The auto industry has been strong in recent years, but that hasn't translated into good news for every company in that industry. Jason Industries (NASDAQ: JASN), which makes seating, finishing, and automotive acoustical products, has struggled under tough conditions, and coming into Friday's third-quarter financial report, Jason Industries investors were prepared for widening losses and sluggish revenue. Jason's results were worse even than those expectations, and that in part was responsible for the company announcing some cost-containment efforts to try to shore up its financial performance. Let's take a closer look at how Jason Industries did this quarter and what's ahead for the company.
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Times have changed since this picture commemorating the 2013 opening of a Michigan plant. Image source: Jason Industries.
Jason Industries sees red ink flow
Jason Industries' third-quarter results raised some new concerns among those following the stock. Sales were down almost 1% to $170.1 million, which was almost exactly what investors had expected to see. However, net losses of $2.9 million were higher than expected, and that translated to a $0.13 per share net loss, larger than the consensus forecast among investors for a loss of $0.08 per share.
Taking a closer look at the numbers, Jason's acoustics segment stood out from the rest with its relatively strong performance, but even it didn't blow the roof off the quarter. Acoustics revenue jumped 23%, with the company citing higher volume from new platform awards. However, lower productivity limited the segment's gain in pre-tax operating income to just 6%.
Meanwhile, Jason's other segments sagged. The seating business suffered a 13% drop in sales, citing lower volumes in the motorcycle, construction, and turf care industries. The unit's pre-tax operating income was down about 14% from year-ago levels. The finishing business saw smaller declines, including a 6% drop in revenue and about a 3% fall in its bottom line. Finally, the components business took the biggest hit, seeing sales drop by a sixth an pre-tax operating income fall by more than a quarter. Foreign currency impacts hit the seating and finishing segment, but only by a percentage point or less on their respective top line figures.
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CEO Jeffry Quinn tried to describe the efforts that Jason is making to fix the situation. "We continue to operate in a challenged industrial environment, with several declining end markets," Quinn said. "In spite of our top-line headwinds, we are making progress on initiatives to structurally improve our margins." The CEO also noted that Jason's progress hasn't been as quick or as large as the company had hoped, he's confident that the future will bring the company closer to its goals.
Can Jason Industries recover?
Specifically, Jason revealed some new actions that it hopes will help expand its profit margin figures and reduce unnecessary costs. The acoustics business expects to sell its European operations within the next six months to focus more squarely on the North American automotive market. That sale will reduce revenue by about $30 million but should help improve overall margin.
In addition, the finishing and components businesses will each make substantial closures. For finishing, the closing of operations in Brazil by the end of 2016 will cost the company $6 million in future revenue, but Jason identified Brazil as a non-core market and will help it focus its efforts more efficiently. In components, Jason will close an Illinois manufacturing facility, consolidating two existing plants into one in response to falling demand for railcars. The move will cost Jason $1.5 million in pre-tax charges but should generate about $1.3 million in annual savings starting near the end of 2017.
Jason still expects tough conditions in the fourth quarter, and that caused it to cut its guidance for the full year. Jason now sees revenue of between $695 million and $705 million, down between $20 million and $30 million from its previous guidance. Adjusted EBITDA will only be $62 million to $65 million, which represents a cut of 15% to 20%.
Jason Industries investors weren't happy about the news, sending the stock lower by 2.5% in the regular trading session following the announcement. Jason's efforts to cut costs are necessary, but the company has a long way to go before its efforts will fully turn its business around.
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