Earnings call transcript: Motorcar Parts’ Q1 2026 sees stock surge despite EPS miss

Motorcar Parts of America Inc. (MPAA) reported its first-quarter results for fiscal year 2026, revealing a significant revenue beat but missing on earnings per share (EPS) expectations. The company posted an EPS of $0.15, falling short of the forecasted $0.31, marking a surprise of -51.61%. Despite this, the company’s revenue exceeded expectations, coming in at $188.4 million against a forecast of $180.1 million. Following the earnings release, Motorcar Parts’ stock saw a notable pre-market increase of 18.53%, reaching $13.37. According to InvestingPro, the company maintains a "GOOD" overall financial health score of 2.56 out of 5, with particularly strong momentum in recent months.

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Key Takeaways

• Motorcar Parts reported a record first-quarter revenue of $188.4 million, a 10.9% increase year-over-year.
• EPS was $0.15, missing analyst expectations by 51.61%.
• The stock price surged 18.53% in pre-market trading despite the EPS miss.
• The company reduced net bank debt by $7 million to $74.4 million.
• Guidance for fiscal year 2026 was increased, with expected sales between $800 million and $820 million.

Company Performance

Motorcar Parts demonstrated robust performance in Q1 FY2026, achieving record net sales and a significant improvement in gross profit and operating income. With trailing twelve-month EBITDA of $66.2 million and revenue of $757.4 million, the company continues to benefit from strong demand in the automotive aftermarket, driven by an aging vehicle fleet in the U.S. The firm has also expanded its distribution footprint across North and Latin America, enhancing its competitive position in key markets. The company’s gross profit margin stands at 20.3%, reflecting operational efficiency improvements.

Financial Highlights

• Revenue: $188.4 million, up 10.9% year-over-year
• Gross profit: $33.9 million, up 16.3% year-over-year
• Net income: $3 million, compared to a net loss of $18.1 million in the prior year
• Operating income: $20.1 million, up from an operating loss of $6.5 million

Earnings vs. Forecast

Motorcar Parts’ Q1 EPS of $0.15 fell short of the forecasted $0.31, resulting in a negative surprise of 51.61%. In contrast, the company exceeded revenue expectations, reporting $188.4 million against a forecast of $180.1 million. This revenue beat suggests strong operational performance, likely contributing to the positive market reaction despite the EPS miss.

Market Reaction

Following the earnings announcement, Motorcar Parts’ stock price jumped 18.53% in pre-market trading, reaching $13.37. This surge reflects investor optimism, likely driven by the company’s revenue beat and positive guidance. The stock has demonstrated remarkable momentum, with a 48.4% gain year-to-date and an impressive 87.4% return over the past year, according to InvestingPro data. The stock’s current trading level suggests it’s fairly valued based on InvestingPro’s Fair Value analysis.

Outlook & Guidance

Motorcar Parts has revised its sales guidance for FY2026 upwards, projecting revenues between $800 million and $820 million. The company reaffirmed its operating income guidance of $86 million to $91 million, highlighting expectations of continued organic growth and margin improvement.

Executive Commentary

CEO Selwyn Joffe emphasized the company’s strategic focus on non-discretionary automotive parts, stating, "Non-discretionary parts cannot be deferred. If parts fail, your car cannot be driven." He also highlighted the company’s growing importance in the heavy-duty rotating electrical market and its commitment to operational efficiencies.

Risks and Challenges

• Supply Chain Dependencies: Reducing reliance on Chinese suppliers remains a priority.
• Tariff Impacts: Although mitigated, tariffs still pose a financial burden.
• Market Saturation: Increasing competition in the aftermarket parts sector could impact growth.
• Economic Conditions: Macroeconomic pressures may affect consumer spending on auto parts.

Q&A

During the earnings call, analysts inquired about the impact of tariffs, which have decreased significantly from $4.6 million to $1.4 million in Q1. Questions also focused on growth opportunities in the professional installer market and the potential for expanding brake product lines.

Full transcript - Motorcar Parts of America Inc (MPAA) Q1 2026:

Lacey, Conference Operator: Hello, and thank you for standing by. My name is Lacey, 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 six First Quarter Conference Call and Webcast. All lines have been placed on mute to prevent any background noise.

After the speakers’ remarks, there will be a question and answer session. Thank you. I would now like to turn the conference over to Gary Mayer. You may begin.

Gary Mayer, Unnamed Executive, Motorcar Parts of America: Thank you, Lacey, and thanks, everyone, for joining us for our call today. Before 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 the company.

Actual results may differ from those projected in these forward looking statements. Forward looking statements involve significant risks and uncertainties, some of which are beyond the control of the company and subject to change based on various factors. In particular, expectations about anticipated future growth and opportunities with customers may not be achieved. The company undertakes no obligation to publicly 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 ongoing risks and uncertainties of the company’s business, I refer you to the various filings with the SEC.

I would now like to begin the call turn it over to Selwyn to begin.

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: Thank you, Gary. I appreciate everyone joining us today. We’re off to a solid start for fiscal twenty twenty six. We’re encouraged by our first quarter performance, reflecting record net sales and gross profits for our fiscal first quarter. Equally important, we generated solid cash flow from operating activities, reduced net debt net bank debt and continued to repurchase shares.

All of this underscores our commitment to success as a leading supplier of non discretionary automotive aftermarket parts. Our team is focused on continuous improvement and success. We’re excited by the opportunities for growth. We offer a well respected portfolio of products and services and have the capacity and ability to further leverage our state of the art North American operational and distribution footprint. Our hard parts business led by rotating electrical fifty plus year flagship category continues to generate solid performance.

Non discretionary parts cannot be deferred. If parts fail, your car cannot be driven. According to industry reports, the average age of U. S. Light vehicles has risen to twelve point eight years from twelve point six years in 2024.

In addition, the number of vehicles on the road climbed to 293,500,000 from two eighty nine million just a year ago. We expect increased replacement opportunities for the life of the vehicle, particularly with consumers holding on to their cars for longer. We are encouraged by the continued success of our second largest product category, brake offerings, which includes brake calipers manufactured at our state of the art production operation in Mexico. Our team is doing an exceptional job to further enhance market share for the entire brake product line, as well as all of our other non discretionary product offerings. We continue to leverage our strengths, offering our customers great products, industry leading SKU coverage and order fill rates, supported by value added merchandising and marketing support.

In short, we are all committed and focused on our customers, offering quality products and services with rational pricing. All of our products are offered to the professional installer market under our quality built brand and we are gaining market share. As production volume increases for certain newer hard products such as brake related offerings, 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.

We are becoming an increasingly important supplier to the heavy duty rotating electrical market with multiple opportunities to expand our quality built brand name to this market. We continue to experience increased demand for our aftermarket parts in Mexico, which complements our existing strategic and operational and distribution footprint there. As our U. S. Based retailers and warehouse distributors, customers expand through Latin And South America, we are well positioned to support their growth and benefit.

With regard to our diagnostic business, our JBT-one benchtop tester leads the industry and the installed base is continuing to grow. Additional service related revenue is expected as more testers are deployed, which includes repair software and database updates. We also expect more opportunities outside North America as the business evolves. We continue to work on mitigating tariffs with customer price increases and important cost reduction initiatives, including strategic supply chain sourcing changes. From a positive perspective, we believe tariffs present some strategic competitive advantages given the strength of our North American footprint and being USMCA compliant.

I should emphasize that we have been focused on executing strategies designed to be less dependent on Chinese supply chain for a number of years, whether it be components or parts. In short, favorable long term industry dynamics continue to bode well for the company and we are extremely well positioned for sustainable top and bottom line growth. As I’ve mentioned, the outlook is bright for non discretionary aftermarket parts for the internal combustion engine in particular. We are focused on leveraging our capability and capacity to offer a broad range of applications for all makes and models, whether newer or older vehicles. 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 industry tailwinds I previously mentioned. Our commercial heavy duty market continues to grow. Our brake related business is gaining further traction, particularly with 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 ongoing success.

From a gross margin perspective, we are encouraged by the increase in the year over year gross margin despite the headwinds related to tariffs, increasing market share gains particularly for brake related products should continue to enhance our gross margin. With continued operating efficiencies and supply chain cost reduction initiatives, we expect further margin growth. Finally, sales growth, gross margin improvement and an ongoing focus on neutralization of working capital support our ability to further reduce debt, repurchase shares and to take advantage of other opportunities to enhance shareholder value and achieve our financial performance targets. As I’ve previously mentioned and as referenced in the exhibits to our earnings release, there are various factors related to our financial performance that are non cash and beyond our control, particularly with regard to non cash mark to market foreign exchange, which can have a positive or negative impact on our Mexico lease liabilities and forward contracts that we purchase. We are focused on opportunities to minimize non cash expenses such as gains or losses related to foreign exchange, including funding our Mexican operations of 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. I would now like to turn the call over to David.

David Lee, Chief Financial Officer, Motorcar Parts of America: Thank you, Selwyn, and good morning, everyone. Let me summarize key financial performance metrics for the fiscal twenty twenty six first quarter that we highlighted in this morning’s news release, and additional information will be available in the 10 Q that will be filed later today. As someone referenced earlier, net sales increased 10.9% to a first quarter record of $188,400,000 Gross profit increased 16.3% to a first quarter record of $33,900,000 Operating income increased to $20,100,000 from an operating loss of $6,500,000 in the prior year. We generated $10,000,000 of cash from operating activities and reduced net bank debt by $7,000,000 to $74,400,000 repurchased 197,796 shares for $2,000,000 at an average price of $9.94 Now let me discuss our results in more detail. Net sales for the fiscal twenty twenty six first quarter increased 10.9% to a first quarter record of $188,400,000 from $169,900,000 in the prior year.

Gross profit for the fiscal twenty twenty six first quarter increased 16.3% to a first quarter record of $33,900,000 from $29,200,000 a year earlier. 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 on 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 $3,900,000 or a 2.1% impact to gross margin. Gross margin for the fiscal twenty twenty six first quarter was 18% compared with 17.2% a year earlier.

In addition to the non cash expenses previously explained, gross margin for the fiscal twenty twenty six first quarter was also impacted by cash expenses of $1,400,000 or a 0.8% impact to gross margin as detailed in Exhibit two of this morning’s earnings press release. Aside from higher sales volume, particularly from certain of our newer product offerings, which supports increased absorption of costs, we remain focused on other initiatives to enhance gross margins. Operating expenses were $13,800,000 compared with 35,600,000 last year, which benefited from a $8,300,000 noncash market foreign exchange gain compared with an $11,100,000 noncash mark to market foreign exchange loss in the prior year. Operating income for the fiscal twenty twenty six first quarter increased to $20,100,000 from an operating loss of $6,500,000 in the prior year. Excluding the non cash foreign exchange impact of lease liabilities and board contracts, operating income increased 153.6% to $11,700,000 compared with $4,600,000 in the prior year.

Interest expense for the fiscal first quarter decreased by $1,600,000 to $12,800,000 from $14,400,000 a year ago, reflecting lower average outstanding balances under the company’s credit facility and lower interest rates compared with a year ago. For the first quarter, income tax expense was $2,400,000 compared with $178,000 income tax benefit in the prior year. The effective tax rate for the fiscal first quarter reflects in part the inability to recognize the benefit of losses at certain 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 income for the fiscal twenty twenty six first quarter was 3,000,000 or $0.15 per diluted share compared with a net loss of $18,100,000 or $0.92 per share for the prior year. Net income benefited from non cash items of 1,300,000.0 or $07 per diluted share and was impacted by cash expenses of $1,100,000 or $05 per diluted share as detailed in Exhibit one. As previously explained, higher sales volume and operating efficiencies will further improve results. EBITDA for the fiscal first quarter was $20,700,000 reflecting the 1,700,000 benefit of non cash items, offset by $1,400,000 of one time cash expenses detailed in Exhibit three of this morning’s earnings press release. EBITDA before the impact of noncash expenses and onetime cash expenses mentioned above was $20,400,000 for the first quarter.

Now let me move on to cash flow and key corporate items. The company generated cash of approximately $10,000,000 in operating activities during the fiscal twenty twenty six first quarter compared with a use of cash of approximately $20,800,000 from operating activities a year ago. We remain focused 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 demand customer product demand planning, enhanced inventory management, and extending our vendor payment terms. Net bank debt decreased by $7,000,000 during the fiscal twenty twenty six first quarter to $74,400,000 from $81,400,000 For the past two years through 06/30/2025, we have generated cash from operating activities of approximately 115,000,000 or approximately $5.87 per outstanding share on average, and we reduced net bank debt by approximately $94,000,000 Our liquidity remains very strong with total cash and availability of approximately $147,000,000 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 The company has increased its fiscal twenty twenty six sales guidance since issuing annual guidance in June.

This increase reflects a strong start to the fiscal year and incorporates the impact of tariff pass throughs. The increased sales guidance is now between $800,000,000 and $820,000,000 representing between 5.68.3% year over year growth. The company reaffirms the operating income guidance range to between $86,000,000 and $91,000,000 representing 4.310.4% year over year growth, reflecting a combination of tariff pass throughs and cost mitigation measures. The company estimates depreciation and amortization will be approximately $11,000,000 These estimates reflect the expected impact of tariffs enacted as of today, do not include certain non cash items and one time expenses. For further explanation on the reconciliation of items that impacted results and non GAAP financial measures, please refer to Exhibits one through three in this morning’s earnings press release.

I would now like to open the line for questions.

Lacey, Conference Operator: Your first question comes from the line of Derek Soderbergh with Cantor Fitzgerald. You may go ahead.

Derek Soderbergh, Analyst, Cantor Fitzgerald: Yes. Hey, guys. Thanks for taking the questions. Really good results here. Wondering if you could sort of give a high level description of what you faced this quarter as it relates to tariffs versus last quarter.

Looks like there was a smaller impact from tariffs. What was sort of the difference there? And then just looking at guidance, it looks like you’re assuming some additional pass throughs than maybe you previously expected. What are some of your assumptions that you’re making on tariffs for this year? Can you just kind of take a high level, approach to explaining what, what you’re seeing out there for for tariffs?

David Lee, Chief Financial Officer, Motorcar Parts of America: Hi, Gary. That’s a good question. So to recap, in our March, we had approximately 4,600,000.0 impact of those net tariff costs. As you pointed out, in this June, we had a much lower 1,400,000 that impacted tariffs. For our September, which is our second quarter, we do expect a little bit more impact, but it will sequentially continue to come down.

So less impact.

Derek Soderbergh, Analyst, Cantor Fitzgerald: Got it. And then for for full year guidance, I mean, you cited, you some pass throughs on tariffs. I guess, what are some of the assumptions you made for the full year for tariffs? It looks like we had kind of that blanket tariff come off and there’s a bit of a pause, but maybe that comes back on. What were some of the assumptions that you guys sort of made for the full year that led you to to raise the revenue the revenue range?

David Lee, Chief Financial Officer, Motorcar Parts of America: So we did increase our sales guidance. You know, we’re not breaking out how much of that increase is related to tariff pass throughs. You know, it’s it’s confidential sensitive information regarding customer price increases. So it’s all included in that higher guidance.

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: Yeah. And and and I do wanna point out that regardless of tariffs, we’re we’re record sales. So That’s right. Yeah. The majority of our sales increase is not tariffs.

David Lee, Chief Financial Officer, Motorcar Parts of America: That’s correct.

Derek Soderbergh, Analyst, Cantor Fitzgerald: Got it. That’s helpful. And then Selwyn, just sort of looking at the rotating electric and braking businesses, what’s sort of the next major growth opportunity in either of those segments? I think you’ve sort of mentioned geographic expansion in Mexico, obviously market share growth is you guys have seen that. Maybe it’s going be new products in those segments.

What’s sort of the next major growth opportunity now that are those segments?

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: Well, I think, look, we’re still very small in the professional installer market. In the pure professional installer market, we sell our customers who sell to both installers and DIY, and we have a large share there. But the pure professional market, we’re still small, and there’s a significant amount of upside growth in our in our branded product, and we’re seeing that. And I I’m just really optimistic about what brand could do with quality built. And so I think that’s and that’s and that’s across the board for all of our categories.

I think there’s opportunity in all of our categories for that. On the break the break related product side, I mean, we’re still fresh. I mean, we’ve got a long way to go. We’ve got plenty of capacity to get more efficient as we grow. And then that’s just the North American market to me.

And so, you know, we we have lots of opportunity throughout the world, quite frankly. I mean, I think the North American is is planning for now, but we’re starting definitely to look over our shoulder to see what else is out there in terms of bigger opportunities on a on a more global basis. So we’re optimistic. I mean, the brake pad business is is an opportunity that’s just beginning, and, we’re excited about that business. We think we have the premier product in the marketplace, and we’re just beginning.

I mean, I don’t think you’ve seen the effect of that yet, and that’s it’s coming. It’s not this year’s story is is is a is a pretty conventional same as story, and and next year’s story just picks up more momentum.

Derek Soderbergh, Analyst, Cantor Fitzgerald: Got it. Well, well, congrats on the results, guys. I’ll I’ll hop back in the queue.

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: Thank you so much. Thank you.

Lacey, Conference Operator: There are no further questions at this time. I would like to turn the call back over to Selwyn Joffe for closing remarks.

Selwyn Joffe, Chairman, President and Chief Executive Officer, Motorcar Parts of America: Great. Well, I appreciate everybody listening today. In summary, I can just repeat, we’re bullish about our outlook for fiscal twenty six and and and and forward. We remain laser focused on further efficiencies and fully benefiting from a not easily duplicated global platform to meet demand and grow market share for our non discretionary products and I emphasize non discretionary as well as from our diagnostic testing capabilities. We continue to leverage our expertise in solid customer and supplier partnerships.

Our liquidity is strong. Our leverage is very low and we have the resources, capacity and capability to further enhance shareholder value. Let me reiterate our strategic focus, growing sales of our existing product lines, continuous operational efficiency improvements to further enhance margins, mitigating tariffs and increasing cash conversion by neutralizing working capital. And we are positive on all those fronts. In closing, we appreciate 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 we thank everyone again for joining us on the call. We look forward to speaking with you when we host our fiscal twenty twenty six second quarter call in November and at various investor conferences and meetings in the interim. Thank you.

Lacey, Conference Operator: This concludes today’s conference call. You may disconnect.

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