Motorcar Parts of America (MPAA) Q2 2027 earnings review
Motorcar Parts cuts its annual plan as orders fall
Motorcar Parts of America, a maker of replacement starters, alternators and brakes, cut its full-year plan after customer order delays deepened its sales drop. Underlying revenue fell 18% by our math, and operating profit excluding one-offs dropped 43% as quieter factories and higher overhead weighed on margins. A one-time $11 million tariff refund lifted reported gross margin and produced a small net profit, while chief executive Selwyn Joffe said $60 million in yearly new awards have begun shipping.
| Sales from ongoing operations (ex one-time core sales) | $169.2M -18% from a year ago by our math (-24% reported) |
|---|---|
| Operating profit, excluding one-offs | $12.1M -43% from a year ago by our math |
| New yearly business awards | ~$60M won targeting ~$25M more by March |
| Full-year sales outlook | Cut $62.5M $715–740M (-8% vs FY26 at middle) |
⚖️ Verdict: 🔴 Bearish
The story got worse because the second-half sales rebound that underpinned the old outlook slipped, forcing a steep cut to both revenue and profit plans. By our math, the new full-year outlook cuts operating profit excluding one-offs by 27%, while net bank debt rose to $106 million to fund unshipped inventory. On the bright side, the company finished moving its heavy-duty factory to Mexico and turned loose sales promises into $60 million of signed awards.
The question now is whether customers have finished clearing out cheap inventory from bankrupt rival First Brands so the $60 million of new awards can ramp up on schedule. If the clearance is over, underlying sales will grow 5% to 12% in the second half and inventory will turn back into cash; if not, bank debt will stay elevated and the lowered plan will be missed. Next quarter's sales against an easy comparison will tell.
🐂 Bull Case
Competitor Bankruptcy Brought $60 Million in New Awards
Motorcar Parts of America makes replacement alternators, starters and brakes for auto-parts stores. After rival supplier First Brands went bankrupt, chief executive Selwyn Joffe said the shake-up "has created meaningful opportunities for Motorcar Parts of America to expand its presence in the braking business." The company has now won about $60 million in yearly new business awards and aims to win another $25 million by March.
Initial shipments have started, and the rest will launch over the next six months. These concrete figures replace the looser target of more than $100 million in extra yearly sales that the parts maker cited last quarter. Management also plans to relaunch the acquired Centric Parts brake brand, whose potential sales are "not yet included in the current growth estimates".
What to watch: second-half net sales against the $378 million to $403 million target. Hitting that range will prove that new brake awards are finally turning into billed shipments rather than sitting in customer warehouses.
Moving Heavy-Duty Production to Mexico Is Complete
Since late last year, the auto-parts maker has been moving its heavy-duty rotating electrical factory from Canada into its existing plants in Mexico, "leveraging its established infrastructure and resources to reduce manufacturing costs". That move delayed customer shipments in the first quarter and cost money to execute.
The company finished the move this quarter. It booked $1.9 million of move and severance charges in the second quarter and $4.9 million across the first half. Because the full-year outlook includes about $5 million of transition costs, the cash drag from the move is effectively over, which Joffe said "will enhance our competitiveness and ability to pursue additional heavy-duty aftermarket business".
What to watch: transition expenses on the gross-profit reconciliation table next quarter. A near-zero number will confirm the factory move is no longer dragging down manufacturing margins.
🐻 Bear Case
Customer Order Delays Forced a Full-Year Cut
Three months ago, the aftermarket supplier kept its full-year sales plan of $780 million to $800 million even after first-quarter revenue fell 11%. By our math, that plan needed average quarterly sales above $204 million for the rest of the year. Instead, second-quarter results showed "delayed customer orders and launches of new business awards, requiring revised guidance for the fiscal year".
- Second-quarter sales: $169.2 million, down 23.6% from a year ago
- Sales from ongoing operations (excluding $14.8 million of one-time core revenue a year ago): down 18.1% by our math
- Full-year sales outlook: cut to $715 million to $740 million, down $62.5 million at the middle of the range
"While the liquidation of existing First Brands inventories has temporarily impacted the timing of certain new orders, we are now starting to see the benefits," Joffe said. Yet this is the second year in a row the company affirmed its annual target early in the year and cut it later. Even the lowered outlook relies on second-half underlying sales growing 5% to 12%.
What to watch: third-quarter net sales, which compare against an easy $167.7 million quarter last year when a major customer closed stores. Anything below 8% growth will put the lowered full-year range at risk.
A Tariff Refund Masked Falling Underlying Profit
Reported gross margin — the share of sales left after the cost of making the products — jumped 4.9 percentage points from a year ago to 24.2%, and the company reported a $1.4 million net profit. That headline improvement came entirely from a one-time $11.1 million refund of International Emergency Economic Powers Act (IEEPA) tariffs, which cut cost of goods sold by 6.5 percentage points of revenue.
Excluding one-time cash items and non-cash accounting charges for returned part cores and currency contracts, underlying profitability fell across the board by our math. Lower sales volume left factories less busy, and general and administrative overhead rose 3.1 percentage points of revenue to 10.8%.
- Gross margin excluding one-offs: 21.3%, down 1.3 percentage points from a year ago by our math
- Operating profit excluding one-offs: $12.1 million, down 43% from $21.2 million a year ago by our math
- Net profit excluding one-offs: $0.5 million, or $0.00 per diluted share, down from $0.17 a year ago
What to watch: gross margin excluding one-offs in the third quarter. Without another tariff refund, the company needs factory volume from new brake shipments to push that margin back above 22%.
Bank Debt Keeps Rising as Inventory Builds
For two years up to last September, Motorcar Parts of America paid down its bank credit line and highlighted its cash generation. That trend has reversed over the past four quarters because the company is stocking up on parts for new customer contracts before shipments ramp up.
Inventory reached $415.0 million at the end of September, up 11.4% from a year ago even though quarterly sales fell by nearly a quarter. To pay for that stock, borrowings on its revolving credit line rose to $126.6 million from $94.7 million in March. Net bank debt — credit-line borrowings minus cash — now stands at $105.8 million by our math, up 87% from $56.7 million a year ago.
What to watch: inventory and revolving loan balances in the third quarter. Once the $60 million of new awards are shipping across the second half, finished goods should leave the warehouse and bring bank debt down.
Risks this quarter didn't answer
The earnings release did not include the quarterly filing tables that track three standing risks in the business.
- Brake vs alternator sales mix: not in the release; the quarterly filing's product-line note will show whether rotating electrical sales kept falling after a 22% drop in Q1.
- Customer concentration: not in the release; the filing will show whether the top three auto-parts chains still account for more than 80% of sales.
- Operating cash flow: the release omitted the cash flow statement; the filing will show how much cash operations used while bank debt rose $6.1 million in Q2.
👓 Other Themes
Stronger Mexican Peso Hit Gross Margin Again
Because the parts remanufacturer runs major factories in Mexico, a stronger peso raises its local operating and lease costs in US dollars. Unfavorable currency swings cut gross profit by $2.4 million, or 1.4 percentage points of sales, in the second quarter and $5.9 million across the first half. Currency remeasurement of lease liabilities and forward contracts also added a $3.0 million non-cash operating expense.
💲 Other KPIs
Accounts receivable — money owed by customers for shipped parts — fell 23.1% from a year ago, matching the 23.6% drop in reported sales. Compared with March, receivables are down 29.0% from $112.6 million, which helped limit cash burn while inventory grew.
Interest costs fell 11.1% from $12.7 million a year ago and edged down from $12.0 million last quarter. The US company pays interest mostly to sell its customer receivables early under store payment programs, so lower quarterly sales automatically reduced those discounting fees even as bank borrowings rose.
Basic shares fell 2.2% from a year ago to 18.9 million from earlier buybacks, though the remanufacturer bought no stock this quarter and kept $20.1 million in buyback capacity. Diluted shares rose 16.1% because accounting rules add convertible notes to the share count when a revaluation gain turns them dilutive, creating a $0.03 diluted loss per share despite positive net income.
🔮 Guidance
Cut. The middle of the full-year sales range dropped by $62.5 million, or 7.9%, leaving total revenue down 7.9% from last year's reported $789.8 million. Management blamed delayed orders from existing customers and slower launches of new awards as buyers worked through liquidated First Brands stock. It is the second straight year the company held its initial annual sales outlook after Q1 and cut it later.
New. For the six months ending March, the plan calls for sales between a 0.5% dip and a 6.1% rise against last year's $380.0 million. Last year's second half included $19.9 million of one-time core revenue from customer warehouse changes; excluding that, the outlook points to 5.0% to 11.9% growth as the $60 million of new awards begin shipping.
Cut. The company switched its full-year profit target to a reported basis that includes $30 million of non-cash charges, $5 million of Mexico move costs and the $11 million Q2 tariff refund. By our math, stripping those items out leaves $61 million to $68 million of operating profit excluding one-offs — down 27% at the middle of the range from the prior $86 million to $91 million target.
New. Reported operating profit is planned at $23 million to $30 million for the second half, up from $13.5 million in the first half, and includes about $14 million of non-cash charges. By our math, that points to about $37 million to $44 million of operating profit excluding one-offs in the second half, or a 10.4% margin at the middle of the range against 6.9% in the first half.
Unchanged. The full-year estimate stays at about $9 million, with roughly $5 million planned for the second half after $4.5 million in the first six months.
❓ Key Questions
Did alternator and starter sales keep shrinking in Q2?
Rotating electrical parts made up 58% of sales in the first quarter and fell 22% from a year ago. Because the earnings release gives only total sales, investors need the quarterly filing's product breakdown to see whether the core business stabilized or fell further.
How much cash did operations burn this quarter?
The release omitted the cash flow statement, while inventory rose to $415.0 million and net bank debt climbed another $6.1 million to $105.8 million. The quarterly filing will show whether operating cash flow stayed negative for a fourth straight quarter.
Why did new business awards drop from $100M to $85M?
For two quarters management projected more than $100 million in extra yearly sales by March. It now cites $60 million won and $25 million targeted, totaling $85 million, without saying whether the remaining $15 million slipped into next year or went to rivals.
What is the status of the electric-vehicle testing review?
Management put its non-core electric-vehicle powertrain testing unit up for strategic review three quarters ago. This release mentioned its products in the company description but gave no update on a sale or closure.