By Ben Klayman
DETROIT Feb 5 Vehicle parts maker Delphi
Automotive Plc on Tuesday posted a better-than-expected
profit on increased demand in its core electrical business and
lower taxes, and forecast an increase in 2013 results broadly in
line with Wall Street's expectations.
The company, whose shares were up 0.77 percent in midday
trade, expanded its previous restructuring activities by about
$50 million to about $300 million, citing weakness in Europe. It
said about three-quarters of its restructuring costs are in that
region, including job cuts and plant closures.
Delphi Chief Executive Rodney O'Neal cited the "challenging
environment" in Europe. "We implemented several restructuring
initiatives, primarily in Europe and we continue to rotate our
(factory) footprint to lower cost countries," he said on a
conference call with analysts.
In a later telephone interview, he said the European auto
sector has bottomed out and will start slowly improving toward
the end of the year.
The weak auto market in Europe has hurt the entire industry.
Last month, U.S. automaker Ford Motor Co forecast a $2
billion loss in Europe this year, pointing to a punishing
recession that could drive industry sales in the region to a
20-year low, while supplier Johnson Controls Inc
forecast a smaller-than-expected quarterly profit, citing lower
production in Europe.
Spun off from General Motors in 1999, Delphi emerged
from bankruptcy in 2009. Once the largest U.S. auto supplier, it
went bankrupt in 2005 after struggling with debt.
Net income in the fourth quarter fell to $136 million, or 43
cents a share, from $290 million, or 88 cents a share, a year
Excluding one-time items, Delphi earned 90 cents a share, 3
cents above what analysts polled by Thomson Reuters I/B/E/S had
Citi analyst Itay Michaeli said in a research note that a
lower tax rate allowed earnings to come in ahead of consensus
and the results were in line with the company's forecast.
Guggenheim Securities analyst Matthew Stover said the "unusually
low" tax rate boosted the quarterly profit by 10 cents a share.
Sales fell 3.4 percent to $3.77 billion, in line with what
analysts had forecast. The company, which was added to the
Standard & Poor's 500 index in December, saw growth in all
regions but Europe, where demand fell 18 percent.
In November, Delphi, citing weakness in the European auto
market, forecast fourth-quarter earnings excluding restructuring
costs in the range of 80 to 90 cents a share on revenue of $3.73
billion to $3.83 billion.
Morgan Stanley analyst Ravi Shanker said in a research note
that Delphi's electrical business, which saw sales rise more
than 8 percent to $1.77 billion, performed better than expected.
Adjusted earnings in that business rose 27 percent.
Delphi recorded about $170 million in restructuring charges
in the fourth quarter and it expects to take the rest of the
$300 million throughout 2013. It anticipates the restructuring,
including job cuts and plant closures it has not detailed, will
be "substantially completed" by the end of the year.
The fourth quarter also included $22 million in costs
related to the acquisition of the motorized vehicles division
from FCI Group last October.
For 2013, Delphi said it expected adjusted earnings of
$4.12 to $4.38 a share on revenue of $16.2 billion to $16.6
billion. Delphi's adjusted earnings last year were $3.84 a share
on revenue of $15.5 billion.
Analysts were expecting 2013 earnings of $4.25 a share on
revenue of $16.58 billion. However, Shanker called the 2013
revenue forecast conservative.
The company said its full-year forecast assumed an increase
in global vehicle production of 1 percent, but a decline of 4
percent in Europe. That includes the expectation of a 15 percent
decline in Europe in the first quarter, Chief Financial Officer
Kevin Clark said.
Delphi also expects industry production volume this year to
rise 9 percent in China, 5 percent in South America and 2
percent in North America.
For the first quarter, Delphi said it expects earnings of 93
cents to $1.00 a share on revenue of $3.9 billion to $4 billion.
Analysts were expecting $1.06 a share on revenue of $4.06
The weaker-than-expected, first-quarter forecast while still
maintaining full-year earnings expections "has been the common
narrative" for the auto sector, Guggenheim's Stover said in a
Delphi expects net new business of $3.2 billion over the
next three years, Clark said. From its previous forecast, that
was down $400 million for this year and up $100 million for