Federal-Mogul Holdings Corp. has announced financial results for the first quarter ended March 31, 2016. Net sales for the first quarter were $1,897 million, compared to $1,835 million in the first quarter of 2015, a $62 million or 3 percent increase.
Aftermarket sales growth in the U.S. and Canada, as well as sales from the acquired valvetrain business, were partially offset by $52 million of negative impact from currency exchange rate fluctuations. Gross profit was $288 million, or 15.2 percent of sales, a 1.5 percentage point margin improvement, compared with the first quarter of 2015. The company said the improved gross profit margin was driven primarily by higher aftermarket sales in the U.S. and Canada, operational improvements in both divisions as well as the favorable impact of ongoing restructuring and integration programs. Net income from continuing operations attributable to Federal-Mogul in the quarter was $35 million, or 21 cents per share, compared with a net loss from continuing operations attributable to Federal-Mogul of $11 million or (7 cents) per share in the first quarter of 2015. Adjusted net income in the first quarter of 2016 was $52 million, or 31 cents per share. Operational EBITDA in the first quarter of 2016 was $193 million, compared to $142 million in the first quarter of 2015.
Division Results
Powertrain Division
Federal-Mogul’s Powertrain division reported first quarter revenue of $1,128 million, compared to $1,138 million in the same prior year period. The slight decrease in Powertrain’s revenue was principally driven by a $30 million negative impact from currency exchange rate fluctuations and a $13 million decrease in inter-segment sales, partially offset by revenue from the acquired valvetrain business.
At constant exchange rates, Federal-Mogul Powertrain first quarter 2016 sales were up 2 percent over the first quarter of 2015, primarily due to the valvetrain acquisition and partially offset by continued weakness in the heavy-duty and industrial segments, as well as declines in the Russian and Brazilian markets.
Operational EBITDA in the first quarter was $119 million or 10.6 percent of revenue, an $8 million improvement compared to $111 million, or 9.7 percent of revenue in the first quarter of 2015. EBITDA was negatively impacted by the decrease in production in the heavy-duty and industrial segments.
Earlier this month, Federal-Mogul Powertrain was the recipient of a 2016 Automotive News PACE award, which recognizes automotive suppliers for superior innovation, technological advancement and business performance. The company earned the award for its Hybrid Induction Welding manufacturing process for steel pistons. The company has earned 14 PACE awards since 2005.
“While Federal-Mogul Powertrain’s quarter-over-quarter improvement is reflected in the solid 10.6 percent EBITDA return on revenue, our first quarter results were impacted by currency movements and lower engine production in the heavy-duty and industrial vehicle segments,” said Rainer Jueckstock, Federal-Mogul co-CEO and CEO, Federal-Mogul Powertrain. “Despite these factors, we achieved significant improvements in our operational performance during the quarter through focused cost control, impact from previous restructuring actions and material cost savings.”
Motorparts Division
Federal-Mogul’s Motorparts division reported first quarter revenue of $831 million, compared to $773 million in the prior year period. Revenue growth of $80 million was partially offset by a $22 million negative impact from currency exchange rate fluctuations.
At constant exchange rates, Americas sales of $483 million were up 20 percent over the prior-year period, primarily driven by a 26 percent increase in aftermarket sales in the U.S. and Canada. Aftermarket sales in the first quarter of 2015 were negatively impacted by supply chain issues accounting for most of the year-over-year variance. EMEA sales of $285 million remained relatively flat compared to the first quarter of 2015. The Asia Pacific region experienced continued solid growth with increased sales of 24 percent in the China aftermarket and a 14 percent increase in OE sales, partially offset by lower commercial vehicle aftermarket sales and the exit of unprofitable business in Australia.
In the first quarter of 2016, the Motorparts division recorded an Operational EBITDA of $74 million, or 8.9 percent of revenue, compared to $31 million, or 4 percent of revenue in the first quarter of 2015. The improvement in operational EBITDA was largely the result of increased aftermarket sales in the U.S. and Canada, benefits from prior period restructuring and integration actions, as well as operational improvements, partially offset by approximately $6 million negative impact from currency exchange rate fluctuations.
Daniel Ninivaggi, Federal-Mogul co-CEO and CEO, Federal-Mogul Motorparts, commented, “Our first quarter results reflect continued improvement in our financial performance driven by our prior investments in productivity initiatives, restructuring actions and the integration of recently acquired businesses. While our financial performance improves, we also continue to invest in building a world-class distribution network, innovating new products for our OE and aftermarket customers, and establishing greater customer connectivity through our ‘Tech First’ and technology initiatives supporting technicians and repair shops.”
Proposal from Majority Shareholder
On Feb. 29, the company announced it received a proposal from its majority shareholder Icahn Enterprises L.P. (IEP) to purchase the shares of the company’s common stock not owned by IEP for $7 per share in a merger transaction. The company’s board of directors subsequently authorized the formation of a special committee consisting of three of the four independent members of the board of directors and chaired by Thomas Elward to review and evaluate this proposal and any alternative transactions involving the company. Following its formation, the special committee engaged Houlihan Lokey Capital Inc. as its financial adviser and Richards, Layton & Finger as its legal counsel. The special committee, working with its advisers, has commenced its review and evaluation of the IEP proposal and alternatives thereto. Subsequent to submitting its proposal, IEP advised the company’s board that it was not considering selling its stake in Federal-Mogul at the current time.
