Superior Industries Hits the Brakes on Forecast

A slowdown in orders for big sport utility vehicles forced aluminum wheel maker Superior Industries International Inc. on Monday to cut its third-quarter earnings estimate by almost half as its stock fell to a 52-week low.

The Van Nuys-based company, the world’s second-largest supplier of styled aluminum wheels to the major automakers, said it should earn about 20 cents a share this quarter, down from the 39 cents expected by most analysts.

The announcement knocked Superior’s stock to a 52-week low of $29.68 before it closed at $30.04, down $1.53, or 5%, on the New York Stock Exchange. Superior’s shares have fallen 31% this year.

General Motors Corp. and Ford Motor Co., both major Superior customers, said at the beginning of September that they expected their production of new cars and trucks to be off almost 6% for the last half of the year from the same period in 2003.

Although the auto industry’s sales through August were just about even with those last year, most analysts expect a drop in the fourth quarter, with annual unit volume falling to about 16.5 million passenger vehicles, down from 16.7 million in 2003.

Automakers already are struggling with an oversupply of big SUVs and have had to boost incentives to record highs to help move them. GM is seeing fewer orders for its large SUVs such as the Suburban, Tahoe and Yukon, and Ford’s Expedition and Explorer are selling slowly.

About 60% of Superior’s annual production of aluminum wheels is for pickup trucks and SUVs, including models that GM and Ford have targeted for production cuts. Despite the steep decline, analysts said, most of the damage to Superior should be limited to the third quarter.

“It is a great company, but we are in a pretty slow economy right now, and the auto industry is slowing a bit after a big boom. So I don’t consider this a major ordeal” for Superior, said industry analyst Douglas Christopher of brokerage Crowell, Weedon & Co. in Los Angeles.

Jeffrey Ornstein, Superior’s chief financial officer, said the company had booked new contracts to supply wheels to domestic and Asian automakers for 2005 models and expected to see business increase in coming months.

A small part of Superior’s third-quarter drop, he said, was due to costs incurred by delays in restarting production after scheduled factory shutdowns in the summer.

Superior, with 7,500 employees and 11 plants, isn’t the only supplier being pinched. Visteon Corp. and American Axle Inc. both have cut earnings forecasts in the wake of the GM and Ford production cuts.

Hayes Lemmerz International Inc., the world’s largest supplier of aluminum wheels, recently reported a second- quarter net loss of $10 million and blamed part of its poor performance on decreased vehicle orders for the North American market, as well as pricing cuts from automakers intent on slashing manufacturing costs.

“There’s been tremendous worldwide pricing pressure,” Ornstein said. Automakers “are coming to their suppliers looking for savings. They are going to China to find cheaper parts.”

This pressure to cut costs, Ornstein said, is the reason Superior is building a third factory in Mexico; it is expected to be completed early in 2006.

Superior’s flagship plant, with 1,200 employees, is in Van Nuys. The company also has factories in Arkansas, Tennessee and Kansas and is a partner in a wheel plant in Hungary. Ornstein said cost-cutting pressure from automakers was forcing the company to look abroad for lower land and labor costs.

Superior also is considering starting a factory in China. Wheels are bulky and expensive to ship, but labor savings apparently make up for the added cost.