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Superior Industries: It's Not Just About China

WY Capital profile picture
WY Capital


  • Superior Industries had a very poor 2019, with declining sales and profitability.
  • Management is guiding for a soft sales environment in 2020, but believes profitability should improve due to cost cuts.
  • However, the Wuhan coronavirus is likely to dent demand in 2020, which would likely impact SUP's financials substantially.
  • With lots of debt due over the next few years, SUP could face a liquidity issue if the coronavirus gets worse.

The last few months have not been kind to Superior Industries(NYSE:SUP), which has dropped 46% from its recent peak of around $3.80. While it may seem tempting to buy the dip, it could turn out to be very dangerous to do so, as we believe that SUP will have a high chance of filing for bankruptcy if the coronavirus outbreak gets worse.

2019 results

Even without the coronavirus situation, 2019 was a pretty horrible year for the auto industry and for SUP. A strike at GM and soft conditions in the overall auto market led to an 8% decline in shipments for the full year. The lower shipments, along with higher energy costs and plant inefficiencies, led to lower adjusted EBITDA, which was offset by cost savings.

In 2020, management guided for unit volumes to continue to decline due to a soft production environment, but they do believe adjusted EBITDA will start to grow, aided by an improvement in mix and cost rationalization initiatives.

Looking to 2020, while we expect a softening production environment, we remain committed to effectively executing our order book, enhancing profitability and driving cash flow through earnings, working capital and a disciplined approach to capital expenditures.

Source: Q4 2019 call

The balance sheet hasn’t improved much, with long term debt still remaining in the $611mil range. This excludes the $300mil in preferred stock that SUP will need to pay in the next few years. At the moment, SUP has $78mil in cash, which helps short term liquidity but isn’t enough to pay their long term obligations.

Don't underestimate the risk

During the conference call, SUP repeatedly emphasized that they don't have operations in China and that very little of their supply chain would be affected by the coronavirus.

Just to frame the implication for our

This article was written by

WY Capital profile picture
Looking out for underrated companies that could shape the future of humanity, or just provide strong returns over the long run. Note that my opinions could change after conducting more research or based on anything, honestly. DYODD

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (5)

11146471 profile picture
You have requested to have my "totally irrelevant article" comment erased... I have to insist on my position that your article is a non educated shortist piece, reason : Chinese wheel rim manufacturers are competitors to Superior's product range offering their wheels at a discounted price and creating a severe margin pressure to Superior. Covid 19 helped release this pressure and offered Superior a window of opportunity to increase its margins considerably. So at least your title is completely WRONG!

Moreoever Superior doesnt supply Chinese auto manufacturers, its production base is in Mexico supplying N.America auto firms and in Poland supplying EU auto firms.

Price of Aluminum is a big part of it's raw materials cost and its price have considerably fallen during the covid outbreak.

Wheel rims as you should have known/mentioned are not only used to OEM but also in the replacement market. So even if Auto sales for new cars fall, Superior is insulated by servicing the second hand market with it's products.
WY Capital profile picture
Thanks for the elaboration. In my article I was mainly talking about demand pressure, not supply pressure. Demand for autos in Europe and USA is going to fall drastically when COVID becomes more widespread. Just because SUP serves the replacement market doesn't mean its revenues aren't going to get hit drastically.

As for China, they're already starting to ramp up production. I wouldn't be surprised if wheel production is mostly back online by now.
Cognoscente profile picture
please correct the wording "the Wuhan coronavirus" to avoid any geo discrimination
Would the labelling "CCP virus" be better?
Not going to argue about risk but, as I understand, they have unused lines with term debt and preferred maturities in 2024 and 2025. Not exactly up against the wall immediately. So yes, like a lot of businesses if people stop buying cars they can get in trouble. But not sure I see a death spiral here at the moment. Maybe not a good investment though either.
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