Yahoo Finance Stoneridge (SRI) Q2 2019 Earnings Call Transcript
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Stoneridge (NYSE: SRI)
Q2 2019 Earnings Call
Aug 01, 2019, 9:00 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good morning, ladies and gentlemen, and welcome to Stoneridge second-quarter 2019 conference call. [Operator instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Matt Horvath, director of investor relations.
Matt Horvath -- Director of Investor Relations
Thanks, Crystal. Good morning, everyone, and thank you for joining us to discuss our second-quarter results. The release and accompanying presentation was filed with the SEC yesterday evening and is posted on our website at www.stoneridge.com in the Investors section under Webcasts and Presentations. Joining me on today's call are Jon DeGaynor, our president and chief executive officer; and Bob Krakowiak, our chief financial officer.
Before we begin, I need to inform you that certain statements today may be forward-looking statements. Forward-looking statements include statements that are not historical in nature and include information concerning our future results or plans. Although we believe that such statements are based upon reasonable assumptions, you should understand that these statements are subject to risks and uncertainties, and actual results may differ materially. Additional information about such factors and uncertainties that could cause actual results to differ may be found in our 10-Q, which has been filed with the Securities and Exchange Commission under the heading Forward-Looking Statements.
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During today's call, we will also be referring to certain non-GAAP financial measures. Please see the appendix for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. After Jon and Bob have finished their formal remarks, we will then open up the call to questions. I would ask you that you keep your question to a single follow-up.
With that, I'll turn the call over to Jon.
Jon DeGaynor -- President and Chief Executive Officer
Thanks, Matt, and good morning, everyone. Let me begin on Page 3. In the second quarter, we continued to position the company for long-term success while delivering strong financial performance. Our second-quarter adjusted sales of $218 million resulted in an adjusted gross margin of 26.5%, translating to an adjusted operating margin of 5.5%.
Adjusted EPS for the quarter was $0.36. During the quarter, we continued to position the company for long-term growth with a number of important business awards. This morning, I am pleased to announce strategically and financial significant awards with both our Park-by-Wire and Shift-by-Wire transmission actuation systems. Total awarded peak annual revenue for our Park-by-Wire programs now exceeds $45 million, while Shift-by-Wire awards, launching in the next year, exceed $20 million.
We continue to position the company for growth not only in each of our segments, with new business awards, but also in key geographies. In Brazil, recently we have been awarded an incremental $10.5 million of peak annual revenue programs for OEM customers related to our driver information systems and infotainment products. These awards, which are scheduled to launch in early to mid-2020, will provide a strong foundation for continued OEM success in the region. A few weeks ago, I was able to join our team in China as we celebrated the grand opening of our new fully owned facility in Suzhou.
Although we don't break out and specifically detail sales in China on a quarterly basis, China is an important part of our long-term strategy. This year, we expect sales in China to exceed $50 million. And, despite reduced production forecasts, we have strong demand for our Emissions products and expect double-digit topline growth next year. Based on our forecasted growth in China next year, we expect that our sales will approximately double from 2018 to 2020.
This morning, we are increasing our full-year adjusted EPS guidance to a midpoint of $1.66. Bob will provide additional detail regarding our second-quarter financial performance and guidance for the remainder of 2019 later in the call. Page 4 summarizes our key financial metrics relative to the second quarter of 2018. Before we discuss the metrics in detail, it should be noted that for comparison purposes we have removed the estimated financial impact of the divested switch and connectors business from both this quarter, as well as the comparable quarter last year.
This includes any revenue from margin associated with the transition and manufacturing services agreed to with the acquirer over the transition period. Revenue in the second quarter exceeded our expectations, primarily driven by growth in our Emissions products and off-highway vision systems. Our legacy Shift-by-Wire programs continued to ramp down in the second quarter, resulting in a $5.5 million headwind relative to the second quarter of 2018. Additionally, during the quarter, we experienced currency headwinds of approximately $1.7 million.
Excluding the impact of currency and our legacy Shift-by-Wire program reductions, core portfolio sales increased by 3% quarter over quarter, despite reduced production volumes and adverse macroeconomic conditions in some of our key end markets. Our growth continues to outpace the underlying industry. Quarter over quarter, adjusted gross margin declined by 290 basis points, while adjusted operating margin declined by 280 basis points. Several external factors drove the reduction in quarter-over-quarter profitability, including unfavorable currency impacts, tariff expenses that were not introduced in the comparable period, and continued elevated costs related to electronic component shortages.
These three factors alone reduced adjusted operating margin by approximately 190 basis points in the quarter. While it is difficult to drive dramatic improvements in currency exposure and tariff expenses in the short term, we remain focused on aligning our supply chain strategies with the current business environment. During the first two quarters of the year, we experienced additional tariff-related expenses of approximately $2 million relative to the comparable period last year. Our continued geographic diversification will create natural hedges and help reduce volatility related to foreign currency exchange rates.
We are forecasting reduced electronic component costs for the remainder of the year as recent product redesigns and procurement strategy adjustments should reduce our reliance on high-priced components. Quarter to quarter, we have reduced these expenses by over $300,000 and have negotiated expected savings of approximately $700,000 for the remainder of the year. Next, year, we expect continued reductions in these costs, as we have visibility to at least $2 million in negotiated savings relative to current run rates. We continue to focus on the factors that are within our control and work to offset external factors.
We remain committed to our long-term target of top-quartile financial performance in 2021. Turning to Page 5. We remain focused on specific keys to success for each of our segments to continue to deliver strong financial performance this year and achieve our long-term targets. For Control Devices, we have continued our focus on driving operational performance.
This includes a focus on the reduction of quality-related expenses, including scrap, premium freight and controllable warranty expenses. In the first quarter, we improved operating margin at Control Devices quarter to quarter by 140 basis points. We continue that trend in the second quarter with an additional 30-basis-points improvement quarter to quarter. During the quarter, excluding a ramp down of our legacy Shift-by-Wire programs, Control Devices revenue on the core portfolio increased by more than 7%, driven by strong growth in our Emissions products and non-Shift-by-Wire actuation programs.
Not only did we continue to grow our core product portfolio but, as I outlined previously, we expect continued growth in both our actuation and Emissions programs. That should lead to a strong growth for the segment beyond 2019. Finally, the transition of our divested noncore products continues to move forward, which is driving the closure of the Canton manufacturing facility. The divestiture accelerates our transformation of the segment as we continue to focus our technical capabilities on system-based solutions building our core technologies and competencies.
We are driving growth and improving bottom-line performance through reduced operational complexity and a more efficient manufacturing footprint. Moving to Electronics. We continue to drive the development of advanced technologies to complement our existing portfolio. We continue to invest in research and development both within the segment, as well as within our corporate advanced development activities.
I expect to announce additional news regarding expansion of our core product lines, including complementary MirrorEye capabilities later this year. I will provide a detailed update on our MirrorEye progress related to both retrofit and OE opportunities later in the call. As we have discussed previously, we continue to make progress in the review of our alternatives for our noncore switches and controls business within Electronics and expect to be able to discuss our plans in more detail before the end of this year. As previously discussed, we continue to focus on growing our OEM capabilities at PST and will discuss two additional awards in detail this morning.
Considering those awards, to date we've announced approximately $20 million of peak annual revenue OEM awards in Brazil. These awards would represent more than 25% of PST's trailing 12-month sales. Our OEM strategy in Brazil is paying off and will provide stable long-term growth opportunities for the segment. Turning to Page 6.
Our transmission actuation technologies remain a core part of Control Devices' strategy. And this quarter I am pleased to provide additional detail on two business awards that will help drive growth for the segment. Recently, we were awarded an extension and expansion of one of our Park-by-Wire programs. Generation one of the product, which launched earlier this year, is expected to generate $37 million of peak annual revenue.
Generation two of that same product will launch in 2022 and, when combined with the conversion of the prior generation, will generate $43 million of peak annual revenue. In addition to this program, we have previously announced and awarded Park-by-Wire program in China for an electrified vehicle platform with peak annual revenue of approximately $5 million. Overall, we've been awarded $48 million of peak annual revenue for Park-by-Wire products. These awards continue to demonstrate our customers' trust in our ability to execute on how we engineer systems and safety-critical applications.
We continue to pursue opportunities with global OEMs across the world, as we believe the market for Park-by-Wire will be larger than our legacy Shift-by-Wire programs. In addition to this success we are having with Park-by-Wire, we continue to find opportunities to leverage our legacy Shift-by-Wire capabilities around the world. This morning, we are announcing an additional Shift-by-Wire award, manufactured in China for the European market, with an estimated peak annual revenue of $8 million and a start of production in 2021. To date, we have been awarded $21 million of additional peak annual revenue awards in China related to our legacy Shift-by-Wire technology.
With $69 million of peak annual revenue awarded, a growing global market opportunity and program launches starting as early as this year, our transmission actuation platform is well-positioned to drive growth over the next several years. Turning to Page 7. We continue to move forward in the commercialization of MirrorEye, with both our retrofit partners and our OEM customers, while continuing to investigate opportunities to utilize the technology as a platform and expand to other end markets. The rollout of our retrofit program continues to progress.
Currently, we have 10 fleets with systems on vehicles and several other fleets scheduled for installations to begin their trials. We have continued to ramp up our production and work with our fleets to refine our system. These refinements have resulted in a one- to two-quarter delay in the rollout of our broader retrofit program. This delay does not in any way impact our expectations for the addressable market or our ability to capture that market.
In addition to the opportunities in the retrofit market, we continue to pursue additional OEM awards. We expect an OEM sourcing decision in the short term, with two additional decisions late in 2019 or early 2020. Finally, we believe that MirrorEye can be utilized as a platform for additional technology development and be applied to other end markets and vehicles. This quarter, we were able to secure a commitment from a European bus manufacturer to utilize our system as they evaluate opportunities to remove mirrors from their buses beginning in 2021.
This is just one of the many applications where we believe MirrorEye technology could bring a unique value proposition to the end customer. We will continue to explore other opportunities to commercialize the system outside of traditional semi-truck applications. We remain confident in our ability to commercialize MirrorEye with both our retrofit and OEM customers and will keep you updated. Turning to Page 8.
As we have discussed in previous calls, our Brazilian footprint provides a unique opportunity to better serve our global customers. Many of our commercial vehicle OEM customers have a significant presence in Brazil in what is forecasted to be one of the fastest-growing commercial vehicle markets. Over the past year, we were focused on preparing PST for OEM production to supply the region. And to date, we have announced almost $10 million of OEM awards.
This morning, I am pleased to announce that we have two additional OEM awards. The first program is a driver information systems award, to be manufactured locally for local market. The award is expected to generate $5.5 million of peak annual revenue with a start of production mid next year. The second award is for local manufacturer of OEM infotainment systems for passenger cars.
This award builds on our exiting after-market infotainment capabilities, and it's expected to generate $5 million of peak annual revenue with a state of production in early 2020. These two awards represent an incremental $10.5 million of peak annual revenue with both programs starting in the next 12 months. Combined with the previously announced awards, we have been awarded approximately $20 million of peak annual revenue OEM business in Brazil. Considering PST's trailing 12 months of revenue was approximately $73 million, these awards and our continued focus on OEM capabilities in Brazil are expected to drive significant growth for PST over the next several years.
Additionally, we expect these awards to scale well within the business from a cost perspective and drive stability to the segment, resulting in improved operating margin moving forward. PST remains a core part of our long-term strategy, and we remain optimistic about opportunities to utilize our global footprint and existing capabilities to drive growth in the region. Turning to Page 9. I am pleased with our achievements in the second quarter.
We delivered another quarter of strong financial performance, overcame several external headwinds and continued our transformation of the company as we execute on our keys to success in 2019. Our transmission actuation strategy continues to drive growth for the company, as we were awarded programs with new customers in strategically significant and growing regions. MirrorEye continues to move forward with both fleets and OEMs. And we are taking advantage of our global footprint, as we were recently awarded additional OEM programs in Brazil.
At Stoneridge, we will continue to execute on our long-term strategy, drive continuous improvement and refine our capabilities to deliver shareholder value. With that, I'll turn it over to Bob to discuss our financial results in more detail.
Bob Krakowiak -- Chief Financial Officer
Thanks, Jon. Before we review the quarter in detail, I would like to point out that we made a number of adjustments in order to normalize earnings. The adjustments were primarily related to the divestiture we announced in early April, a favorable change in our tax position at PST, as well as several other smaller adjustments. Detail related to these adjustments can be found in the appendix attached to our presentation.
With that said, turning to Slide 11. Adjusted sales in the first quarter were $218.1 million; while adjusted sales, excluding divested product lines, were $209 million or approximately equal to the second quarter of 2018. Excluding divested product lines, adjusted operating income was $11.9 million or 5.7% of sales. More specifically, Control Devices' adjusted sales, excluding divested product lines, was $102.9 million, an increase of 2% quarter over quarter; resulting in adjusted operating income, excluding divested product lines, of $12.9 million or 12.5% of sales.
Electronics sales of $101.9 million increased by 2%, resulting in adjusted operating income of $7.7 million or 7.5% of sales. PST sales of $16.6 million resulted in adjusted operating income of $400,000 or 2.4% of sales. This morning, we are increasing our 2019 adjusted EPS guidance. We expect that the favorable impact of our share repurchase program, as well as our expectations for reduced tax rate, will more than offset the impact of the late timing of MirrorEye retrofit revenue, as well as our expectation of the continued negative impact of foreign currency exchange rates.
The result is an increase in the midpoint of our 2019 full-year adjusted EPS guidance of $0.035 to a midpoint of $1.66. I will provide additional detail related to our guidance and expected cadence of revenue and earnings later in the call. Page 12 summarizes our key financial metrics for Control Devices excluding the impact of the divested product lines. As has been the case in prior quarters, Control Devices' base portfolio continues to grow, excluding the impact of our legacy Shift-by-Wire products.
Control Devices' adjusted sales increased by $1.7 million relative to the second quarter of 2018 due to growth in our Emissions Sensing products in China, as well as other actuation products. Quarter over quarter, our Emissions Sensing products grew by 16%. Adjusted operating margin increased by 30 basis points relative to the first quarter of 2019, driven by our continued focus on reducing quality-related expenses and improving operational efficiency. Control Devices is delivering growth throughout the product portfolio while focusing on operating margin expansion through continuous improvement.
Page 13 highlights the growth in revenue and adjusted operating income over the last 12 months in our Electronics segment. Over the last 12 months, sales grew by 4.7%, while adjusted operating margin improved by 60 basis points, which resulted in adjusted operating income growth of 13%. During the quarter, Electronics sales were relatively flat compared to the second quarter of 2018 despite a headwind of $5.6 million related to unfavorable currency exchange rates. Excluding the unfavorable impact of foreign currency, quarter-over-quarter sales increased by 7.4%, driven primarily by increased sales of our off-highway vision systems.
Adjusted operating income decreased by 10%, and adjusted operating margin declined by 110 basis points relative to the second quarter of 2018, primarily driven by cost increases related to electronic component shortages. Excluding the impact of incurred electronic component costs, which were approximately $1.3 million quarter over quarter, adjusted operating income increased by approximately 4.7%. As we have discussed in prior calls, we expect increased engineering-related expenses during the quarter as we continue to invest in the capabilities and technologies that will drive future growth for the segment. Engineering-related expenses increased by approximately $600,000 relative to the first quarter.
Electronics continued to deliver solid financial performance led by a strong product portfolio, which we expect will deliver growth above the underlying markets, as well as an improving margin profile. Turning to Page 14. PST had a challenging quarter, primarily driven by adverse macroeconomic conditions including the unfavorable impact of currency, which reduced sales by $1.4 million in the quarter relative to the second quarter of last year. Revenue declined by $3.7 million, while adjusted operating margin declined by 380 basis points.
Despite reduced revenue in the trailing 12 months, PST demonstrated the ability to flex costs. And the segment was able to maintain an operating margin of 6.1%. We expect continued volatility in Brazil for the remainder of the year. Longer term, we remain focused on developing our in-region OE capabilities to position the segment for long-term stability.
On Page 15. We are updating our full-year guidance and providing some additional detail on our expectations for second-half margin improvement and the cadence and drivers of that improvement. As Jon discussed previously, revenue in the second quarter exceeded our expectations. We expect the delayed rollout of the MirrorEye retrofit program and the forecasted unfavorable impact of foreign currency for the remainder of the year to more than offset the revenue outperformance in the second quarter.
More specifically, for the remainder of the year, we expect currency headwinds to impact revenue by $8 million to $10 million and earnings per share by a few cents. With the exception of a timing delay in MirrorEye revenue and currency headwinds, our expectations for topline performance for the remainder of the year remain relatively unchanged versus our prior guidance. This results in a reduction to our midpoint revenue guidance of $7.5 million to $840 million for the full year. We expect that the third-quarter revenue will be slightly greater than fourth-quarter revenue.
We expect continued improvement in our operating margin throughout 2019. As a result, we are forecasting a second-half adjusted operating margin of 7% to 8% relative to the first-half adjusted operating margin of 6.4%. We expect improvements to be driven by reduced costs as we begin to wind down the Canton facility; continued reduction in electronic component costs, and our commitment to continuous improvement in our operations. Generally speaking, these improvements are compounding as we move through the year.
And in some cases -- for example, the Canton enclosure -- are more directly impactful toward the end of the year. As a result, we expect our fourth-quarter margin to improve by approximately 100 basis points relative to our expectations for the third quarter. This morning, we are increasing our full-year adjusted EPS guidance to a midpoint of $1.66 from $1.625, an increase of $0.035 over previously provided guidance. We expect the favorable impact of the share repurchase program, as well as our expectations for reduced tax rate relative to prior guidance, will more than offset our reduced revenue expectations for the remainder of the year.
Moving to Slide 16. In closing, I want to reiterate that we are pleased with our performance during the quarter. We delivered strong results in all our key financial metrics and continued to position the company for long-term growth with the announcement of a number of significant business awards. This morning, we are updating our guidance and increasing our full-year adjusted EPS guidance by $0.035 to $1.66.
Stoneridge is committed to driving shareholder value. And that focus remains at the forefront of all of our strategic initiatives. With that, I will open up the call to questions.
Questions & Answers:
Operator
[Operator instructions] Your first question comes from the line of Scott Stember from CL King.
Scott Stember -- C.L. King and Associates -- Analyst
Good morning, guys, and thanks for taking my questions. Can you maybe talk about the retrofit delay for a quarter or two? It sounds like much of this was driven by, I guess, better-than-expected demand. But you also talk about processed and product refinements. Could you maybe just walk us through the entirety of the decision to delay for a couple of quarters?
Jon DeGaynor -- President and Chief Executive Officer
As we have really said since the start of the first trials with Schneider, J.B. Hunt and Maverick, our goal is to develop a system that's robust and really instills confidence in the driver. So as we've gone through this evaluation, we constantly receive driver feedback throughout the period. And it's a constant feedback loop.
As a result of that feedback, we're continuing to improve the system, add features like backup lines and functionality to ensure that the entire system is ready for high-volume production. As a result of trying to take in the feedback and incorporate the improvements to both the product and the overall system and make design changes to make sure to improve that, we've decided to delay some of the fleet trials to get all of those improvements implemented.
Scott Stember -- C.L. King and Associates -- Analyst
But obviously, the demand -- [inaudible] because demand is still very strong, right?
Jon DeGaynor -- President and Chief Executive Officer
Yeah. Sorry, Scott, I didn't answer the second half of the question. This is not a question of whether there is interest in demand from the fleets. We have -- we talked about 10 fleets that we have installations on and a list of fleets beyond that.
The list of fleets lined up continues to expand. We're not at all concerned about the demand. One of the reasons why we're taking our time on this is to make sure that the product is robust, that every driver that experiences this system immediately feels confident, and that we're doing it in the right way. So it's not an issue of market demand.
It's not an issue of whether we're confident in the system. It's really an issue of making sure that we're doing this at the right cadence and in the right timing.
Bob Krakowiak -- Chief Financial Officer
Yeah, Scott, it's Bob. I would also say, just based upon some of the feedback that we've heard from the fleets, we're actually more optimistic about take rates than we had been historically.
Scott Stember -- C.L. King and Associates -- Analyst
And then, just staying on the MirrorEye topic. Just two follow-up questions, then I'll jump back into the queue. You talked about the European market for busses. Maybe just talk about that system? Is it similar in operations to the system that you have for trucks here? Maybe could you talk about the opportunity? And also, Bob, I think you made a comment about some tangential or adjacent types of opportunities from your, I guess, next year at some point?
Bob Krakowiak -- Chief Financial Officer
Scott, the MirrorEye system, as applied to the bus, is largely common with the MirrorEye system as applied to a truck, or to a semi-truck. You don't need the trailer panning in the same way. But the overall system functionality is the same. So we haven't specifically talked about what that market size is.
We'll provide more information on that in the future. As we talk about what's next, we've said multiple times, including in the last earnings call, that MirrorEye isn't as much a product as it is a platform. So we'll continue to add capabilities, we'll continue to add additional technology, so it becomes really an active safety platform. And we'll be continuing to roll out and announce additional technology additions throughout the balance of this year and into next.
Scott Stember -- C.L. King and Associates -- Analyst
All right. That's all I have for now. Thank you.
Operator
Your next question comes from the line of Justin Long from Stephens.
Justin Long -- Stephens Inc. -- Analyst
Thanks, and good morning. So maybe to stick with MirrorEye for my first question, just to clarify -- so it sounds like the delay in the MirrorEye retrofit is more a function of incremental improvements that you're making to the product versus any problems that have come up. So first, if you could just clarify that? And secondly, as you think about the MirrorEye retrofit opportunity in 2020, would you say that it's bigger than you thought a quarter ago based on some of the feedback you've received?
Jon DeGaynor -- President and Chief Executive Officer
So Justin, as we talked since we started the MirrorEye trials, what we're working on is making sure that because -- one, trucks are a piece of production equipment; two, drivers are necessarily skeptical of new technology; and three, it is a safety product that we're putting on a vehicle; we're being very conservative with the way in which we roll these out to make sure that we're getting feedback and that we're learning, and that we're iterating the system as we go. And that's why we've said to you how we've seen the rollout. And in certain situations, we've decided to slow it down a little bit to make sure that we are taking all of that feedback and implementing that fully into the systems. So there's a tremendous amount of interest.
We have continued to develop the product, and we feel confident in it. With regard to what we see going forward, what I would say to you is I think the opportunities are at least as great, if not greater. But we're not going to give a specific guide on what's going to happen in 2020 with regard to retrofits.
Justin Long -- Stephens Inc. -- Analyst
That makes sense. But it sounds like, to your point earlier, addressable market hasn't changed, your thoughts around the opportunity hasn't changed? It's really just a timing issue?
Jon DeGaynor -- President and Chief Executive Officer
That's exactly right.
Justin Long -- Stephens Inc. -- Analyst
And then, Jon, I want to circle back to a comment that you made in the prepared remarks about an expansion of some of your core product lines. And I think you said that includes some things you can incorporate into MirrorEye, and that's something you're going to talk about more this year. But is there any initial color you can provide to us on what these products look like, what that opportunity looks like? Would love to get some initial thoughts.
Jon DeGaynor -- President and Chief Executive Officer
Yeah. And Justin, you know well that we've got NACV in Atlanta and ATA in San Diego this year later in the year. And we continue to take feedback from our fleet partners, as well as from our OE partners. And all of the work that we're trying to do is -- MirrorEye is not just a pull the mirrors off the truck and replace it with a camera and a display.
It becomes part of an active safety system. And as we're working on these things, and as we're working with the OEs, what we're hearing from the fleets and what we're hearing from the OEs is we like to have additional capabilities. It's where, for example, the backing lines. It's where -- how do we integrate additional sensing capabilities into an active safety solution? And what do we do? Not focus on looking forward in the truck but providing an active safety solution around the truck.
So I'm not going to give you a specific product example. But I will tell you that there will be -- this is a platform. We'll be building upon the platform. What we're doing in the fleet trials and what we're doing with our OE partners gives us great confidence that there will be additional product expansions happening and being announced within the next months.
Justin Long -- Stephens Inc. -- Analyst
And just to be clear, those kind of Bolton products with MirrorEye, that's not included in the addressable market figures that you previously provided?
Jon DeGaynor -- President and Chief Executive Officer
No, it's not. And one of the reasons why we have been doing the trials that we've been doing is to try to give voice to the customer and understand what they really need and what they really want and what they value.
Justin Long -- Stephens Inc. -- Analyst
OK. Great. I'll leave it at that. I appreciate the time today.
Operator
Your next question comes from the line of Chris Van Horn from B. Riley FBR.
Chris Van Horn -- B. Riley FBR -- Analyst
Good morning, guys. Thanks for taking my call. I just -- shifting away from MirrorEye maybe, could you just give us, in terms of your guidance for the balance of the year, any puts and takes around the automotive markets? And if you can get into region, that's great. But maybe what you're using for underlying production and your passenger car exposure, and any other commentary? That'd be great.
Bob Krakowiak -- Chief Financial Officer
Happy to do that. I talked about it a little bit in my comments, but I'll give you a little bit in terms of where the IHS data is right now. And so we always use IHS data for pass car; we use LMC data for commercial vehicle. And if you look at the current outlook, I'll give you the primary markets for Stoneridge and what's currently forecast.
So right now, well, speaking to our guidance for 2019 for North America pass car is down 2.2%. North American commercial vehicle is up 2.2%. If you look at Europe pass car is down 2.1%. Europe commercial vehicle is up 0.7%.
And then, Brazil is pass cars up about 7%. So those are the primary end markets and the primary influencers. In terms of what's in our guidance, talked about that a little bit in my comments, Chris. I think it's really important to understand that absent the MirrorEye delay.
And currency has been a pretty big impact for us. In the second half of the year, it's going to be in the $8 million to $10 million range from a revenue perspective if the current forecasts hold up. So if you look at everything else, our portfolio -- you saw the outperformance in the second quarter, so our portfolio is actually performing quite a bit better than the underlying vehicle markets. And we expect that to continue in the second half of the year.
So really, our outlook is basically unchanged with respect to the rest of the portfolio in the second quarter of the year.
Chris Van Horn -- B. Riley FBR -- Analyst
And correct me if I heard you wrong, but it sounds like China is going to become a bigger business for you through 2020. I think you said something like sales will double from 2018 to 2020. Can you talk about -- are those things that you have in the backlog that you have visibility? Are there upcoming awards that you're pretty confident about? What kind of goes into that sales doubling comment?
Jon DeGaynor -- President and Chief Executive Officer
Thanks, Chris. This is Jon. We're really excited about what's happening in China. And yeah, it does become a more important portion of Stoneridge.
But I think it's important for you and everybody to note that it's not directly related to just their China SAR, if you will. It's very much a content change. We've discussed in the past the fact that Beijing 6 is being implemented. And with the implementation of new emissions regulations for passenger cars in China, there's huge growth opportunities for us and our Emissions products in China.
And that's one of the key foundations for our growth. And so yeah, that is backlog based. And it's market based, and it's a content growth based. The second thing, and we talked about it in this call, is awards of Shift-by-Wire programs, both Shift-by-Wire and Park-by-Wire programs, both for the China market, as well as made in China for other markets.
So those are awards backlog additions that we see launching over the next 12 to 18 months.
Chris Van Horn -- B. Riley FBR -- Analyst
OK. Great. Thanks for the time this morning, guys.
Operator
[Operator instructions] Your next question comes from the line of Gary Prestopino from Barrington Research.
Gary Prestopino -- Barrington Research -- Analyst
Hi. Good morning, everyone. Most of those questions have been answered. But just on your accelerated share repurchase, it looks like you bought about 1.5 million shares.
Is that correct, Bob?
Bob Krakowiak -- Chief Financial Officer
Yeah, that's correct. Yeah. So the way the program works, Gary -- I'll give everybody an overview -- is that basically, we receive 80% of the shares initially, and we retire them for EPS purposes. And then our counterpart goes out of the market, repurchases those shares.
And they complete it over a nine- to 12-month time frame, and they notify us when the program has been completed. And we true it up based upon whatever the volume weight is, whatever the VUF is less a negotiated discount that we've negotiated with counterparty.
Gary Prestopino -- Barrington Research -- Analyst
But some of that impact is in Q2, is that correct? And then, the full impact will be felt in the shares outstanding in Q3? Is that how I'm reading it?
Bob Krakowiak -- Chief Financial Officer
Yeah, that's correct. So we did the retirement. From an EPS perspective, it was about a penny of improvement in the second quarter as a result of the share repurchase program. Yeah.
Gary Prestopino -- Barrington Research -- Analyst
And then, just lastly on the tax rate with this decline that you now have, does that carry over into 2020 in terms of just for [inaudible] --
Bob Krakowiak -- Chief Financial Officer
We haven't given guidance, we haven't given any specific tax guidance on 2020. What we've said for the balance of the year is -- so it's important to mention that the rate is going to go down for the full year, but it's primarily the benefit that we've seen in the first half run rate, not necessarily a benefit in second half. So the 22.5 that we've provided is a pretty good number for the second half of the year.
Gary Prestopino -- Barrington Research -- Analyst
OK. Thanks a lot.
Operator
Your next question comes from the line of Scott Stember from CL King.
Scott Stember -- C.L. King and Associates -- Analyst
Hey, guys, just a follow-up question on tariffs. You gave a lot of good details about what you're doing this year to reclaim some of that back to the bottom line. But you talked about, I think, identifying $2 million worth of potential loss that's for next year and beyond. Can you maybe just flesh that out a little bit?
Bob Krakowiak -- Chief Financial Officer
Yeah. So the $2 million, I'm happy to talk about that. I'm very excited to talk about that. And it's consistent with what we talked about last quarter.
The over $2 million in offsets is really around the electronic component allocations, Scott. So we have a number of components, just the industry with the demand for electronics. We have a number of products that are on allocation. And we're paying premiums in some cases to purchase components.
I talked about this a little bit last quarter, where we had supplies bringing additional capacity on. I mean, there's really just three ways that you work your way out of this. First way is you've got supplies that are bringing on this incremental capacity in the second half of the year. We'll see the benefit of that.
Also, changing your product designs, which we're doing some of that as well. That's got a little bit of a longer lead time. And then, the third way you do it is you look at the specification on the product, and you potentially go from an industrial grade speculation to an automotive grade speculation component. So you effectively broaden your opportunity to purchase components and alleviate some of those component allocations.
So we've done all three of those. And right now, we're very comfortable. We've got contacts in place, we've got agreements in place, where if you just look at the run rate, the run rate's going to go down by about over $2 million next year, just based on what we've done to date.
Scott Stember -- C.L. King and Associates -- Analyst
And again, those $2 million are above and beyond what you've already talked about for this year?
Bob Krakowiak -- Chief Financial Officer
Yeah, that's correct.
Scott Stember -- C.L. King and Associates -- Analyst
Got it. All right. That's all I have. Thanks again.
Operator
Your next question comes from the line of Justin Long from Stephens.
Justin Long -- Stephens Inc. -- Analyst
Thanks for taking the follow-up. Just had one other modeling question I wanted to ask that's kind of along the same lines of that last question. But you talked about currency, electronic component allocations and tariffs all having a negative impact in the second quarter. And I think collectively, those three items were a little over a $4 million operating income headwind?
Bob Krakowiak -- Chief Financial Officer
Correct.
Justin Long -- Stephens Inc. -- Analyst
Do you have the total operating income headwind from those three items for the full years, what's baked in the guidance?
Bob Krakowiak -- Chief Financial Officer
Yeah. So in terms -- so for the full year, you know what, Justin, we haven't provided that level of income. Because, candidly, we're still working through some of these items in the second half. It's still a little bit of a moving target with some of the negotiations we're doing around electronic components.
But the electronic component run rate -- Jon made a comment in his remarks that we've identified, I think, $700,000 worth of savings in the second half of the year on electronic components versus the run rate. I talked a little bit about currency, Justin, in the second half in my comments as well. I said it was a few cents of EPS from an EPS perspective. So that'll give you a little bit of an idea.
And then, on tariffs, that's got a little bit more of a long tail. We have some savings in for tariffs, but it's just longer lead time. So it's not as material in the second half.
Justin Long -- Stephens Inc. -- Analyst
And then, with the changes to the guidance, was wondering if that changes your expectation on free cash flow conversion that I think you've said historically should be around 100%?
Bob Krakowiak -- Chief Financial Officer
No, doesn't change our expectation around free cash flow guidance, Justin.
Operator
I am showing no further questions at this time. I would now like to turn the conference back to Mr. Jon DeGaynor.
Jon DeGaynor -- President and Chief Executive Officer
Thank you. And thanks, everybody for your participation in today's call. In closing, I can assure you that our company is committed to continue to drive shareholder value through strong operating results, profitable new business and focused deployment of our available resources. This management team will response efficiently and effectively to manage and control variables that we can impact and continue to drive strong financial performance.
We are confident that our actions will result in continued success for 2019 and beyond. Thank you.
Operator
[Operator signoff]
Duration: 47 minutes
Call participants:
Matt Horvath -- Director of Investor Relations
Jon DeGaynor -- President and Chief Executive Officer
Bob Krakowiak -- Chief Financial Officer
Scott Stember -- C.L. King and Associates -- Analyst
Justin Long -- Stephens Inc. -- Analyst
Chris Van Horn -- B. Riley FBR -- Analyst
Gary Prestopino -- Barrington Research -- Analyst
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