So moving along, happy to announce or happy to introduce Standard Motor Products to kind of kick off our aftermarket discussion. Standard Motor Products is a leading manufacturer and distributor of replacement parts for the aftermarket by expanding Engine Management, Temperature Control, and other Vehicle Control systems. The company has continued to expand its product capabilities, market presence, and geographical reach, most recently with the acquisition of Nissens Automotive in 2024. So excited to sit here with Eric Sills, the Chairman, President, and CEO, and Tony Cristello, the Vice President of Investor Relations and Corporate Development, to discuss the company. I think they have some slides they will flip through.
Clicker is up there.
Well, thanks, Eddie. Good morning, everybody, and it is great to be a part of the 50th. I think we have been here all 50 years, which is pretty cool. Yeah, very, very quick introduction because I really do want to get to the questions, which I think are more interesting, but I think it is probably helpful just a couple slides to set the stage to kind of create a little bit of context. Let's see if I can push the right button here. Okay, so who are we at a very high level? We are a 107-year-old company, New York-based, and if you look at coming up on $2 billion, and if you look at that pie chart in the middle, it used to not have three slices, and Eddie kind of referred to that. We used to really just be a pure play North American aftermarket company.
Over the last few years, we have added a couple legs of the stool. North American aftermarket is still two-thirds of what we do, and it is really our bread and butter, but we have added a European aftermarket segment, which I will spend a second on, and we have a segment that we call Engineered Solutions, which is our original equipment business, which again, I will talk about each of them in two sentences or less. On the right side, you see our map, and the reason we point this out is really more and more we are seeing in the aftermarket, people are not necessarily manufacturers. They are very good at sourcing, but what that has often done is it has chased product into China.
Because we have always been a basic manufacturer, we find ourselves with a supply footprint that is much more on the left side of the map. While we do have some exposure to China, it is really, I think, created a very nice competitive advantage to us to be more North American-based, European-based, and it is really paid dividends for us over the last many years. All right, so the three different markets that we are in, and the biggest piece is on the left, North American market. That actually has two different reporting segments in it. Vehicle Control, which is Engine Management-related products, electrical safety products. That is the bigger piece. Then we have Temperature Control, which is largely air conditioning condensers, but it also has other thermal management aspects to it. The middle is that acquisition that we referred to, Nissens Automotive.
Looks an awful lot like Standard Motor Products, but based out of Denmark and taking care of the aftermarket there with product categories that have a lot of overlap with what we do here, so it has really provided tremendous synergies between the two, both top- line and bottom- line synergies, which happy to talk about if there are any questions related to it. The right side is that Engineered Solutions business, and here what I am showing you is what those end markets are, because while there is a slice there called light vehicle, that is pretty deprioritized for us. We will go after light vehicle business where we think we have a right to win, but that is a tough business, as I think you guys know.
We really pursue other end markets more going into commercial vehicles and farm and industrial and those that are a little more suited to our type of company. Just last slide before we open it up, just what do we do with our cash? How do we think about capital allocation? Really, it used to mostly be about the two on the left and the two on the right. After the acquisition of Nissens, we did have to lever up to be able to do that deal. So really, over the last couple years, our focus has been heavily about paying down that debt. We had a target to have our leverage ratio down to 2x by the end of this year.
We are happy to have gotten that done actually a quarter early, but we just announced our third quarter numbers last Friday, and we are actually at 1.8x. So we are very pleased to have successfully been able to get our leverage down to a comfort area that allows us to focus back on the other four pillars here, which is really much more about investing in our business and returning value to you guys. So, our first priority is CapEx, investing back in the business for our future. A lot of that is on machinery and equipment as we bring more production into our facilities, and there is kind of an endless pipeline of opportunities for that. So that is our primary. Our secondary is dividends.
We are proud of having a longstanding history of paying dividends, slightly increasing year- over- year, and it is an important part of our priorities. On the right side is really kind of a toggle. If there is M&A opportunities, that is where the cash goes, and that is always going to be opportunistic. If there is nothing to buy, that is when we look at share repurchases. So, that is kind of the lay of the land, and with that, I will sit back down and open it up to you, Eddie.
Perfect. Great overview. Thank you for that. Actually starting off, you did report earnings last week, and the stock reacted positively, rightfully so. Maybe just touch on some of the key highlights from the report.
Yeah, we were pleased with the quarter and really the year- to- date so far. As we think about how the different segments performed, three out of the four showed very nice improvements at the top- line. The one that didn't was actually for a very good reason. That was our Temperature Control business. Temp Control, as you can imagine, is highly seasonal. It's largely air conditioning. There can often be an offset of when customers bring in the inventory to their shelves and then when they sell it through. This past 2026, very strong preseason orders. We were way up at the half, and then when the summer hit in the third quarter, they were really selling off of their shelves more. If you look at us on a year-to-date basis, we're still up mid-single- digits in Temperature Control.
Top line, we're very pleased with how things played out, and we also had very strong bottom- line results. One of the things that we are proud of is our ability to generate cash and pay down that debt. I would call those kind of the very high-level high levels.
We talked about it, and you mentioned it, how you have evolved from a primarily North American automotive business to more globally. Maybe out of the four segments, just talk about how you're viewing the current portfolio and where you're seeing the most opportunities moving forward.
Well, first of all, the intent of that diversification away from our North American aftermarket, important to note, that is by no means deprioritizing the aftermarket. It's a wonderful space. We're a primary player in here, major supplier to all the distributors. That continues to be a growth engine for us, without a doubt. The diversification play to go into those other two segments was really about how do we find proper adjacencies where there's genuine synergies. We're not just going to add business for the sake of business. It has to really tie to what we do. We found these two areas to be good ways to find new markets while also very much complementing our core business.
As you think about the white space, getting into Europe, when we chose to go there, we said, "We need to go in a big enough way that now we have something to build on." That's what Nissens was, and we see Europe as really being a great place for us. I know as a market, it's had some challenges. Overall, we have not experienced that, largely because of how Nissens executes. In the Engineered Solutions space, that's truly wide blue ocean. Endless end markets, global, and we have a tiny market share. So, we'll be selective. We have to choose areas where we think we have something to sell. But we see now that we have these three legs of the stool, a lot of growth potential beyond just working within one mature market.
Yes, I wanted to touch on Nissens because I do think that's a great opportunity for you guys. Can you just touch on how the synergies have been going and what's exceeded your expectations with Nissens? Is it kind of the operations there themselves, or is it accelerated synergies than you expected?
It's really both. I think it does start with the fact that it's just a really strong company in its own right. It's very well run, it's very well regarded. We knew that we were going into a brand new market. We couldn't go in with a fixer-upper. We needed to find one that was really a performer that we could lean on and then support it with the synergies to then help them do even better than they were doing without us. Now that becomes the next chapter, is how do we think about those synergies? It's really on the bottom- line because there's those overlapping product categories. It allows us to combine our spend and really work on costs, and we've been successful there.
But really what I am more excited about, Eddie, is growth potential in taking advantage of what each of us has in our product portfolios that lend itself to cross-selling. In Europe, we launched two new product categories for Nissens that were really strong categories for us here in North America, allowed us to accelerate their ability to take it to market. One was a Vehicle Control product, one was a Temperature Control product. Then two months ago at Automechanika, we launched another category for them. That was a big one for us here. Here in AAPEX, they have helped us launch something. If you do have a chance to come by our booth, they have helped us get into air conditioning condensers. Big category for them, frankly, a gap in our portfolio.
We have actually been talking to a lot of customers over the last couple days, and it seems to be being very well received. That is what excites me most about the combination, is how do we help each other grow, take advantage of best practices, and really leverage the strengths of each of us.
Eric, I guess, could you talk a little bit about market share trends? I think you are outgrowing the underlying market, either that is because you have got line extensions or a partner base that is doing relatively better at retail than some of the competition. But if you think about your growth rate year- to- date versus the categories that you participate in, do you have any math on share gain?
Sure. It is a good question, Bennett. I assume you are talking about here in North America.
North America, yeah.
Yes, we have been performing well in our categories. I think some of that is on the strength of what we do, but some of it is absolutely riding the coattails of our good customers as they take share. Now we are the primary supplier of pretty much everybody out there, so share shifts do not always necessarily. Sometimes that is left pocket, right pocket for us. But really, our three main customers here, AutoZone, O'Reilly, and NAPA Genuine Parts Company, they are all, especially the first two, are really doing fantastic, and we are growing with them. We have been, as we broaden our portfolio, it tends to be well received by them, and it gives them something additional to sell.
I would put half of it on us and what we have done well for them, but a lot of it is having great partners and strong partnerships with them, and we go to market together.
Talking about some of the new product launches that you guys have announced, can you just talk about how the ramp of those differ from some of your typical yearly new product updates or upgrades?
Sure, and it is different. Historically, we were much more focused as we thought about new product introductions on what is the latest technologies coming out of the car manufacturers, and we always want to be first to market. Our categories are very broad, especially on the Vehicle Control side, where we say, "Okay, what are the new emissions controls devices that they are putting? What are the new safety devices? We want to be there first, be first to market." But what that does tend to mean is that sales start really small. We are going into something that really has not hit any maturity yet. Nissens, frankly, had been better than us at bringing to market a category that was already a good, strong category in the market. It means now you have to displace somebody.
But they were able to, I think, in some ways, they have always been successful at that, and that is why we feel very good about the categories that we have launched for them over there. But I think that they are also showing us that we can do that here as well.
Taking a step back and looking at the business as a whole, thinking about your guys' ideation process and kind of your philosophy on having a full line coverage, talk about how that benefits your company and how that creates a competitive advantage for you.
Yeah. Full line, being a full line supplier basically meaning having all the parts for all the cars, tens of thousands of SKUs. So within existing categories, it is easy to have the fast movers. We are committed to having all the parts for that category, but it also is, as I was saying, it is bringing new categories to market so that our customers do not have to say, "Who is going to be my EVAP guy?" They know that we are there for them. I believe that is one of the biggest competitive advantages that we have. It is really a moat. It is very hard to do what we do.
It creates tremendous complexity, and it also makes it hard for somebody to displace us because especially as we are seeing more and more of the volume going DIFM, it is all about having that comprehensive coverage for whatever car rolls into a bay. The distributors want to never say no. Having that broad coverage, very long tail, is a real competitive advantage for us.
Eric, you are having a very different experience with the European aftermarket than most. Talk again just about Nissens and what it is about that business that is seeing what has to be some market share gains in Europe as well. Does that end up, when you get your leverage to where you want it to be, does that become a launching point for other bolt-ons for the continent?
Yeah. There is no doubt about it that we are gaining share over there, and I think it is because it is a company, similar to us over here, with very well-regarded brands, and that brand equity has really helped them displace others and gain more share of wallet. Also, and we talk about this a lot here as well, they are in good categories that will tend to outperform. So it is the same non-discretionary. That is where you see a lot of the market strains on both sides of the ocean, is in discretionary products or deferrable maintenance-related products. If you are in hard failure, break-fix parts, like we are and like Nissens are, it tends to outperform in tough times. Because they have that strong brand presence and market presence, I do believe, Brian, it is an opportunity to find appropriate bolt-ons. We do look.
It has to be also a smart category that fits, that makes sense, that has synergies. Whether that is a bolt-on acquisition or doing it organically like they have been successfully able to do, we see a lot of growth potential there.
You mentioned your non-discretionary exposure within the industry, and just given kind of the broader environment we're in and some of the consumer pressures, just talk about your ability to kind of offset some of the pressures that other companies are seeing, or maybe on the DIY side.
Well, it does start with the fact that we're largely not DIY.
Yeah.
A lot of our products are harder to even diagnose the problem and then harder to repair. So, because the majority of our business does go through the professional repair shops, and it is break-fix, that allows us, I think, to navigate some of those challenges better than if it's front room product or DIY-heavy product, or something where there is good, better, best opportunities where the end consumer is going to say, "Maybe I can't afford the better or best. Let me go with the good." So we don't see some of those pressures nearly to the level that some do.
Got you.
So just basically follow- up on that question, but looking at domestic, you mentioned the leading retailers you work with. What are you seeing from an end demand perspective at this point? Then, I guess, how should we think, how has that basically progressed throughout the year? Also, just another bigger topic, with regard to trade, price increases, and to the extent you have to adjust prices, how is that going?
Sure. So first, in terms of how are our customers doing on their sell-through, really in both of our categories, we've seen positive POS really month-over-month. It may be coming down a little bit. The third quarter was more in the low- single- digits, where previously it had been more maybe mids. Some of that is pricing, but a lot of it is just good, strong sell-through unit demand. So I think, again, that's testimony to them doing well, them taking share, but also being in categories that don't see demand destruction in tough economic times. I guess your other question was about costs and navigating the market in terms of our ability to price and so on. Is that where you were heading with that? Look, it's a tough competitive market. Obviously, we don't have Well, we have a really strong program and strong partnerships.
We know that there are people gunning for us, and so pricing is always tough to get. Over the last year and a half, the story has really been about tariff pass-throughs, more about accommodating any inflationary headwinds. I think we've had a very well-received program with our customers on tariff pass-throughs, where it's been very transparent. It's been dollar- for- dollar. If they've gone up, we've gone up that amount. If they've gone down, we've lowered it that amount, and we've really gotten some kudos from our trading partners on that level of transparency and fairness.
As it relates to what potentially is the next chapter, which is genuine cost input inflation, which we are seeing across a host of different inputs, we really need to tackle that through a combination of pricing, but also on our own backs of cost reduction initiatives, where there's That's an ongoing thing we do, but there's still always opportunities on value engineering, finding new sources, really working our internal cost to be able to put some of it on our own back. So, pricing will be tough. We'll do what we can, but we don't feel it's going to be something we can't overcome with the combination of price and cost reduction.
On that trade and pricing dynamic, as we see that fluctuate, how does that change your expectation on volume? Say, if prices decrease, that could impact the elasticity.
Yeah, so our products really don't have an elasticity issue, for a number of reasons, and I've kind of hit on them in different ways already. But A, they're non-discretionary. B, they're largely professionally installed, so that purchasing decision is being made by a repair shop that does not want to compromise quality. And C, because our types of products are kind of opaque for that car owner. If you just think about in your own experience, if your car isn't operating properly and you take it to a shop, you have no idea what's wrong with it, let alone that you needed a coil, and let alone what a coil used to cost and what it costs now. So, it really allows it to not be price-sensitive at the consumer level.
We obviously have to It is price-sensitive compared to up at our level, the supply chain, compared to competitors.
In this trade environment, can you talk about your ability to use your third-party suppliers as a lever, as the trade environment becomes more volatile or unpredictable?
Not sure I understand the question. How much pressure can we put upstream for them to share in this? Is that what you are asking?
Just on a footprint aspect.
Well, look, we, especially due to the breadth of our offering, both in terms of finished goods SKUs, but also all the components that we source for our factories, there is always opportunities to continue to work that footprint, whether it is our own footprint or with our supply base. And while I think we have done a great job of pursuing cost reductions globally, there is always more opportunities.
Last year, we had a major aftermarket supplier undergo some pretty considerable stress and.
That's an understatement.
Yeah. I think they had the flu, and the market assumed you also had a cold, by association. What impact has the First Brands saga had on maybe any customer relationships or how you go to market or financing agreements? Are there still ripples of it through what you all see?
Yeah, it really was a non-event for us. It was certainly painful for some. It was beneficial for some who were in product categories that were able to benefit from that implosion. We didn't compete with them on any product categories, so we didn't see any of that. In terms of what kind of psychological impact, is kind of, I think, what you're asking, did it have on the market? Did it put any cloud over it or cloud over supply chain financing programs or whatever it was? Really, it was quickly recognized that it has nothing fundamentally wrong with supply chain financing. It's that they were fraudsters.
Yeah.
It really didn't have any impact at all, Brian.
Thinking about your cost structure on the [SG&A] side, it has been elevated with the distribution costs with the new Shawnee distribution center. Talk about where you expect the [SG&A] distribution costs to go from here.
We did stand up a new distribution center in Kansas a couple years ago, and so it has really been on that ramp. During that journey, it has caused some elevated costs through inefficiencies and some duplication while we are still winding down the previous distribution center. Much of that is behind us. We certainly still have work to do to improve efficiencies there. The next chapter is bringing more product categories in, bringing some Temperature Control product in, which will help get even further absorption, more volume through the DC. There will be ongoing permanent costs associated with it, and this was never designed to be a cost play. This was about capacity expansion, because we were just out of space, and risk mitigation, which allowed us to have some redundancy of product categories in more than one location.
The main ongoing costs, our old DC was wholly owned and fully depreciated, and now we are in a leased facility, so you will see lease expense. We put a huge amount of automation into this, and so there will be a good amount of depreciation. That is somewhat offset by the fact that this is much more automated, so you will have better efficiencies. Plus, by getting further west, it allows us to service our West Coast customers at a lower cost. The ongoing cost will be in the low- single-digit millions of dollars.
In connection with that, CapEx ran a little higher in 2024 and 2025. I guess highlight what maintenance CapEx is like, and then if there are any expectations for any capital projects in the near- term.
Yeah. Just in terms of the word maintenance CapEx, the majority of our CapEx, and I kind of alluded to this when I was talking about the capital allocation levers, is our CapEx, probably 80% of it is not what I would call maintenance. It is actually investing in new equipment, tooling, production equipment. I think of maintenance as putting a new roof or a parking lot or replacing forklifts. I would put that at 80/20% maintenance, 80% actually investing in our future. You are right. Now that that big CapEx of the DC is behind us, we will go to a more normalized run- rate of, what is it, Tony, maybe $25 million, $30 million?
$30 million, $30 million-$35 million.
How do you, within your portfolio, and I know we are bumping on time, but we got a little bit of cushion. How do you deal with product obsolescence or the concern that somewhere in the powertrain, we may see some changes down the road? I know you are handling a vehicle park that is 30 years of parts coverage, or 20 anyway, but how do you concern yourself with where the market is going there?
In terms of inventory management-
Maybe, yeah.
Obsolescence? I just got
Product obsolescence, yeah.
One of the things that, because the car park is so old and stable, you really don't see much in form of obsolescence. There is the potential for excess, where demand starts to deteriorate. So, obviously for us, that's fully reserved for. But it's an inventory-intensive business, and one of the things we've actually seen from a lot of our customers is an expansion of that, as it's really about having that best inventory forward deployed closest to the repair shop. There's a deepening and a widening of inventory out in the field, but it's all done surgically with tools to say what's the right mix in the right place. I'm not worried about it. We've been doing this forever.
Long time. Thank you very much.
Yeah, thank you, Eric, Tony. We're bumping on the time, but we really appreciate you guys coming here for 50 years in a row, and looking forward to 51.
I haven't done 50 years. Of course. All right, thank you, guys.