SOUTHFIELD, Mich. – Federal-Mogul Holdings Corp. has announced financial results for the first quarter ended March 31, 2015. Net sales for the first quarter were $1,835 million, an increase of 3 percent versus the first quarter of 2014 despite the negative impact of the appreciation of the U.S. dollar against several global currencies. On a constant dollar basis, net sales increased by 13 percent versus the first quarter of 2014 (Q1 2014).
The net loss attributable to Federal-Mogul in the quarter was $11 million or $(7 cents) per share after recording $18 million of costs related to restructuring, impairments and the required divestiture of two facilities in connection with the Honeywell brake components acquisition. In addition, the company’s Motorparts division recorded $27 million in costs related to strategic initiatives and the integration of the Affinia and Honeywell acquisitions. When excluding these items, adjusted net income in the first quarter of 2015 (Q1 2015) was $38 million.
Operational EBITDA was $140 million or 7.6 percent of sales in Q1 2015 compared to $169 million or 9.5 percent of sales in Q1 2014. During the quarter, the company successfully completed a shareholder common stock rights offering of $250 million and the acquisition of TRW’s engine valve business.
Powertrain Division
Federal-Mogul’s Powertrain division maintained strong performance in the quarter with revenue of $1,138 million. The Powertrain division generated approximately 70 percent of its revenue outside of the United States, and the resulting currency movements decreased sales by approximately $110 million. On a constant dollar basis, revenue increased 12 percent compared to Q1 2014. The increase in Powertrain’s revenue reflects the inclusion of TRW’s engine valve business, which closed on Feb. 6, 2015, as well as increases in volume and market share gains in the quarter. When excluding the impact of sales from the engine valve acquisition, sales in North America increased by 4 percent, while light vehicle production and commercial vehicle production increased by 1 percent and 18 percent, respectively. In EMEA, sales increased by 4 percent compared to flat light vehicle production and a 2 percent increase in commercial vehicle production. Revenue in ROW increased by 4 percent compared to an increase in light vehicle production of 2 percent and a decrease in commercial vehicle production of 9 percent.
Operational
EBITDA was $110 million or 9.7 percent of revenue, compared to $117 million or 10.3 percent in Q1 2014. Operational EBITDA was impacted by $15 million in negative foreign currency movements during the quarter.
On Feb. 6, 2015, Federal-Mogul’s Powertrain division closed on material portions of the previously announced acquisition of TRW’s engine valve business. The acquisition strengthens the division’s product offerings by adding a new product line to the portfolio. In addition, the new valve business contributed to the Powertrain division’s earnings during Q1, net of integration costs.
During the quarter, to support volume growth and market share gains, the Powertrain division continued to expand its global manufacturing footprint with new joint ventures and plant openings in low-cost, high-growth regions of the world. Federal-Mogul Powertrain invested in a new majority-owned joint venture for sealing and gasket production in Pune, India. The company also started production in new facilities in Puebla, Mexico, for piston rings and in Changshu, China, for systems protection products. The Powertrain division will continue to invest in new manufacturing facilities throughout 2015 in Turkey, China and other important regions to support production of core product lines.
Federal-Mogul Powertrain was also the recipient of two Automotive News PACE awards, which recognize automotive suppliers for superior innovation, technological advancement and business performance. The company earned two awards for innovative process and product technologies, bringing the total number of PACE awards earned since 2005 to 13 – a clear demonstration of the company’s commitment and ability to innovate to reduce costs, improve engine performance and reduce fuel consumption and emissions.
“Federal-Mogul Powertrain in Q1 2015 continued to improve global sales across its core product lines on increased vehicle production and customer demand for our advanced technologies,” said Rainer Jueckstock, Federal-Mogul co-CEO and CEO, Powertrain Division. “During Q1, we made capacity investments in important markets, including China and India, and are progressing well with the integration of our newly acquired valve business. While currency movements have had an impact on our financial results during Q1, we continue to perform above market growth. Finally, we are working to improve operational efficiency within our plants and are well underway to improve margin levels.”
Motorparts Division
Federal-Mogul’s Motorparts division reported revenue of $773 million in Q1 2015 compared to $720 million in Q1 2014, an increase of 7 percent, or 15 percent on a constant dollar basis. The increase was driven by sales from the Affinia chassis and the Honeywell brake component acquisitions, net of the loss of sales from the required divestiture of two facilities in the quarter. The division’s revenue increase was partially offset by lower sales in the North American aftermarket due to distribution center consolidation and related IT implementation inefficiencies in the first part of the quarter. On a comparable basis, excluding exchange and the Honeywell acquisition, sales in EMEA were relatively flat compared to Q1 2014 notwithstanding continued weakness in Eastern Europe. Aftermarket sales in Western Europe, excluding the impact of exchange, were up by approximately 3 percent. In ROW, sales increased by 37 percent due to the Honeywell acquisition, as well as continued growth in China and India aftermarket business from both product line and customer expansion in the region.
Motorparts recorded Operational EBITDA of $30 million or 3.9 percent of sales in Q1 2015, compared to $52 million or 7.2 percent of sales in Q1 2014. The results for the first quarter reflect the ongoing investment in the business, including $13 million in incremental costs associated with strategic initiatives and $14 million of costs related to the integration of the Affinia and Honeywell acquisitions. Additionally, Operational EBITDA was further impacted by $8 million related to negative foreign currency movements.
“Federal-Mogul Motorparts continues to make progress on its strategic initiatives. We are ramping up our new full product line distribution centers in southern California and eastern Pennsylvania and are on track to roll-out a new enterprise-wide IT platform in North America beginning in the second quarter. In April, we opened three ‘Garage Gurus’ training and customer support centers in New York, Chicago and Los Angeles.
“These facilities are a central element of our ‘Tech First’ initiative, which is designed to support repair shops and professional service technicians in multiple ways. Additionally, we are in the planning stages of extending these initiatives to Europe and Asia,” said Daniel Ninivaggi, Federal-Mogul co-CEO and CEO, Motorparts Division. “During the quarter, we made significant progress on the integration of the Honeywell and Affinia acquisitions. However, while the Honeywell transition has progressed as planned, the Affinia distribution center integration has been more challenging than expected. We devoted significant resources to address the situation and were able to exit the quarter with substantially improved run-rate performance.”
