Earnings call transcript: Motorcar Parts misses Q4 2025 EPS forecast, shares fall

Motorcar Parts of America Inc. (MPAA) reported a disappointing fourth-quarter performance for fiscal year 2025, missing analysts’ expectations on both earnings per share (EPS) and revenue. The company’s EPS came in at a loss of $0.04, falling short of the anticipated $0.47. Revenue also missed projections, reaching $193.1 million against a forecasted $197.4 million. In response, the stock dropped 15.52% to $11.92 in pre-market trading, though it saw a slight recovery of 5.54% in the premarket session to $12.58. According to InvestingPro data, despite recent volatility, MPAA has delivered impressive returns of over 134% in the past year, with the stock currently trading below its Fair Value, suggesting potential upside opportunity.

Key Takeaways

• Motorcar Parts reported a Q4 EPS loss of $0.04, missing the forecast of $0.47.
• Revenue reached $193.1 million, below the expected $197.4 million.
• The stock price fell 15.52% post-earnings but rebounded 5.54% in premarket trading.
• The company reduced its net bank debt by $32.6 million.
• Fiscal 2026 sales are projected to grow between 3.5% and 6%.

Company Performance

Motorcar Parts of America experienced a mixed performance in the fourth quarter, with net sales rising 1.9% to $193.1 million and gross profit increasing by 10.6% to $38.5 million. Despite these gains, the company struggled with profitability, resulting in an EPS loss. InvestingPro analysis reveals a solid gross profit margin of 20.62% and healthy liquidity with a current ratio of 1.45, indicating strong operational fundamentals despite temporary profitability challenges. The aftermarket parts industry continues to benefit from favorable long-term trends, such as the aging U.S. vehicle fleet and increased vehicle registrations.

Financial Highlights

• Revenue: $193.1 million, up 1.9% year-over-year
• Gross Profit: $38.5 million, up 10.6% year-over-year
• Operating Cash Flow: $45.5 million
• Net Bank Debt: Reduced by $32.6 million to $81.4 million

Earnings vs. Forecast

Motorcar Parts reported an EPS of -$0.04, significantly below the forecasted $0.47, marking a substantial miss. Revenue also fell short of expectations, coming in at $193.1 million compared to the anticipated $197.4 million. This deviation from forecasted figures highlights challenges in meeting market expectations.

Market Reaction

Following the earnings release, Motorcar Parts’ stock dropped by 15.52% to $11.92. However, the stock showed resilience, recovering 5.54% in premarket trading to $12.58. This movement reflects investor concerns over the earnings miss but also some optimism about the company’s strategic initiatives.

Outlook & Guidance

Looking ahead, Motorcar Parts projects fiscal 2026 net sales to range between $780 million and $800 million, indicating growth of 3.5% to 6%. The company remains focused on organic growth, margin improvement, and debt reduction. It also plans to continue expanding its presence in the Mexican market and developing its heavy-duty market offerings. InvestingPro subscribers have access to 8 additional exclusive ProTips and comprehensive analysis of MPAA’s growth potential, including detailed financial health scores and peer comparison tools. Get the full picture with InvestingPro’s detailed research report, available for over 1,400 US stocks.

Executive Commentary

CEO Selwyn Joffe expressed confidence in the company’s future, stating, "We remain bullish about our outlook." He emphasized strategic adjustments made to reduce dependency on the Chinese supply chain. CFO David Lee highlighted ongoing efforts to cut costs, saying, "We are constantly focused on reducing our costs."

Risks and Challenges

• Supply Chain Dependence: Despite reducing reliance on China, supply chain issues remain a concern.
• Tariff Impacts: While tariffs are seen as a strategic advantage, they could also pose risks if not managed effectively.
• Market Competition: Increasing competition in the aftermarket parts sector may pressure margins.
• Economic Conditions: Macroeconomic pressures could impact consumer spending on vehicle maintenance and parts.

Q&A

During the earnings call, analysts inquired about the impact of tariffs and price increases on customer relationships. Management noted that price hikes have been largely accepted by customers, and tariffs are viewed as a competitive advantage. Analysts also questioned the company’s strategies for margin expansion, to which executives responded with plans for cost reductions and volume increases.

Full transcript - Motorcar Parts of America Inc (MPAA) Q4 2025:

Regina, Conference Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Motorcar Parts of America Inc. Fiscal twenty twenty five Fourth Quarter and Year End Conference Call. All lines have been placed on mute to prevent any background noise.

After the speakers’ remarks, there will be a question and answer session. I would now like to turn the conference over to Gary Mayer, Vice President, Corporate Communications and Investor Relations at Motorcar Parts of America. Please go ahead.

Gary Mayer, Vice President, Corporate Communications and Investor Relations, Motorcar Parts of America: Thank you. Thank you, Regina, and thanks, everyone, for joining us for our call today. Before we begin and I turn the call over to Selwyn Joffe, Chairman, President and Chief Executive Officer and David Lee, the company’s Chief Financial Officer, I’d like to remind everyone of the Safe Harbor statement included in today’s press release. The Private Securities Litigation Reform Act of 1995 provides the Safe Harbor for certain forward looking statements, including statements made during today’s conference call. Such forward looking statements are based on the company’s current expectations and beliefs concerning future developments and their potential effects on the company.

There can be no assurance that future developments affecting the company will be those anticipated by Motorcar Parts of America. Actual results may differ from those projected in the forward looking statements. These forward looking statements involve significant risks and uncertainties, some of which are beyond control of the company and are subject to change based upon various factors. In particular, expectations about anticipated future growth and opportunities with customers may not be achieved. The company undertakes no obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise.

For a more detailed discussion of some of the risks and uncertainties of the business, I refer you to the various SEC filings. With that said, I’d like to turn the call over to Selwyn Jopf.

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: Great. Thank you, Gary. I appreciate everyone joining us today. Before we go over our strong results, and by the way, we’re off to a strong start for this quarter, I’d like to first address tariffs. We have substantially mitigated the current tariffs with customer price increases and supply chain initiatives.

We are confident that all the current tariffs imposed as of today will be fully offset notwithstanding some short term timing differences. We believe these tariffs will provide us strategic competitive advantages going forward with strong market share growth opportunities. We are certainly excited by our accomplishments for fiscal twenty twenty five with net sales increasing 5.5% to a record $757,000,000 and gross profit increasing 16.1% to a record $154,000,000 along with solid cash flow generation from operating activities of $45,500,000 and net bank debt reduction of $32,600,000 all of which David will review shortly. In addition, we repurchased 542,134 shares for $4,800,000 at an average of $8.91 in fiscal twenty twenty five and we anticipate further opportunities to enhance shareholder value through strong cash generation. Our team focus continues to be focused on continuous improvements and we’re excited by the opportunities.

Notwithstanding the current challenges with regard to tariffs, the non discretionary nature of our product portfolio coupled with a significant North American manufacturing footprint will continue to drive our long term success. I should note that we have been focused on executing strategies designed to enhance our competitive edge long before the current events, including a focus on being less dependent on Chinese supply chain, whether components or parts and providing industry leading product fill rates. As we noted in today’s press release, Chinese suppliers today provide less than 25% of our products and components and we continue to work to mitigate the impact of tariffs. I might add that our Mexican and Canadian products are USMCA compliant and currently free from tariffs. We look forward to further clarify about tariffs as we continue to focus on serving our customers and achieving our financial performance targets.

As I mentioned during our call last quarter, our hard parts business led by rotating electrical 50 plus euro flagship category continues to generate solid performance. The non discretionary nature of our products, alternators and startups, for example, cannot be deferred. If non discretionary products are broken, your car cannot be driven, which is particularly relevant in the current environment. According to industry reports, the average age of U. S.

Light vehicles has risen to 12.8, an increase of two months for the second consecutive year. Research indicates that vehicle registrations in 2024 surpassed 16,000,000 for the first time since 2019, exceeding scrappage rates. In addition, the number of vehicles on the road climbed to two eighty nine million, remaining a favorable tailwind. We expect increased replacement opportunities for the life of vehicles, particularly with consumers holding on to their cars for longer. We are encouraged by the continued success of our second largest product category, brake related applications, supported by our quality, customer service and capacity to meet demand.

Our team is doing an exceptional job to further enhance market share and we look forward to continued sales growth for this important non discretionary product category. As I previously mentioned and as referenced in the exhibits to our earnings release, there are various factors relating to our financial performance that are non cash and beyond our control, particularly the current sharply unfavorable non cash mark to market foreign exchange loss from Mexico lease liabilities and forward contracts for the year. A strengthening dollar versus the peso results in large non cash mark to market expenses, which we internally eliminate when evaluating our underlying results. We are continuing to look at opportunities to minimize these non cash expenses, such as gains or losses related to foreign exchange, including funding our Mexican operations with pesos from our sales in Mexico. As our sales in Mexico continue to grow, we have reduced our purchases of forward peso contracts.

We expect over time we will eliminate the need to purchase these contracts. We remain focused on sales growth, profitability and neutralizing working capital. As I noted earlier, we expect our sales and profitability will continue to grow organically. We continue to leverage our strengths, particularly during these challenging times, offering our customers great products manufactured at state of the art facilities, industry leading SKU coverage and order fill rates, supported by value added merchandising and marketing support. Our quality built brand is gaining market share within the professional installer market.

This increasingly recognized brand includes brake related products such as calipers, pads and rotors. As volume increases for our hard parts business, we expect enhanced operating efficiency and margin improvement. With regard to our heavy duty business, we continue to leverage our reputation and industry position in this market, particularly with regard to supplying alternators and starters to our channel partners who are leaders in the heavy duty aftermarket segment. Our growth opportunities continue to gain momentum across multiple platforms such as agriculture, Class eight trucks, refrigeration, construction, material handling and transitmotor coach. Our Dixie brand is also evolving as an important supplier to the heavy duty rotating electrical market.

Our hard part sales in Mexico continue to gain momentum as we experience increased demand for our aftermarket parts. The rate of growth in this market is exciting and we are well positioned to utilize our footprint to meet the growing demand. We are focused on increasing share in this region and continue to benefit and grow sales by our relationships with U. S.-based retailers and warehouse distributors, both are gaining a presence in this emerging market as our Mexican distributors. With regard to our diagnostic business, we continue to experience great success with our JBT-one benchtop tester and we remain focused on expansion to meet our customer needs.

Additional service related revenue is expected as more testers are deployed, which includes repair software and database updates. These contributions will increase as the installed base matures. We also expect more opportunities outside North America as the business evolves. In short, favorable long term industry dynamics continue to bode well for the company and we extremely well positioned for sustainable top and bottom line growth. As I mentioned, the outlook is bright for nondiscretionary aftermarket parts for the internal combustion engine market, and we are focused on leveraging our ability to offer a broad range of applications for all makes and models, whether newer or older vehicles.

Tariffs continue to cause uncertainty. Despite these challenge, we expect rational prices for our products from our customers, particularly in the face of these tariffs, and we remain committed to offering quality, non discretionary products and being a reliable partner. This combined with exceptional value added services will continue to distinguish our organization. Before I turn the call over to David to review our results in greater detail, let me summarize. From a sales perspective, we expect continued organic growth for our business supported by the favorable tailwinds, which I previously mentioned.

Our commercial heavy duty market continues to grow. Our brake related business is gaining further traction, particularly brake calipers. In addition, our sales in the Mexican market are growing nicely, and we expect this momentum will continue and expand throughout the region. And finally, our diagnostic business is growing nicely and we look forward to continued success. From a gross margin perspective, increasing market share gains, particularly for brake related products, should enhance our gross margin targets.

With continued operating efficiencies and supply chain cost reduction opportunities, we expect further margin growth. Finally and most importantly, sales growth, gross margin improvement and an ongoing focus on neutralization of working capital support our ability to further reduce debt, repurchase shares and take advantage of other opportunities to enhance shareholder value.

David Lee, Chief Financial Officer, Motorcar Parts of America: Thank you, Selwyn, and good morning, everyone. I encourage everyone to read the earnings press release issued this morning as well as the 10 ks that we filed later today. Let me reiterate key financial performance metrics for the full fiscal twenty twenty five that we highlighted in this morning’s news release and someone mentioned earlier. Net sales increased 5.5% to a record 757,400,000.0. Gross profit increased 16.1% to a record 153,800,000.0, generated cash from operating activities of 45,500,000.0 and reduced net bank debt by $32,600,000 to $81,400,000 And we repurchased 542,134 shares for 4,800,000.0 Net sales for the fiscal twenty twenty five fourth quarter increased 1.9% to 193,100,000.0 from 189,500,000.0 in the prior year.

Gross profit for the fiscal twenty twenty five fourth quarter increased 10.6% to a fourth quarter record $38,500,000 from $34,800,000 a year earlier, impacted by 4,600,000.0 or 2.4% for certain tariff costs paid for products sold before price increases were effective, as highlighted in our earnings press release this morning. I should mention that gross profit for the quarter was also impacted by non cash expenses. The non cash expenses reflect core and finished good premium amortization and revaluation of cores and customer shelves, which are unique to certain of our products and required by GAAP. The total for these non cash expenses in the quarter was approximately 3,200,000 or a 1.7% impact to gross margin. Gross margin for the fiscal twenty twenty five fourth quarter was 19.9% compared with 18.4% a year earlier.

Aside from higher sales volume, particularly from certain of our newer product offerings, which supports increased absorption of costs, we’re also focused on other initiatives to enhance gross margins. Operating expenses were $22,200,000 compared with $22,600,000 last year, which benefited from a 3,100,000.0 non cash mark to market foreign exchange gain compared with a $1,200,000 non cash mark to market foreign exchange gain in the prior year. Interest expense for the fiscal fourth quarter decreased by $2,100,000 to $12,500,000 from $14,600,000 a year ago, impacted by lower average outstanding balances under the company’s credit facility and lower interest rates. For the fourth quarter, tax expense was $1,900,000 compared with a $1,100,000 income tax benefit for the prior year. The effective tax rate for the fiscal fourth quarter was due in part to the inability to recognize the benefit of losses at specific jurisdictions.

However, we expect these losses will be utilized against future profits, which will benefit future tax rates. Obviously, are various factors impacting the tax effect. Net loss for the fiscal twenty twenty five fourth quarter was $722,000 or $04 per share, reflecting the impact of $4,600,000 or $0.24 per share pretax with tariff costs that I explained earlier in my gross profit discussion. Net loss was also impacted by certain noncash items of $2,600,000 or $0.14 per share, as detailed in Exhibit one. Net income for the prior year was $1,300,000 including the impact of non cash expenses and cash expenses as detailed in Exhibit one.

As previously explained, higher sales volumes and operating efficiencies will further improve results. EBITDA for the fiscal fourth quarter was $16,300,000 reflecting the $3,500,000 impact of non cash expenses and $4,800,000 of one time cash expenses detailed in Exhibit five of this morning’s earnings press release. EBITDA before the impact of noncash expenses and onetime cash expenses mentioned above was $24,600,000 for the fourth quarter. Now let me discuss the twelve month results. Net sales for fiscal twenty twenty five increased 5.5 to a record $757,400,000 from $717,700,000 a year ago.

Gross profit for fiscal twenty twenty five increased 16.1% to a record $153,800,000 from $132,600,000 a year earlier. Gross margin for fiscal twenty twenty five increased by 1.8 percentage points to 20.3% compared with 18.5% a year earlier. Gross margin for fiscal twenty twenty five was impacted by $13,500,000 or 1.8% of non cash expenses and $5,900,000 or 0.8% of one time cash expenses, primarily for certain tariff costs paid for products sold before price increases were effective, as detailed in Exhibit four in this morning’s earnings press release. Net loss for fiscal twenty twenty five was $19,500,000 or $0.99 per share, primarily due to the impact of non cash expenses of 25,000,000 or $1.27 per share and onetime cash expenses of $6,900,000 or $0.35 per share as detailed in Exhibit two in this morning’s earnings press release. Net loss for the prior year period was $49,200,000 or $2.51 per share, including the impact of non cash expenses of $50,300,000 or $2.56 per share and cash expenses of $7,000,000 or $0.36 per share as detailed in Exhibit two.

EBITDA for fiscal twenty twenty five was $50,300,000 EBITDA was impacted by $33,400,000 of non cash expenses as well as $9,200,000 in one time cash expenses, including $4,600,000 for certain tariff costs paid for products before price increases were affected and $4,600,000 for transition and severance costs related to the closure of our Torrance warehouse detailed in Exhibit five of this morning’s earnings press release. EBITDA before the impact of noncash and cash expenses mentioned above was $92,800,000 for the current period. Now let me move on to cash flow and key corporate items. The company generated cash of approximately $45,500,000 in operating activities during fiscal twenty twenty five. We continue to focus on increasing operating profit and gross margin and generating positive cash flow, supported by organic growth from customer demand and operating efficiencies from our global footprint expansion.

In addition to our goal of generating increased operating profits, we expect further opportunities to neutralize working capital, supported by customer product demand planning, enhanced inventory management, and extending our vendor payment terms. Net bank debt decreased by $32,600,000 during fiscal twenty five to $81,400,000 from $114,000,000 Our liquidity remains very strong with total cash and availability of approximately $144,600,000 I should mention that for every one point reduction in interest rates, interest expense for accounts receivable discount programs offered by customers is reduced by approximately $6,000,000 Now let me address our outlook. As stated in our news release this morning, we expect net sales for the fiscal year ending 03/31/2026 to be between $780,000,000 and 800,000,000 representing between 35.6% year over year growth. Operating income is expected to be between $86,000,000 and $91,000,000 representing between 4.310.4% year over year growth. We estimate depreciation and amortization will be approximately $11,000,000 These estimates do not include certain noncash items and onetime expenses and exclude the impact of tariffs recently enacted due to the uncertainty and continuing changes.

For further explanation on the reconciliation of items that impact results and non GAAP financial measures, please refer to Exhibits one through five in this morning’s earnings press release. I would now like to open the line for questions.

Regina, Conference Operator: We will now begin our question and answer session. Our first question will come from the line of Derek Soderbergh with Cantor Fitzgerald. Please go ahead.

Derek Soderbergh, Analyst, Cantor Fitzgerald: Yes. Hey, guys. Thanks for taking the questions. So Selwyn, you mentioned tariffs increasing strategic competitive advantage. Can you just expand on how you see tariffs potentially helping out on market share?

Are you already having those conversations with customers? And what do you think specifically positions you guys better to gain share in the sort of global tariff environment? And then I’ve got a follow-up.

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: Yeah. I think, Derek, I mean, great to hear from you. And I mean, that’s just a question that we’re gonna delay answering for a period of time. But we have adjusted our footprints way in advance of the tariffs to be less dependent on China, and we continue to focus on that with lots more opportunity to come. I think I mentioned to you less than 25% of our imports of our product comes from imported from China.

And so just just inherently, we’re we’re we’re ahead of the game. I think the other thing that’s really important to understand is we ship direct from our factories. And so when it comes to tariffs and cash flow from tariffs, we only pay tariffs when we sell the product. And obviously, once the price increases and these initiatives kick in, that’s cash neutral. I believe that the majority of our competitors house their inventory in The United States and are going to need to replenish inventory with tariff goods.

The cash requirement will be far greater than ours.

Derek Soderbergh, Analyst, Cantor Fitzgerald: Got it. That makes sense. And then as my follow-up, David, just wondering around the customer price increases, wondering how that’s going to impact gross margin. You guys have been expanding margin pretty nicely here. Think fiscal twenty twenty five adjusted gross margin was around 22.5.

You know, with the addition of tariffs and those price increases, do you think you can grow off that for fiscal twenty six? Thanks.

David Lee, Chief Financial Officer, Motorcar Parts of America: That’s a good question. So if we just look at tariffs, if you increase the numerator and denominator, the gross margin would be slightly negatively impacted. However, other initiatives to expand gross margin and increase that margin percentage should offset that impact.

Derek Soderbergh, Analyst, Cantor Fitzgerald: Got it. That’s helpful. Thanks,

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: Thanks, Derek.

David Lee, Chief Financial Officer, Motorcar Parts of America: Thank you.

Regina, Conference Operator: Our next question will come from the line of Carolina Jolley with Gabelli. Please go ahead.

Carolina Jolley, Analyst, Gabelli: Good morning. Thank you for taking my question.

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: Hi, Carolina.

Carolina Jolley, Analyst, Gabelli: So I was hoping for some clarification on the tariff. Is, I guess, what we saw in the quarter a good representation of what we should be expecting? Or are the tariffs moving around so much that it’s hard to really kind of project certain, you know, any certain impact at this point?

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: I think the the timing impact is unpredictable. We we will see a little more of it and, you know, certainly, it it’ll disappear, you know, soon. So, you know, as these as these price increases and initiatives kick in. It’s a little uncertain right now as to the exact timing and what happens with tariffs, so, you know, we can’t give you exact guidance on where that’s gonna go yet.

Carolina Jolley, Analyst, Gabelli: Great. And then also another clarification. The the price increases that you talked about, are those price increases that you’ve already enacted or expected going forward?

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: We have accomplished almost 100% of our price increases have been accepted.

Carolina Jolley, Analyst, Gabelli: Perfect. Thanks. And then last question. Just looking at the guidance, I do believe it looks like you’re expecting some margin expansion next in the fiscal year. Can you just elaborate on some of the the catalyst behind that?

David Lee, Chief Financial Officer, Motorcar Parts of America: So all the initiatives that we’re focused on in in lowering cost per unit, in increasing sales per unit, so we’re constantly focused on reducing our costs.

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: So all Capacity absorption. With more volume. Yes. So our momentum right now is quite strong. So I mean, the natural organic one is overhead absorption, but we’ve got a number of operating initiatives as well that continue.

Carolina Jolley, Analyst, Gabelli: Great. Thank you.

Regina, Conference Operator: And that will conclude our question and answer session. I will turn the call back over to Selwyn Joffe for any closing remarks.

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: Thank you so much. Well, in summary, as you can tell, we remain bullish about our outlook. We remain laser focused on further efficiencies, as we just discussed, and fully benefiting from a not easily duplicated global platform to meet demand for our nondiscretionary products as well as from our diagnostic testing capabilities. We continue to leverage our expertise in solid customer and supplier partnerships. This includes our supply chain vendor finance program that benefits our suppliers.

Our liquidity is very strong and we have the resources, capacity and capability to further enhance shareholder value. In closing, I must recognize the contributions of all of our team members who are continuously focused on providing the highest level of service. We are all committed to being the industry leader for parts and solutions that move our world today and tomorrow. We also appreciate the continued support of our shareholders and thank everyone again for joining us for the call. We look forward to speaking with you when we host our fiscal twenty twenty six first quarter call in August and at various investor conferences including tomorrow and future meetings Wednesday.

Sorry. Not tomorrow. I’m a day ahead of myself.

Regina, Conference Operator: Thank and gentlemen, that will conclude our call. Thank you all for joining, and you may now disconnect.

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