UPDATE 2-TRW profit beats estimates, 'cautious' on Europe

Tue Jul 31, 2012 9:54am EDT

DETROIT, July 31 (Reuters) - TRW Automotive Holdings Corp reported a better-than-expected second-quarter profit on Tuesday, but slightly lowered its 2012 revenue outlook due to the economic crisis in Europe and its effect on auto sales.

Excluding one-time items, the automotive parts supplier reported a profit of $1.72 per share. Analysts, on average, had expected $1.55 per share, according to Thomson Reuters I/B/E/S.

"TRW is the only auto stock in our coverage with material European exposure that beat both revenue and EPS expectations this quarter, no small feat," Jefferies & Co analyst Peter Nesvold said in a research note.

More than half of TRW's sales are from Europe, Nesvold said. TRW's shares rose 5.6 percent, or $2.04, to $38.48 in morning trading.

Net income fell due to a higher effective tax rate in the current period coupled with increased spending on raw materials and higher spending on the company's expansion. TRW posted a net income of $220 million, or $1.71 per share, compared with $293 million, or $2.21 per share a year earlier.

Revenue rose slightly to $4.24 billion from $4.23 billion.

Livonia, Michigan-based TRW, which makes braking systems, seat belts and airbags, projected annual sales between $16.2 billion and $16.4 billion. TRW had previously projected 2012 revenue of up to $16.6 billion.

"TRW remains cautious in the near-term as our 2012 guidance provided today reflects the difficult economic environment in Europe and its negative impact on the automotive industry," Chief Executive Officer John Plant said in a statement.

On Monday, a German subsidiary of TRW agreed to plead guilty in a U.S. Department of Justice probe into price fixing of auto parts, like airbags, steering wheels and seatbelts. TRW, the seventh company to settle in the DOJ probe, agreed to pay a $5.1 million fine.

Nesvold called the fine "surprisingly low" given that another supplier who settled, Autoliv Inc, paid $14.5 million. A similar probe by the European Commission is still ongoing.

"An eventual resolution of the EC investigation is a material catalyst for TRW shares, because it would open the door to a possible credit upgrade, debt refinancing and material share repurchase roughly in that order over the next 12 to 15 months," Nesvold said.

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