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Motorcar Parts of America, Inc. (MPAA)
F3Q08 Earnings Call
November 10, 2008 1:00 pm ET
Gary S. Maier – Maier & Company
Selwyn Joffe – Chairman of the Board, President, Chief Executive Officer
David Lee – Chief Financial Officer
Tony Cristello – BB&T Capital Markets
Mitchell Sachs - Grand Slam
Rick Hoss - Roth Capital Partners LLC
[Dimitri Kernasofsky - First Wilshire]
[Bob Sells - LMK Capital Management]
[Erwin Friedman] - Private Investor
[George Burman – GunnAllen Financial]
» Motorcar Parts of America F4Q08 (Qtr End 3/31/08) Earnings Call Transcript
» Navistar International Corporation F4Q09 (Qtr End 10/31/09) Earnings Call Transcript
Gary S. Maier
Before we begin and I turn the call over to Selwyn Joffe, Chairman, President and Chief Executive Officer and David Lee the company’s Chief Financial Officer, let me remind everyone of the Safe Harbor statement included in today’s press release. Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for certain forward-looking statements including statements made during the course of today’s conference call.
Such forward-looking statements are based on the company’s current expectations and beliefs concerning future developments and their potential effects on the company. There can be no assurance of future developments affecting the company will be those anticipated by Motorcar Parts of America. Actual results may differ from those projected in the forward-looking statements. These forward-looking statements involve significant risks and uncertainties some of which are beyond the control of the company and subject to change based upon various factors.
For more detailed discussion of these ongoing risks and uncertainties of the company’s business I refer you to the various SEC filings. With that said I would now like to begin the call and turn it over to Selwyn.
I appreciate you joining us today for our fiscal 2009 second quarter conference call. If I sound a little different I apologize, I have a touch of laryngitis. As highlighted in today’s financial release, we are continuing to build upon the success of our year-end and first quarter fiscal performance. We had record revenues and a substantial increase in profitability. Prospects look good for the second half in terms of consumers returning to more normal driving patterns. This is supported by the declining oil prices and we have new customers coming on board and acquisition opportunities.
We believe as our revenues grow and we can leverage our production facilities we can generate better cost efficiency and more profitability. While sales performance accomplished record results for the quarter, it could have been better and it was not as robust as we would have liked. We are nonetheless very encouraged by overall success in a challenging environment.
It is important to remind everyone that our products are not discretionary. When an alternator or a starter needs to be replaced, it is not an option. Whether it is a professional doing the repair or a consumer purchasing the part and fixing the vehicles themselves, the part needs to be available otherwise the vehicle will not work.
Statistics in the marketplace continue to show the age of cars increasing and as the car population ages so do replacement rates for alternators and starters substantially increase. In addition, we are optimistic that our recent initiatives to grow the company’s heavy duty business and professional market will generate meaningful contributions in the second half.
On the financial front our gross profit climbed 44% as highlighted in this morning’s release with gross margins jumping to 32.7% for the quarter compared to the 24.4% a year earlier. Operating income was $5 million for the second quarter compared to $2.4 million from the same quarter prior year. David will discuss the contributing factors in more detail in a few minutes.
As I have mentioned before, current economic conditions support demand for our products. As consumers delay new car purchases and hold onto their vehicles longer, replacement rates will increase. For the benefit of new shareholders, the average age of vehicles today is 9.4 years. [Inaudible] age group demand for replacement parts will climb dramatically doubling when they enter the eight to 11 year group and then almost doubling again once the vehicles are more than 12 years old.
Today there are approximately 27 million vehicles within the eight to 11 year old age group. There are 59 million vehicles registered that will enter the eight to 11 year group during the next three years. That is a growth of a higher replacement opportunity vehicles of 26% and the replacement rates double and registered vehicles within the more than 12 year old category are also expected to climb significantly during this period and even their rates even double incrementally.
This is obviously good for our business future and that of our customers. As you have heard me state before, our business is somewhat recession resistant particularly as drivers return to the roads and add miles to their vehicles and if drivers stay home the company does not lose a sale but rather sales are deferred because the part failure is delayed.
Now let me take a moment to provide an update on our strategic initiatives. Our organic business continues to remain strong. Our relationship with our existing customer base remains strong and the market fundamentals for our product are moving in the right direction as I have just mentioned. Our customers are holding steady with their part sales and are expecting increases due to the current environment.