The stock price of Motorcar Parts of America Inc. has been getting knocked around quite a bit the last few months.

After the Torrance manufacturer and distributor of replacement parts for heavy-duty trucks and industrial, marine and agricultural vehicles and machinery reported on March 31 that it had entered into an agreement to sell $32 million in convertible notes, its stock lost nearly 5% of its value on the following trading day when it closed at $7.08.

The next day, the stock lost 10% of its value when it closed at $6.34.

As of May 25, the stock price has continued to drop, closing at $6.07, a 45% drop in value from the beginning of the year when its share price reached $11.70 on Jan. 3 and a decrease of 57% for the 52-week period when its share price hit $14.13 on May 25 of last year. 

The company’s share price closed at a 52-week high of $19.84 on Nov. 8.

The company reported on Feb. 9 net income of $1 million (5 cents a share) for the fiscal third quarter ending Dec. 31, way down from $3.1 million (16 cents) in the same period the previous year. Revenue decreased 6% from the third quarter of the prior year to about $152 million.

Motorcar Parts said it expected to release its fiscal fourth quarter earnings on June 13.

Falling sales

During a conference call with analysts to discuss the third quarter financials, there was more concern about drooping sales than the convertible notes. Motorcar Chief Executive Selwyn Joffe said that despite softer-than-normal sales for the quarter, he wanted to assure analysts that the company had no customer or shelf space losses.

There were two major reasons why sales were impacted during the quarter, Joffe added.

First, a certain unnamed customer reduced orders by approximately $14 million compared with the same period a year ago, he said.

“In addition, we were impacted by delays in new business from certain other customers, representing approximately $17 million of deferrals for the quarter. As a result, our sales targets for the quarter and nine-month period were affected,” Joffe said.

Matt Koranda an analyst with Roth MKM in Newport Beach, asked about the delays in new orders and the reduced orders from the existing Motorcar customer.

“Is that all coming from one customer in particular? And is that all in rotating electrical? Maybe if you could just give a little color on why exactly that reduction, which looks pretty stark kind of on a year-over-year basis?” Koranda asked.

Joffe responded by saying that it was a couple of customers and that the equipment delayed in being ordered was a mix of rotating electrical parts, brake calipers, rotors and pads.

“And really, the good news is that those orders have started coming back in, in this quarter,” Joffe added. “So we’re seeing it now.”

Analysts react

Bill Dezellem, the founder and president of Tieton Capital Management in Yakima, Washington, also asked about the new business that was delayed and if he had heard correctly that the business was coming back.

“Yes, that has begun, and we’re excited about it, yes (it) continues to ramp up,” Joffe responded.

“And what category or categories is that in? “Dezellem asked

“It’s a mix, Bill,” Joffe said. “I mean, predominantly brake-related and electric vehicle, I mean, in general.”

In respect to the customer who delayed the $14 million in orders, it would seem that given the price increases that Motorcar started at the beginning of the year, what would cause a customer to delay shipments, Dezellem asked, adding, “It seems as though they’re just instituting a price increase on themselves by doing that?”

Joffe said the analyst had made a good point but he couldn’t talk about what customers were doing.

“I prefer not to go down that road, but the comments that I can make are, yes, that orders that are coming in now will be at a higher price,” he said. “And yes, the orders have resumed coming in.”

“So counter to what one would normally expect to see, which is orders in advance of a price increase, they just ignored that,” Dezellem said “And it sounds like you did not give them a special deal where they were able to have the old price but a later shipment?”

“That is correct,” Joffe answered.

“And by the way, thank you for not giving them a special deal,” Dezellem added.