also just a point in time, Tom, so we’re just comparing Q1 of 07 to Q1 of 08 and it’s not necessarily a trend line.

Tom Fogerty – Silverstone Capital

The last thing just to kind of amplify a little bit, it sounds like the competition coming from overseas is maybe mitigated even a little bit more from where it was last quarter. Is that fair?

Bud Fanelli

I would say the OEMs are still strongly looking obviously because of their own issues at price, price, price but on the other hand what I’m getting from some fairly serious internal talks with a couple of the large OEMs is that they’re also even more looking at global partnering and price is very important but quality of product, capability for delivery, directional delivery points in the world, platform supply, commonality are going to be more buzz words going forward and we’re taking that very seriously.

Operator

We have a follow up from Jake Pramelmeyer – Ramsay Assets.

Jake Pramelmeyer – Ramsay Assets

Just a follow up on that comment before, you guys got a $1.5 million benefit from the aluminum price decrease in the quarter?

Michael J. O’Rourke

On the gross profit line, yes.

Operator

And there are no further questions at this time. If I may turn the conference back over to your speakers for any additional or closing remarks?

Steven J. Borick

I want to thank everybody for their continued interest in Superior. I guess I could tell you that I was pleased with the earnings but I wasn’t because I think that we had an opportunity to really have significantly higher earnings based on the Axle strike and having to react to it in all of our plants. So the positive is I think that we were in the right direction and we could have seen some better numbers. The real positive for me though is that as I said earlier I have a senior leadership team in place today that I’m really comfortable with for the first time since I’ve been the CEO of this company. We’re all working together as a team and that’s being funneled in goal deployment throughout the company. We can never stop working hard enough to deal with this environment that we’re in but we are going to continue to bring earnings to the table. Our balance sheet is pristine. Our capability for opportunities is out there in front of us both with ability to use some of our balance sheet when necessary and continue to spend capital to upgrade internally within our organization for better profitability and efficiencies. We’re going to move in that direction and I appreciate everybody’s time today and continued interest. Have a good day.

Operator

That does conclude the conference. We thank you all for your participation. Have a great day. You may now disconnect.

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Source: Superior Industries International, Inc. Q1 2008 Earnings Call Transcript
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