Standard Motor Products (NYSE:SMP) said it has reduced leverage ahead of schedule following its 2024 acquisition of Nissens Automotive, while continuing to pursue growth across its North American aftermarket, European aftermarket and Engineered Solutions businesses.
Speaking at an investor event, Chairman, President and CEO Eric Sills said the New York-based company is a 107-year-old manufacturer and distributor of replacement parts that is approaching $2 billion in revenue. North American aftermarket operations remain about two-thirds of the business, while the Nissens acquisition added a European aftermarket platform and Engineered Solutions provides original-equipment products for select end markets.
Sills said the company’s manufacturing footprint in North America and Europe has become a competitive advantage as some aftermarket competitors have increased sourcing from China. Standard Motor Products has some China exposure, he said, but its supply base is more concentrated in North America and Europe.
Third-Quarter Results and Debt Reduction
Sills said the company was pleased with its most recently reported third-quarter results and year-to-date performance. Three of four business areas posted “very nice improvements” in sales, he said. Temperature Control did not post similar quarterly top-line growth because of seasonal timing, as customers had placed strong preseason orders and then sold from existing inventory during the summer.
On a year-to-date basis, Temperature Control sales were still up in the mid-single digits, according to Sills. He also cited strong bottom-line performance and cash generation.
The company had targeted a leverage ratio of 2x by the end of the year following the Nissens purchase. Sills said Standard Motor Products reached that goal a quarter early and reported leverage of 1.8x following its third-quarter results.
With debt reduction progressing, Sills said the company can refocus on its broader capital-allocation priorities:
- Capital expenditures, including machinery and equipment to bring more production into company facilities;
- Its dividend, which Sills said has a history of modest annual increases;
- Opportunistic mergers and acquisitions; and
- Share repurchases when acquisition opportunities are unavailable.
Nissens Synergies and European Growth
Sills described Nissens as a well-regarded and well-run company that gave Standard Motor Products a meaningful foundation in Europe rather than requiring a turnaround. He said the acquisition has produced cost synergies from overlapping product categories and combined spending.
He said the larger opportunity is revenue growth through cross-selling. Nissens has launched two product categories in Europe that had been strong categories for Standard Motor Products in North America, including one Vehicle Control category and one Temperature Control category. Another category was launched at Automechanika, Sills said.
Meanwhile, Nissens has helped Standard Motor Products enter the air-conditioning condenser category in North America, a category that had been a gap in the company’s portfolio. Sills said customer feedback at AAPEX appeared positive.
In Europe, Sills said Nissens is gaining market share, supported by its brand position and exposure to non-discretionary, break-fix categories. He said the company would consider bolt-on acquisitions or organic category additions where they fit strategically and offer synergies.
North American Demand and Product Coverage
Sills said Standard Motor Products has benefited from relationships with major customers including AutoZone, O’Reilly and NAPA Genuine Parts Company. He attributed the company’s North American growth partly to its own product expansion and partly to customer share gains.
The company seeks to provide broad coverage across tens of thousands of SKUs, Sills said, including slower-moving parts as well as popular items. That coverage is particularly valuable as more repair activity is performed by professional shops, where distributors seek to avoid being unable to supply a required part.
Sales through at least two of the company’s categories have reflected positive point-of-sale trends month after month, Sills said, although growth moderated to low-single digits in the third quarter from earlier mid-single-digit levels. He characterized demand as supported by unit sell-through as well as pricing.
Because many of the company’s products are professionally installed, difficult to diagnose and used for necessary repairs, Sills said they generally face less consumer price sensitivity than discretionary or do-it-yourself automotive products.
Costs, Distribution and Capital Spending
Sills said tariff pass-throughs over the past year and a half have been handled transparently with customers on a dollar-for-dollar basis: prices rise when tariffs rise and decline when tariffs decline. For broader input-cost inflation, he said the company expects to rely on a combination of pricing and internal cost-reduction work, including value engineering, sourcing and manufacturing initiatives.
The company also continues to ramp its newer distribution center in Kansas. Sills said startup costs had been elevated by inefficiencies and duplication while the prior distribution center was being wound down, but much of that process is now complete.
The facility was designed primarily for capacity expansion and risk mitigation rather than as a cost-cutting project, he said. It will carry ongoing lease expense and depreciation related to automation, though the automation and improved West Coast service are expected to provide offsetting efficiencies. Sills estimated ongoing costs in the low-single-digit millions of dollars.
With the major distribution-center investment complete, Tony Cristello, vice president of investor relations and corporate development, said annual capital spending is expected to return to a more normalized $30 million to $35 million range. Sills said about 80% of capital expenditures are directed toward new equipment, tooling and production investments rather than maintenance spending.
About Standard Motor Products (NYSE:SMP)
Standard Motor Products, Inc (NYSE:SMP) manufactures and distributes replacement parts for the automotive aftermarket. The company supplies components used to maintain and repair passenger vehicles, light trucks, and other transportation equipment, serving automotive parts distributors, retailers, repair shops, and vehicle service professionals.
Its product offerings include engine management components such as sensors, ignition parts, fuel system components, and emissions-related products.
