July 31, 2014 / 12:45 PM / 3 years ago

UPDATE 2-Delphi profit strong, but third-quarter outlook may disappoint

(Adds CEO, CFO comments, details, stock action, byline)

By Ben Klayman

DETROIT, July 31 (Reuters) - Delphi Automotive Plc reported stronger-than-expected second-quarter profit on Thursday, but offered a forecast for the third quarter that could fall short of analysts’ expectations, and shares fell 0.4 percent in morning trading.

The auto supplier said it would restructure in South America, where revenue slumped 24 percent in the second quarter.

“The macro environment in South America just continues to deteriorate,” Chief Executive Rodney O‘Neal said on a conference call.

Delphi expects a third-quarter profit excluding one-time items of $1.10 to $1.18 a share on revenue of $4.2 billion to $4.3 billion. Analysts polled by Thomson Reuters I/B/E/S expect profit and revenue at the higher end of those ranges, at $1.17 a share on revenue of $4.32 billion.

Net income in the second quarter rose 4 percent to $382 million, or $1.26 a share, compared with $367 million, or $1.17 a share, in the year-ago quarter.

Excluding one-time items, Delphi earned $1.42 a share, topping the $1.33 per share expectation of analysts.

Still, Morgan Stanley analyst Ravi Shanker said it was a “low quality” beat and results were “tepid.” He said Delphi’s operations were mostly in line, and results were helped by lower interest expense, tax rate and share count.

Revenue rose 5 percent to $4.45 billion, compared with the $4.47 billion Wall Street had forecast.

Shares were down 0.4 percent at $67.31 on the New York Stock Exchange.

Aside from the decline in South America, Delphi’s revenue in Asia and North America grew 13 percent and 7 percent, respectively, while Europe was flat.

The company’s planned cost cuts in South America, which makes up about 5 percent of total revenue, will include “fairly significant” job cuts, especially in Brazil, Chief Financial Officer Kevin Clark said.

For the year, Delphi now expects earnings before one-time items in the range of $4.95 to $5.10 a share on revenue of $17.2 billion to $17.6 billion. Clark said the company does not expect to top the mid-point of its revenue forecast.

It previously forecast earnings in a slightly lower range of $4.80 to $5.00 a share, though the revenue outlook is unchanged. Analysts expect $5.01 a share on revenue of $17.5 billion.

The company expects global vehicle production this year to rise about 3 percent to just under 91 million vehicles, including a rise of 5 percent in North America, 2 percent in Europe and 9 percent in China.

It sees output falling 15 percent in South America. Research firm IHS expects global auto sales this year to hit 85.46 million.

Delphi has been in the news in recent months because it supplied the defective ignition switch to General Motors Co which was linked to at least 13 deaths.

Earlier this month, in testimony to a U.S. Senate subcommittee, O‘Neal said his company simply made the switch that GM had requested. GM CEO Mary Barra agreed Delphi was not to blame. (Additional reporting by Bernie Woodall in Detroit; Editing by Bernadette Baum)

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