Aluminum wheel maker Superior Industries (click ticker for report: ) reported mixed second quarter earnings. Superior–which supplies Ford (click ticker for report: ), GM (click ticker for report: ) and Chrysler with wheels–posted sales growth of 3%, which was in-line with consensus expectations. However, earnings fell 57% year-over-year to $0.23 per share, which was slightly worse than the Street expected. Management didn’t provide much in terms of guidance, but we are strong believers in the US auto recovery and think it will continue in the second half of 2012.
Though revenue grew only modestly, unit shipments increased 14% to 3.3 million units, reflecting strong auto demand. Average selling prices slipped 10% due to lower aluminum prices, which were passed on to its OEM customers. However, it appears market share fell, as North American auto production grew 27.4% versus Superior shipments growth of 14.1%. However, the company attributed the lost market share to product mix shifts. Shipments to GM fell 10%, as the automaker continues to struggle in the US, but shipments to Best Idea Newsletter holding Ford increased 19%. Shipments also increased to Toyota (click ticker for report: ) by 114%, Nissan (NSANY) by 28% and BMW (BMW) by 36%. The increased shipments to Toyota reflect a recovery from production setbacks and underscore the relative importance of Toyota to the US auto sector.
Although gross margins fell over 100 basis points year-over-year to 7.4%, the firm generated $34.6 million in operating cash flow, up 268% compared to the first half of last year. Although capital spending should increase from $8.7 million in the first half of the year, we expect free cash flow to remain strong thanks to net income growth and new capacity coming on line.
Superior Industries maintains ample liquidity, with over $212 million in cash and cash equivalents and no long-term debt. Even though shares have rallied in recent days, we still believe the company is fairly valued. However, shares yield 3.5% on an annual basis at current levels, with a Valuentum Dividend Cushion rating of Excellent and good prospects for dividend growth. We think Superior is an attractive income play on the automotive recovery, and as such, hold shares in the portfolio of our Dividend Growth Newsletter.
Our dividend report on Superior Industries: