Visteon's Biggest Loss Pushes Stock Down

Visteon’s Biggest Loss Pushes Stock Down

Wall Street pounded Visteon Corp. stock Friday after the former parts division of Ford Motor Co. reported by far the biggest quarterly loss in its short history as an independent company and underwhelmed investors with its expectations for the first quarter of 2004. Visteon reported a loss of $863 million, or $6.87 per share, for the final three months of 2003, bringing the full-year loss to $1.2 billion, or $9.65 per share. Over the last three years, Visteon has lost about $1.7 billion.

by Jamie Butters
Detroit Free Press Business Writer Wall Street pounded Visteon Corp. stock Friday after the former parts division of Ford Motor Co. reported by far the biggest quarterly loss in its short history as an independent company and underwhelmed investors with its expectations for the first quarter of 2004.

Visteon reported a loss of $863 million, or $6.87 per share, for the final three months of 2003, bringing the full-year loss to $1.2 billion, or $9.65 per share. Over the last three years, Visteon has lost about $1.7 billion.

Investors had already been warned about the bulk of the fourth-quarter loss, which came from tax accounting and other noncash expenses related to renegotiating Visteon’s spinoff from Ford.

“This was the kitchen-sink quarter in which the company’s accounts finally recognized actions that should have been taken by Ford prior to the 2000 spinoff,” said John Casesa of Merrill Lynch in a note to investors.

But the company’s profits from day-to-day operations were far worse than predicted by Wall Street analysts, who were expecting a loss of 59 cents a share, or about $77 million. Instead, Visteon lost 85 cents a share, or $111 million, excluding onetime charges.

That was a stunning 44 percent, worse than expected, and the stock market spurned Visteon, knocking the stock price by almost 11 percent Friday. On Thursday, Visteon shares had hit a 52-week high of $12.50. It finished Friday at $11.03, down 1.32, or 10.7 percent. In fairness, it was a bad day for auto-industry stocks, as shares in nearly every automaker and supplier declined. Ford shares fell 60 cents, or 3.7 percent, to $15.83. Honda Motor Co. shares dropped 53 cents, or 2.4 percent, to $21.58. Shares of Visteon’s closest rival, Delphi Corp., slipped 21 cents, or 1.8 percent, to $11.23.

But Visteon’s plunge was far worse than its peers saw on Friday or the profit-taking declines witnessed by Ford, GM and Delphi when they released earnings that slightly beat Wall Street expectations earlier in the week.

Probably the worst part of Visteon’s message to investors was the admission that the fourth-quarter operating disappointment was essentially a failure to execute its plans amid the complex renegotiations with Ford and normal year-end business.

“Frankly some things that we expected to get accomplished and completed in the fourth quarter just didn’t get resolved,” said CFO Dan Coulson.

Finally, investors were disappointed by Visteon’s expectations to earn $6.5 million to $20 million in the usually busy first quarter.

Analysts were expecting more like $30 million in profit in the first three months to get the company toward its full-year goals of $65 million to $130 million.

Michael Bruynesteyn of Prudential Equity Group called the first quarter guidance “tepid” in a note to clients. But aside from the disappointment over the quarter just ended and the one just begun, Visteon is still upbeat about growing its sales to customers other than Ford and posting its first full-year profit since 2000, the year it was spun off from Ford.

It no longer has the seating business that was losing about $25 million a quarter before taxes. Its European restructuring is nearly complete, and it is making progress in installing its new information technology system.

And although it is winning fewer new contracts other than with Ford, sales to other automakers grew 16 percent last year to $4.2 billion, or 24 percent of sales, mostly to customers like Nissan Motor Co., DaimlerChrysler AG and Hyundai Motor Co.

With other launches and a full year of operations at its Lextron Visteon Assembly Systems joint venture next door to Nissan’s plant in Canton, Miss., non-Ford sales are expected to top $5 billion this year, accounting for at least 27 percent of sales.

“We will continue to focus on securing new business with non-Ford customers, especially in the electronics, interior and climate (control) areas,” said Michael Johnston, Visteon’s president and COO.

The aim is to earn better-than-average profits from other customers, while it gradually returns high-wage UAW members to Ford, replacing them with lower-wage union members.

It is unlikely that any UAW members leased from Ford will be reassigned to the automaker in the first half of the year, however, Johnston said.

Ford is working hard to reassign UAW members from its own plants in New Jersey and suburban St. Louis, where shifts are being eliminated, to other factories where it may need to replace people who retire.

The possible upside for Visteon is that its biggest profit-sapping write-off was a “deferred tax valuation allowance” — a charge that could be turned into a gain if it starts doing better.

Often when a company loses money, it can apply those losses to future profitable years to pay lower taxes. Visteon’s charge essentially acknowledges that it probably won’t get almost half a billion dollars of that kind of benefit.

It could happen, but not this year, Coulson said. “We think we’re going to have to demonstrate sustained profitability in the regions (such as Europe) where we had to take this allowance,” he said. “And sustained profitability probably means a couple of years of profit. It doesn’t mean one or two quarters.”

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