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TRW Automotive Q3 Earnings Beat Estimates, Shares Soar

Share price of TRW Automotive Holdings Corp. (TRW) increased 0.2% to $101.5 on Oct 29, after the company reported a 15.1% increase in its third-quarter 2014 earnings to $1.75 per share from $1.52 (all excluding special items) a year ago. Also, earnings per share exceeded the Zacks Consensus Estimate by 6 cents. Net earnings (excluding special items) went up 9.6% to $205 million from $187 million in the third quarter of 2013.

Trw Automotive Holdings Corp - Earnings Surprise | FindTheBest

Including special items, TRW reported net income of $189 million or $1.61 per share in the third quarter of 2014 compared with $197 million or $1.60 per share a year ago.

Revenues in the quarter dropped 1.3% to $4.16 billion and missed the Zacks Consensus Estimate of $4.2 billion. Revenues benefited from increasing demand for the company's active and passive safety technologies as well as rising vehicle production volumes in North America and China. However, this increase was partially offset by the negative impact of the exit of some businesses in the North American brake component and assembly operations.

Adjusted operating income rose 6.8% to $314 million (7.6% of sales) from $294 million (7% of sales) in the year-ago quarter. The year-over-year increase was driven by favorable mix of products sold, positive impact of currency movements and cost-reduction initiatives, partially offset by increases in costs associated with future growth. Including all special items, operating income increased to $291 million from $289 million a year ago.

Earnings before interest, taxes, depreciation and amortization and special items (adjusted EBITDA) came in at $434 million in the quarter versus $403 million in the third quarter of 2013.

Restructuring

TRW announced that it will be acquired by ZF Friedrichshafen AG. The latter will invest $13.5 billion to buy all outstanding shares of TRW at $105.60 per share. The transaction is expected to end by the first half of 2015 subject to receipt of stockholders’ and regulatory approvals, and other customary closing conditions.

In the quarter, TRW announced an agreement to sell its engine valve business to Federal-Mogul Holdings Corporation (FDML) for $385 million. The deal is expected to be completed by the first quarter of 2015, subject to customary conditions, including regulatory, regional Supervisory Board and local works council approvals.

After the divestment of the engine valve business, TRW will be able to focus on its safety products line which includes active and passive safety technologies. The company intends to utilize the proceeds from this transaction for general corporate purposes. The engine valve business of TRW generated annual sales of approximately $610 million.

Capital Deployment

On Aug 29, 2014, TRW completed the $400 million accelerated share repurchase (“ASR”) program which was initiated in Feb 2014. The company purchased around 4.5 million shares for $400 million. TRW has $1.1 billion remaining under its repurchase authorization. This is restricted pursuant to the ZF merger agreement.

Since 2012, TRW has repurchased shares worth $1.2 billion.

Financial Details

TRW had cash and cash equivalents of $815 million as of Sep 26, 2014, compared with $1.7 billion as of Dec 31, 2013. Total debt decreased to $1.7 billion as of Sep 26, 2014 from $2.1 billion as of Dec 31, 2013.

In the first nine months of 2014, net cash flow from operating activities increased to $281 million from $240 million in the year-ago period. Capital expenditure inched down to $354 million in the period from $411 million in the comparable 2013-period. Consequently, free cash flow was a negative $73 million, compared with $171 million in the comparable period in 2013.

Outlook

For full-year 2014, TRW anticipates industry production of 17 million units in North America and 19.9 million units in Europe. Though vehicle production in China is expected to increase, Brazil remains a challenge for the company owing to the country’s unfavorable economic conditions.

Revenues for the year are expected to be $17.4 billion, down from the previous guidance of $17.5–$17.7 billion.

TRW is a leading manufacturer of advanced technology products and services for the automotive markets. Headquartered in Michigan, the company operates in 24 countries through its subsidiaries. These operations primarily involve the design, manufacture and sale of active and passive safety-related products. The company currently carries a Zacks Rank #3 (Hold).

Better-ranked automobile stocks worth considering include Gentex Corp. (GNTX) and Accuride Corp. (ACW), both of which sport a Zacks Rank #1 (Strong Buy).

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