Motorcar Parts of America Inc., still struggling with a 2011 acquisition that has been an ongoing drag on earnings, is under pressure from a hedge fund investor to more decisively address the problems.
Without suggesting what steps he wants the company to make, Jacob Muller, a portfolio manager at AYM Capital LLC in New York, said the unit, Fenco, is “impacting results to a level that if it doesn’t get better over the next few periods, I would think that we’ve got to admit to ourselves this is not working.”
MPA spent $5 million in May 2011 to purchase Fenwick Automotive Products Ltd. (Fenco), a money-losing Canadian auto parts maker whose brake parts, axles and other so-called under-the-car products were expected to complement MPA’s electrical car parts business. Indeed, with Fenco in the fold, MPA’s revenue more than doubled to $364 million in the fiscal year ended last March 31. But efforts to turn the ailing subsidiary profitable, including cutting unprofitable products and reducing staff, have proved elusive.
MPA’s chief executive, Selwyn Joffe, said in a Feb. 15 conference call with analysts and investors that he believed the turnaround was coming.
“We are evaluating the new state of our business and plan to update our guidance in the near future,” Joffe said on the conference call. “While this quarter was very soft, we do not believe it provides an accurate picture with regard to the potential of the under-car product segment.”
Company executives declined to comment further.
On Feb. 15, MPA reported third quarter net income of $935,000 (6 cents a share), compared with a loss of $21.8 million
(-$1.74) in the year-earlier quarter. Revenue for the Torrance company rose 38 percent to $116 million. The Fenco unit contributed an operating loss of $6.9 million, compared with an operating loss of $10.6 million in the same quarter the previous year.
The earnings release sent the company’s stock down more than 18 percent to $5.73 for the week ended Feb. 20, making it the biggest loser on the LABJ stock index. (See page 64.)
Jimmy Baker, an analyst at B. Riley & Co. in West Los Angeles, said he was surprised at the magnitude of the problems at Fenco. The company needs to move beyond cost-cutting at the unit and find new customers for it. Barring that, MPA might need to seriously consider abandoning Fenco.
“This remains a very troubled business and investors are clearly frustrated with the company’s inability to meet its forecasts,” he said.
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