Sales up 7 percent to $1.9 billion, Operational EBITDA of $180 million and Free Cash Flow of $67 million
Q2 2014 Highlights
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Sales of $1.9 billion, or 7 percent higher than Q2 2013
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Operational EBITDA of $180 million or 9.6 percent of sales, up from $162 million or 9.3 percent of sales in Q2 2013
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Operating income of $100 million, up $10 million from Q2 2013
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Adjusted net income from continuing operations of $50 million
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Free Cash Flow of $67 million in Q2 2014
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Adjusted net income per share from continuing operations was $0.33 in Q2 2014
Federal-Mogul Holdings Corporation (NASDAQ: FDML) today announced financial results for the second quarter ended June 30, 2014. Net sales for the second quarter were $1,872 million, an increase of 7 percent on a continuing operations basis, versus the second quarter of 2013. Operating income improved $10 million, or 11 percent in Q2 2014 over the same period last year. The net loss attributable to Federal-Mogul in Q2 2014 was $5 million or $0.03 loss per share. The company recorded $30 million in restructuring charges during the quarter related to its restructuring programs and $2 million in impairment charges. In addition, as a result of the successful refinancing of the company’s debt structure, the company recorded a loss of $24 million in the quarter related to the write-off of the unamortized debt discount on previous debt. When excluding these two items, adjusted net income from continuing operations in Q2 2014 was $50 million. Operational EBITDA was $180 million or 9.6 percent of sales in the second quarter of 2014, up from $162 million, or 9.3 percent of sales, in Q2 2013. Free Cash Flow was $67 million in Q2 2014. Adjusted net income per share from continuing operations was $0.33 in 2014.
| Financial Summary ($ millions) |
Q2 2014 | Q2 2013 | B/(W) |
| Net Sales | $1,872 | $1,744 | $128 |
| Gross Margin pct. of sales |
$297 15.9% |
$278 15.9% |
$19 0% |
| SG&A pct. of sales |
$(195) (10.4%) |
$(184) (10.6%) |
$(11) 0.2% |
| Operating Income1 | $100 | $90 | $10 |
| Restructuring and Impairment Charges | $(32) | $(10) | $(22) |
| Net (Loss) Income from Continuing Operations | $(3) | $63 | $(66) |
| Adjusted Net Income from Continuing Operations2
Net (Loss) Income |
$50
$(5) |
$52
$56 |
$(2)
$(61) |
| (Loss) Earnings Per Share in dollars, diluted EPS |
$(0.03) | $0.57 | $(0.60) |
| Operational EBITDA3 pct. of sales |
$180 9.6% |
$162 9.3% |
$18 0.3% |
| Free Cash Flow4 | $67 | $73 | $(6) |
Powertrain (PT) Division Results
Federal-Mogul’s Powertrain (PT) division continued to gain market share in all regions with revenue of $1.2 billion, an increase of $90 million or 8 percent versus Q2 2013 with negligible exchange impact. Revenue in North America was up 12 percent, while light vehicle production was flat in Q2 2014 and commercial vehicle (CV) production grew by 5 percent. In Europe, Q2 2014 revenue was up 5 percent on a constant dollar basis, compared to a slight increase in light vehicle production of 1 percent in Q2 2014 and a decline in CV production of 6 percent. PT revenue in ROW was up 11 percent on a constant dollar basis, driven by strong sales in China where sales increased by 24 percent compared to Q2 2013. The PT division’s regional revenue rates in all regions grew at a higher percentage than the underlying market production growth rates.
PT Operational EBITDA was $117 million or 10.1 percent of revenue compared to $105 million or 9.8 percent of revenue in Q2 2013 as the PT division benefitted from higher sales volumes and market share gains.
“The improvements in Federal-Mogul Powertrain division’s Q2 revenue and EBITDA were driven largely by volume increases and market share gains across all regions,” said Rainer Jueckstock, Federal-Mogul Co-CEO and CEO, Powertrain Division. “We also continue to make operational progress by restructuring and realigning our manufacturing footprint to improve our cost competitiveness.”
Motorparts Division Results
Federal-Mogul’s Motorparts division reported revenue of $791 million in Q2 2014 compared to $761 million in Q2 2013, with negligible exchange impact. When excluding the impact of sales related to the Affinia acquisition which closed during the quarter, revenue was essentially flat. Sales in the US and Canada aftermarket increased by 4 percent. This was offset by a 6 percent decline in European sales on a constant dollar basis largely due to general softness in both the aftermarket and OE service channels. Export sales to Venezuela were also lower.
Motorparts Operational EBITDA was $63 million or 8 percent of revenue in Q2 2014, up $6 million from $57 million or 7.5 percent of revenue in Q2 2013. Included in Operational EBITDA for the current quarter were transaction costs of $3 million related to the Affinia and Honeywell acquisitions and $2 million of expenses related to strategic initiatives.
“We continued to make progress on our strategic priorities during the second quarter. Specifically, we secured locations and started the build-out of full product line regional distribution centers in Southern California and Eastern Pennsylvania. We also began implementation of a new, web-based inventory management system; invested in our sales force and technical training programs; and launched a new product development process,” said Dan Ninivaggi, Federal-Mogul Co-CEO and CEO, Motorparts Division. “In addition, we completed the Affinia chassis acquisition on May 1 and, shortly after quarter-end, closed the Honeywell brake acquisition. At the same time, we have recruited several new senior executives and streamlined our organizational structure.”
Affinia and Honeywell Acquisitions Closed
On May 1, 2014, the Motorparts division successfully completed its previously announced acquisition of Affinia’s chassis components business. The Affinia business serves leading North American aftermarket customers with premium chassis products, and complements Federal-Mogul’s industry-leading chassis business. On July 11, 2014, Federal-Mogul successfully completed its previously announced acquisition of certain business assets of the Honeywell Friction Materials business. The Honeywell Friction Materials business is headquartered in Glinde, Germany, with significant manufacturing capacity in Romania and China.
Analyst Call
Federal-Mogul will conduct a conference call and audio webcast on July 23 at 10:00 a.m., EDT.
To facilitate rapid connection the morning of the call, please click here to pre-register.
To participate in the call, dial the following numbers:
Domestic calls: 888.680.0890
International calls: 617.213.4857
Passcode I.D.: 11612248
An audio replay of the call will be available two hours following the call and will be accessible until August 23 at:
Domestic calls: 888.286.8010
International calls: 617.801.6888
Passcode I.D.: 73504144
Further information is available at www.federalmogul.com/investors.
Definitions
(1) Operating Income is defined as net (loss) income from continuing operations less interest, taxes, restructuring and impairment charges, loss on extinguishment of debt and OPEB curtailment gains or losses. Note: Presented on a continuing operations basis.
(2) Adjusted net income from continuing operations is defined as net (loss) income from continuing operations less restructuring and impairment charges, loss on extinguishment of debt, OPEB curtailment gains or losses and related tax impact on these items.
(3) Management believes that Operational EBITDA provides supplemental information for management and investors to evaluate the operating performance of its business. Management uses, and believes that investors benefit from referring to Operational EBITDA in assessing the Company’s operating results, as well as in planning, forecasting and analyzing future periods as this financial measure approximates the cash flow associated with the operational earnings of the Company. Additionally, Operational EBITDA presents measures of corporate performance exclusive of the Company’s capital structure and the method by which assets were acquired and financed. Operational EBITDA is defined as earnings from continuing operations before interest, income taxes, depreciation and amortization, and certain items such as restructuring and impairment charges, Chapter 11 and U.K. Administration related reorganization expenses, gains or losses on the sales of businesses, the non-service cost components of the U.S. based funded pension plan, OPEB curtailment gains or losses, the income statement impacts associated with stock appreciation rights, and loss on extinguishment of debt.
(4) Free Cash Flow is defined as net cash provided from (used by) operating activities less capital investment for plant, property and equipment.
