Cooper-Standard shows improvements amid headwinds

NORTHVILLE, Mich.—Cooper-Standard Automotive Inc. continues to increase sales—including gaining business in the highly sought-after electric vehicle segment. And while the company has yet to reverse some losses, there have been improvements in recent months.

The Northville-based fluid handling and sealing maker reported sales of $605.9 million in the second quarter, a 13.6-percent increase over the same period a year earlier. Adjusted EBITDA came in at negative $10.4 million.

Jeffrey Edwards, company chairman and CEO, noted that lean operations and efficiencies throughout the business played a key role in helping to lay a solid foundation for further recovery.

"Our manufacturing operations have worked smart and extremely hard to overcome a number of market challenges including continued erratic production schedules and tight labor market availability," he said during an Aug. 5 investors call. "Despite the difficult operating environment, our operations were able to deliver $21 million in saving through lean initiatives while keeping efficiencies in the quarter."

Sales for the six-month period ended June 30 were relatively flat year-over-year, coming in at $1.219 billion, compared to the $1.202 billion a year ago. Cooper-Standard reported an adjusted net loss of $109.9 million for the half and adjusted EBITDA of negative $10.2 million for the first half.

The company points to strong economic and geopolitical headwinds—particularly the on-going COVID-19 impacts in China, economic uncertainties and Russia's war on Ukraine—as reasons for less-than-optimal performance. However, Edwards remains optimistic that recent improvements are signs of a much larger, more positive trend for Cooper-Standard.

"In June, we started to see improvements in overall production volume and increased benefits from our cost recovery initiatives," Edwards said during the earnings call. "Combined with our improved operating efficiency and lower fixed costs, the improved volume, mix and net pricing enabled us to drive a positive EBITDA margin and cash flow in the last month of the quarter, partially off-setting disappointing results in April and May."

Cooper-Standard's full-year outlook remains steady, with sales projected to fall in the $2.5 billion-$2.7 billion range, down just slightly from the previous $2.6 billion-$2.8 billion. Adjusted EBITDA expectations remain unchanged at the $50 million-$60 million mark.

"With further improvements in global production volume expected in the remainder of the year," Edwards said, "combined with continuing cost reduction initiatives and anticipated incremental positive impact from our enhanced commercial agreements, we continue to expect to deliver full-year adjusted EBITDA in line with our original guidance.

" … While there is still a lot of uncertainty in the global economy, in our industry, I am very optimistic about our future and the opportunities that lie ahead."

The automotive sealing maker said that it was awarded $57 million in new business in the second quarter, 68 percent of which was for EV platforms.

Moving forward, Cooper-Standard expects not only to continue to win business within the electrified automotive market segment, but grow its share of the overall automotive market.

"We have commercialized multiple innovations within our quick-connect and light-weight tubing portfolios," Edwards said, "and we hope to soon share exciting new advancements in fluid flow control, which will unlock opportunities to grow content per vehicle and expand margins in the EV space."

For Cooper-Standard, Fortrex is expected to play a lead role in that effort.

The sealing product not only meets the highest performance expectations of OEMs, it does so while helping to push them closer to their sustainability targets—think zero emissions, carbon neutral performance and sustainable materials.

"We are continuing to develop the material science around Fortrex to make it even lighter weight, higher performing, and to potentially, to use recycled post-consumer waste as feedstock material—all of which are highly valued characteristics with our customers," Edwards said. "Our innovations are part of the value proposition we provide to our customers and a clear differentiator among our competition. We believe the new developments around Fortrex will create additional market opportunities in our sealing business going forward."

By segment, North America remained the most significant for Cooper-Standard, which reported sales of $331.7 million for the quarter ended June 30. That's an $84.2 million improvement over the same period a year ago.

North America also was the only segment to show improvements in adjusted EBITDA, which came in at $15.44 million for the second quarter this year. It marks a $14.69 million improvement over last Q2 2021.

Year-over-year, sales in Europe and Asia Pacific declined for the three-month period, coming in at $126.3 million and $85.8 million, respectively. This accounts for a $6.34 million drop in Europe when matched against the second quarter of 2022. In Asia Pacific, it's a drop of $18.1 million.

In Europe adjusted EBITDA for the quarter fell by $925,000 to negative $15.3 million. In Asia Pacific, adjusted EBITDA fell $5.49 million to negative $7.8 million.

Cooper-Standard does maintain a very optimistic outlook in Europe despite challenges, saying its efforts to right-size in the region will lead to profitability. And these efforts, combined with on-going customer price negotiations, will start to show positive impacts next year.

"We will be profitable in Europe in 2023," Edwards said. "And by 2024, when we have executed several of the initiatives that we have left to execute, we expect that business to be in the high single digits from an EBITDA point of view. So, we are looking at getting a few more actions completed in Europe in the next 12 months of so. …

"The good news is we don't have to have 50 balls in the air to get done what we need done in Europe. We have a select few levers yet to pull, and we know where those are, and we are in the process of executing it."