Q3 2014 Highlights
- Sales of $1.9 billion, or 11 percent higher than Q3 2013
- Operational EBITDA of $152 million, or 8.1 percent of sales
- Operating income of $70 million
- Adjusted net income from continuing operations of $20 million
- Adjusted net income per share from continuing operations was $0.13
- Continued investment in high growth markets and strategic initiatives for long-term growth
- Signed a definitive purchase agreement to acquire TRW’s engine valve business
- Announced plan to spin-off Motorparts division
Federal-Mogul Holdings Corporation (NASDAQ: FDML) today announced financial results for the third quarter ended September 30, 2014. Net sales for the third quarter were $1,871 million, an increase of 11 percent on a continuing operations basis, versus the third quarter of 2013. Operating income was $70 million in Q3 2014. The net loss attributable to Federal-Mogul in the quarter was $18 million or $(0.12) per share. The results for the quarter reflect restructuring charges of $25 million as well as $12 million related to recent acquisitions, preparing for the spin-off of the Motorparts division and headquarters relocation costs. When excluding these items, adjusted net income from continuing operations in Q3 2014 was $20 million. Operational EBITDA was $152 million or 8.1 percent of sales in the third quarter of 2014 compared to $147 million in Q3 2013. Free cash outflow was $8 million in Q3 2014. Adjusted net income per share from continuing operations was $0.13 in Q3 2014.
| Financial Summary ($ millions) |
Q3 2014 |
Q3 2013 |
B/(W) |
| Net Sales | $1,871 | $1,690 | $181 |
| Gross Margin pct. of sales |
$262 14.0% |
$255 15.1% |
$7 (1.1)% |
| SG&A pct. of sales |
$(210) (11.2%) |
$(177) (10.5%) |
$(33) (0.7)% |
| Operating Income1 | $70 | $68 | $2 |
| Restructuring and Impairment Charges | $(26) | $(5) | $(21) |
| Net (Loss) Income from Continuing Operations |
$(17) | $33 | $(50) |
| Adjusted Net Income from Continuing Operations2 |
$20 |
$37 |
$(17) |
| Net (Loss) Income attributable to Federal-Mogul |
$(18) | $38 | $(56) |
| (Loss) Earnings Per Share in dollars, diluted EPS |
$(0.12) |
$0.26 |
$(0.38) |
| Adjusted Earnings Per Share in dollars, diluted EPS |
$0.13 |
$0.26 |
$(0.13) |
| Operational EBITDA3 pct. of sales |
$152 8.1% |
$147 8.7% |
$5 (0.6)% |
| Free Cash Flow4 | $(8) | $58 | $(66) |
Powertrain Division Results
Federal-Mogul’s Powertrain division reported increased sales from improved light vehicle production and continued market share gains. Revenue increased by $53 million to $1.1 billion or 5 percent versus Q3 2013 with negligible exchange impact. Year-over-year, global light vehicle production increased by 3 percent and commercial vehicle (CV) production declined by 3 percent. In North America, revenue increased by 7 percent. In Europe, where approximately 50 percent of Powertrain revenue is derived, revenue increased by 4 percent. This compares to an increase in light vehicle production of 1 percent in Q3 2014 and a decline in CV production of 7 percent in Europe. Powertrain revenue in Rest of World was up 11 percent, driven by strong sales in China and India where sales increased by 17 percent and 10 percent, respectively. The sales increase in Asia represents approximately one-third of the Powertrain division’s quarterly sales increase as the company continues to aggressively invest in the region.
Powertrain Operational EBITDA was $104 million or 9.5 percent of revenue compared to $94 million or 9 percent of revenue in Q3 2013 as the Powertrain division benefitted from higher sales volumes and restructuring.
On September 10, 2014, Federal-Mogul’s Powertrain division signed a definitive purchase agreement to acquire TRW’s engine valve business, which brings a new product line to the portfolio, strengthens the division’s market position, and enhances its ability to improve fuel economy and reduce emissions for its customers. The transaction is subject to regulatory and other approvals and is expected to close in the first quarter of 2015.
“The Powertrain division gained market share in the third quarter due to increased volume and new business wins,” said Rainer Jueckstock, Federal-Mogul Co-CEO and CEO, Powertrain division. “We are delighted about signing the binding agreement to acquire TRW’s global valve business and, at the same time, continue to drive organic growth by investing in low-cost and emerging markets. Earlier this month we opened a state-of-the-art piston ring manufacturing facility in Puebla, Mexico. We are also in the final stages of a new Systems Protection facility in Changshu, China. All of these investments demonstrate our commitment to providing more efficient production that meets the needs of our customers.”
Motorparts Division Results
Federal-Mogul’s Motorparts division reported revenue of $859 million in Q3 2014 compared to $734 million in Q3 2013, with negligible exchange impact. When excluding the net sales increase of $151 million related to the Affinia chassis business and the Honeywell brake component business, revenue decreased by 3 percent. Excluding acquisition-related sales, sales in North America were down 4 percent primarily due to the exit of certain unprofitable business as well as lower sales in Mexico. Excluding acquisition-related sales, European sales decreased by 5 percent, largely as a result of weaker aftermarket and service channel sales including a significant decline in Eastern Europe. Sales in Rest of World increased by 7 percent driven by continued strong growth in Asia.
Motorparts Operational EBITDA was $48 million or 5.6 percent of revenue in Q3 2014 compared to $53 million or 7.2 percent of revenue in Q3 2013. The decline in Operational EBITDA as a percent of sales was largely due to $6 million of expenses related to strategic initiatives, a $4 million charge related to a one-time inventory write-down, a negative foreign exchange impact of $3 million and the inclusion of Honeywell’s results for the quarter. The integration of Honeywell’s business and the ramp-up of its new production facilities in Romania and China are expected to be accretive in 2015.
“We continued to make significant progress on our strategic priorities during the third quarter. We are on track to launch full product line regional distribution centers in Southern California and Eastern Pennsylvania later in the fourth quarter. We are in the realization phase of a new, on-line platform in the US and Canada, which is scheduled to go live in the second quarter of 2015. We have also secured several locations and commenced the build-out of new Technical Support Centers in the US in order to provide superior training resources and sales support for our customers. Integration of the recently acquired Affinia chassis and Honeywell brake component businesses are underway and proceeding smoothly, and we are actively pursuing other growth opportunities in emerging markets and through expansion into complementary product lines,” said Daniel Ninivaggi, Federal-Mogul Co-CEO and CEO, Motorparts Division. “It is my strong belief that these investments will make Federal-Mogul Motorparts a stronger company and allow us to provide greater value to our channel partners and end-customers.”
Spin-off of Federal-Mogul Motorparts
Federal-Mogul on September 3, 2014 announced its plan to separate its Powertrain and Motorparts divisions into two independent, publicly traded companies by spinning off the Motorparts division to current shareholders. The spin-off will provide additional operating and financial flexibility for each division to aggressively grow and improve its distinct business while preserving commercial benefits of continued collaboration in certain areas.
Completion of the transaction is subject to various approvals and conditions. While no assurances can be given regarding the ultimate timing of the separation or that it will be consummated, the company’s objective is to complete the spin-off of Federal-Mogul Motorparts in the first half of 2015.
