February 4, 2014 / 1:45 PM / in 4 years

UPDATE 2-Delphi posts strong quarterly profit, but Q1 outlook disappoints

By Ben Klayman

DETROIT, Feb 4 (Reuters) - Delphi Automotive Plc on Tuesday reported a stronger-than-expected quarterly profit on strong demand in its powertrain business, but the auto parts maker offered a forecast for the current quarter below Wall Street’s expectations.

“The fourth quarter itself was very good, but Delphi is looking for an unusually steep earnings ramp in 2014,” Morgan Stanley analyst Ravi Shanker said in a research note, calling the first-quarter forecast very weak.

However, Citi analyst Itay Michaeli said the weak forecast matched similar views at other auto suppliers that did not result in investors questioning full-year earnings guidance. He said the company’s stock performance remains inexpensive relative to its growth.

Shares in Delphi were up 67 cents, or 1.1 percent, at $59.80 in midday trading on the New York Stock Exchange.

Chief Financial Officer Kevin Clark told analysts on a conference call that the company remains cautious about the pace of the improving European economy and has concerns about weakening in South America.

Clark reiterated Delphi intends to further reduce its manufacturing footprint in Western Europe in 2014, bringing cash outlays related to restructuring to about $200 million.

Net income in the fourth quarter more than doubled to $298 million, or 97 cents a share, compared with $136 million, or 43 cents a share, a year earlier.

Excluding one-time items, Delphi earned $1.12 a share, 8 cents more than the figure analysts polled by Thomson Reuters I/B/E/S had expected.

Revenue rose 11 percent to $4.18 billion, above the $4.08 billion analysts had expected. Revenue grew 14 percent in Asia, 9 percent in North America and 7 percent in Europe, but fell 6 percent in South America.

Profit rose 38 percent in the company’s core electrical and electronic architecture business, and 20 percent in the powertrain systems unit. It also increased in the electronics and safety, and thermal systems businesses.

Morgan Stanley’s Shanker said the powertrain business drove the fourth-quarter outperformance versus analyst expectations.

However, Delphi’s forecast for the first quarter was weaker than expected. It forecast earnings before one-time items in the range of $1.04 to $1.08 a share on revenue of $4.2 billion to $4.3 billion. Analysts were expecting $1.19 a share on revenue of $4.36 billion.

For the full year, Delphi reiterated a forecast from last month that it expects to earn $4.70 to $4.95 a share before one-time items on revenue of $17.2 billion to $17.6 billion. Analysts were expecting $4.90 a share on revenue of $17.46 billion.

The company reaffirmed that the mid-point of its earnings forecast for the year assumes that global vehicle production increases 3 percent. Regionally, Delphi expects industry production to rise about 9 percent in China, about 5 percent in South America, about 4 percent in North America and about 1 percent in Europe.

That industry growth compares with expected 2014 revenue growth at the company of about 6 percent and earning per share growth of about 10 percent, Delphi said. Chief Executive Rodney O‘Neal also sees new business booking equal to or better than 2013’s $26.6 billion.

The company’s outlook still has Delphi’s sales growing about twice as fast as the expected growth in auto industry vehicle production, said Michael Razewski, principal with New York-based Douglas C. Lane & Associates, which owns Delphi shares.

“As long-term investors, I‘m not necessarily worried about first-quarter guidance, which was a little light,” he said. “It makes sense for the whole industry to be cautious. Under promise and over deliver, Delphi’s been doing that for three or four years now.”

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