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Motorcar Parts of America, Inc. Message Board

  • littlefishleonhard littlefishleonhard Jun 16, 2010 12:15 AM Flag

    A couple MPAA thoughts:

    Should probably clarify a few things in the quarter.

    For one, interest expense fell sequentially by quite a bit from about $1.7 mill to about $1 mill.
    The previous Q had high interest expense because they took a huge chunk of ARs and factored them applying the factoring discount charge to interest expense (factoring agreement of major customer came back online).

    Because there was such an inordinate amount of ARs factored in fiscal Q3 (about $35 mill), I think some people worried about interest expense going forward.
    I know I did shortly after Q3 CC cuz I thought the CFO mentioned something about the interest expense # being somewhat normalized when asked on the CC but can't recall exactly.

    At any rate, it became pretty apparent the hefty fiscal Q3 interest expense of approx $1.7 mill was because of the large amount of ARs factored for just Q3 (again I think about $35 mill). So in this interest rate environment I would expect the interest expense to be much closer to the $1 mill mark moving fwd not $1.7 mill.

    Also, they had the lower tax rate this Q which artificially helped earnings. However, as seems to be common with this company, they had an offsetting one time charge expensed in SGA.

    So if we normalize taxes to 40% not 25% and remove the $930K 1 time charge I get op income of about $5.7 mill- the highest for fiscal year 2010.
    And net income x-ing out the one time charges would be about $2.8 mill (assuming 40% tax rate, not the 25% tax rate they had).
    That would be EPS of around 23.5 cents for the Q using more normal parameters of 40% tax and removing 1 times. Not bad EPS for core ops even for a good Q IMO!

    Hoping we can sustain GMs above 30%. Sounded like in the CC Joffe kinda mentioned 29% annual GM rate as a good baseline # going fwd.

    Dang, nobody wants to put any value into the close integration we have with multibillion dollar sales auto parts customer registers and supplying them with product on demand/time?
    No value in the strong customer lists?
    The long term supply contracts?

    And on top of that if we put a big fat ZERO value on those intangibles we also have a (much) less than dollar for dollar value on the TANGIBLE assets!
    Ok, so inventory is huge.
    That's part of the territory in supplying/inventorying very large retail customers so what to do?

    I guess proving up the sustained decent profitability (say EPS keeping us under 10 PE going fwd) isn't enough.
    Maybe adding cash thru cashflow to the balance sheet would help but it is a balancing act with such big customers and keeping their needs a very high priority.

    One of these days maybe we'll get our fair value in double digits...

    Was a little disappointed to see Roth only up their target to $10 from $8, big whoopee (or is it poopee?).

    In the meantime I hope the company seriously considers buying back shares not only to boost earnings per share going fwd but also to show people the company itself thinks it is very undervalued and a good investment.

    The placement shareholders that got in in May 2007 at $15 a share to help raise cash to transition the company smoothly to lower overhead areas need the company to step up and show some support on the buy side after this loooong share price attrition cycle!

    Would also be nice in the meantime if mngmnt would also show a willingness to accept lower 'overhead' in terms of compensation until things get rolling with share price more meaningfully...

    Guess only the wealthy survive or however that phrase goes.

    Good luck all long termers.

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    • I'll be curious too if they're buying back.

      I'd be troubled though IF the company was buying back this week on the days insiders were selling chunks with general markets down and then not buy anything on a day like Friday when markets were marginally up but NO insider sales hit (not that I can see) plus the stock was cheaper.
      Would make no sense to me as a shareholder to see a company buy chunks over $7 while insiders are selling and then stop buying any meaningful chunks when stock is under $7 a day or two later.

      IMO a pattern of company buying back on days when insiders are selling would be quite disturbing to me as far as whose interests are at heart with this buyback.

      Not at all saying that is happening and have no reason to believe it is the case but I'm watching.

      Good to see you here Ghmm, we seem to run into each other a fair amount with our investment styles/tastes IMO being somewhat similar.

      Good luck to us :-).

    • Hey LF. I like your thinking in this post... Unfortunately also agree with your thinking in the next. I wouldn't be too disappointed to hear that VP of sales was selling because he is the x-VP :-). I will be really curious to see if the company buys back anything this quarter.

    • Nice analysis. You might be interested in joining our Yahoo group bullfight_2007 where i have recommended MPAA/

      • 1 Reply to bobdaytrader
      • Have a link to your reco for MPAA? Would be curious to read your thoughts. TIA.

        I need to do some more digging on this company re their relationships w/customers, marketing and targeting for stuff like separating their brands (like Quality Built) from all the retailer brands they supply. Also on how they may be trying to target DIFM market currently/going fwd.
        e.g. do they target selling directly to DIFM or is it a large mix of their retailers + them or just the retailer chains advertising and selling into that market? Obvious biz questions but I haven't looked at it much yet and have not spent enough time talking to company people that could explain it all more clearly.

        Seems like while it is a bigger chunk of revs than a couple years ago (DIFM), it has leveled out recently in terms of % of revs growth.
        Not sure if that is just a short term pause or a more meaningful realization of the current efforts kinda butting up against competition and leveling out at that level or what.

        I don't understand their biz model in terms of the interconnectedness to supplying retailers and at same time selling their own brands and how those relationships coexist and/or become competitive at some point.
        These relationships have been in place long enough to make it seem not cannibalistic and that coexisting works.

        Anyhow, if this gets going up more to $8 or more and I start going outside just strict value play and more into understanding company potential gorwth (beyond miles driven and aging cars) I will start digging more to clarify this stuff cuz it will represent a more meaningful part of my small portflio making the effort more 'worth' it :-)

        Also seems like auto parts suppliers (not retailers) including remans have had a long negative attrition cycle on Wall St that might be starting to turn around in terms of investor sentiment.

        If we are just starting to embark on a renewed interest by Wall St in this sector as a good defensive but growing biz segment, then I would expect we could see some momentum push into this eventually and carry it past valuation as an IMO strict value play currently.

        Would be nice if it were a renewed multiyear investor push back into this biz segment like what we've seen in the auto parts retailers :-)

        Good luck.

    • In a previous post I mentioned that the sellers of the parts are the only ones getting credit for the sale. For the big retail guys to be successful they must have vendors that can keep up. MPA is certainly keeping up and at some point the street will have to see that.

      • 1 Reply to aftermarket_guy
      • Yep, I recall you mentioning SMP and someone else as suppliers to these retail chain bigs.

        The retail chains with maybe the exception of Pep Boys have been on fire themselves, many hitting multi-year or even all-time highs in this rough market.

        Would be nice if we could get some kind of leverage into raising prices just a little with the customers continually doing so well.
        When will it be our turn as their suppliers to catch a little of their shine? Or will we ever? In the meantime I'll wait patiently.

    • I don't have a lot inspiring to add. This has been a very good stock for me as I have had a core position in it since it was in the high 3's. I was lucky to discover it at that level rather than in the teens (but don't worry, I took my lumps elsewhere in 2008 and early 2009).

      I agree that the value here will be unlocked at some point. The difficulty is that to pick up a significant stake, you have to be in the market a lot with limit orders at levels you are ok with. Also, to take some profits on the rare news, you pretty much have to do it right on the news cycle when there is enough volume to get you out.

      I am in this one for the long term, but have also been successful selling on news and buying in the long, quiet interims in between. Of course, my danger is I won't have a significant enough stake when this thing finally hits enough radar screens (or gets a takeover bid) and moves into double digits.

      I think I will now just keep a pretty significant stake and buy dips and sell news. We'll see, good luck.

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