The recovering automobile market is proving a mixed blessing for Superior Industries International Inc. It aggressively downsized during the recession and now must figure how to meet surging demand for its aluminum wheels.
The Van Nuys company, which supplies wheels for new passenger cars, SUVs and light trucks, last week reported that it moved from a $94 million loss in 2009 to a profit of $51.6 million last year, with consistent sales and earnings growth in the last three quarters.
During the recession, the company closed plants in Van Nuys, Kansas and Tennessee. It shifted to lower-cost Mexican facilities, which now handle roughly 65 percent of production. Last June, it acquired a stake in an aluminum wheel maker in India, providing Superior a foothold in emerging auto markets.
Even so, executives told investors last week that the company’s capacity utilization in the fourth quarter reached 98 percent at its North American facilities, which largely serve domestic automakers, and are at full capacity with its Indian joint-venture partner.
U.S. auto sales rose 17 percent in January from a year earlier and were up 27 percent last month. Although there’s uncertainty caused by high gasoline prices and the crisis in Japan, the company expects demand for its products to remain high. The company no longer ships wheels to Toyota’s facilities in Japan, but it could be set back if that automaker’s U.S. manufacturing facilities are hurt by delays in getting other parts they need from Japanese suppliers.
Both company officials and Wall Street analysts say Superior’s challenge will be to cost-effectively expand production capacity quickly enough so that it does not lose business to competitors.
Chief Executive Steven Borick said Superior is actively evaluating a number of options to increase production levels, which could include running more overtime shifts. The company, however, wants to avoid increasing capital spending to add capacity.
Superior’s financial results were impressive enough that Buckingham Research Group, which downgraded the stock last year, upgraded its recommendation to “hold” from “buy” and expects the share price – which closed at $21.32 on March 17 – to reach $30 during the next 12 months.
“We believe the company will continue to demonstrate an improvement in earnings, given our expectations for improving North American production volumes,” Buckingham analyst Joseph Amaturo said in a report.
Conversely, Gabelli & Co. Inc. analyst Brian Sponheimer kept his stock recommendation at “hold” until the company reveals more about how it will handle the production issue.
Even so, Sponheimer in a note to clients admitted the stock remains “inexpensive” and “the company should be commended for its steps to right-size operations in the downturn and increase its profitability.”
