SOUTHFIELD, Mich. – Federal-Mogul Corp. has reported operating results for the third quarter ended Sept. 30, 2013. Total sales were $1,690 million, up 9 percent versus Q3 2012 on a continuing operations basis with negligible exchange impact. Federal-Mogul reported that sales in Europe were up 12 percent in Q3 2013 due to market share gains, growth in export engine production and the impact of the BERU ignition acquisition and distribution agreements. The company’s North American revenue was up 6 percent and rest of the world was up 7 percent, as these markets continued to increase production rates versus Q3 2012.
Operating Margin (1) improved to 4.6 percent, up two percentage points from Q3 2012. Net income attributable to Federal-Mogul was $38 million or $0.26 EPS, versus a loss of $(11) million in Q3 2012. Operational EBITDA in Q3 2013 was $147 million or 8.7 percent of sales, versus $103 million or 6.6 percent of sales in Q3 2012. Free Cash Flow was $58 million. The Q3 ending cash balance of $960 million includes $500 million in proceeds from the company’s shareholder rights offering and $51 million from divestitures.
"The company’s improved sales in the third quarter 2013 were driven by much stronger demand for Federal-Mogul products used in European light vehicle production," said Rainer Jueckstock, Federal-Mogul co-CEO and CEO Powertrain Segment. "At the same time, we have experienced continued OE sales growth in North America and Asia, especially China, versus Q3 2012. This improved light vehicle demand helped offset continued softness in the European commercial vehicle and industrial markets in Q3 2013. Our Q3 earnings performance continues to show that we are making good progress on restructuring in Western Europe and the U.S., increasing operational efficiency and implementing ongoing cost reductions as we drive for growth and enhanced margins."
"We had improved aftermarket demand in the U.S. and Canada and much stronger sales in Europe during Q3 2013," said Kevin Freeland, co-CEO and CEO Vehicle Components Segment. "Further, our non-core business line divestiture actions and ongoing footprint restructuring combined with inventory and distribution efficiency improvements continue to position the company for improved profitability."
The company completed the divestiture of its OE and aftermarket fuel delivery products business including an engineering center and manufacturing operations in Logansport, Ind., along with other related assets, including the Carter brand. The business had 2013 year-to-date sales of approximately $80 million and employed 380 associates.
Q3 Segment Revenue and Operational EBITDA
Powertrain Segment (PT)
Federal-Mogul’s Powertrain (PT) Segment is a leader in the design, engineering and manufacturing of combustion chamber and other powertrain components serving light, medium and heavy-duty vehicle and industrial passenger car vehicle manufacturers. On a global basis, the PT Segment had an 11 percent revenue increase to $1,038 million, up from $935 million in Q3 2012, with strong light vehicle market share gains, according to Federal-Mogul. During the same comparison period, global light vehicle production increased 1 percent.
Federal-Mogul’s PT Segment market share gains during the period are due to its technology leadership, market penetration with powertrain customers in the growing luxury segment and increased presence on emerging market mid-range vehicles.
PT Segment revenue in Q3 2013 was up 16 percent in North America versus Q3 2012. Light vehicle production increased 1 percent in North America during the same period. The PT Segment continued to gain market share in Europe, where PT derives approximately 50 percent of its revenue. In Europe in Q3 2013, PT revenue increased 8 percent due to higher volumes on new engine programs and revenue from the BERU ignition acquisition. For comparison, in the European market, LV production was down 1 percent during the same period and CV production was 7 percent lower.
PT Segment revenue during Q3 2013 in the rest of the world was up 15 percent, with revenue in the China market up 37 percent versus Q3 2012. The PT Segment regional revenue growth levels in all regions increased at a higher percentage than underlying market production growth rates.
The PT Segment in Q3 2013 had EBITDA of $94 million up $40 million from $54 million in Q3 2012 on a continuing operations basis. EBITDA as a percent of sales increased to 9 percent in Q3 2013 from 5.7 percent of sales in Q3 2012 as the PT Segment implemented cost reduction measures, continued restructuring actions and benefitted from higher sales volumes and more stable order flow, allowing for greater operational efficiency.
Vehicle Components Segment (VCS)
Federal-Mogul’s VCS business sells and distributes a broad portfolio of products through more than 20 of the world’s most recognized brands in the global aftermarket, while also serving original equipment vehicle manufacturers with products including braking, chassis, wipers and other vehicle components. VCS revenue in Q3 2013 was $734 million, up 5 percent from Q3 2012. More than 75 percent of VCS revenue is derived in the global automotive aftermarket.
VCS revenue in the U.S. and Canada aftermarket improved 2 percent in Q3 2013 versus Q3 2012. Revenue in the European aftermarket was up 28 percent, primarily due to an aftermarket ignition distribution agreement and stronger sales of Ferodo braking and MOOG steering products.
The VCS Segment had EBITDA of $53 million or 7.3 percent of sales in Q3 2013, up from $49 million or 7 percent in Q3 2012. Further, net working capital improved in Q3 as the VCS Segment implemented inventory and distribution cost reductions and fully absorbed the impact of previously agreed aftermarket accounts receivable commercial terms.
"Recent market studies have reinforced the importance of trust in the brand among service technicians and installers," said Freeland. "We are placing stronger emphasis on building customer preference for Federal-Mogul’s brands and have implemented several new programs in the third quarter. These include new marketing partnerships, mobile catalog and product information applications for tablets and smart phones, new technician training and attractive programs to drive selection of Federal-Mogul’s products."
"At the same time, we are also improving operational and distribution efficiency and reducing support costs in order to offset the expense of new marketing programs and implementation of strategies to drive higher order fill rates and customer satisfaction. This has allowed us to refocus our direction while maintaining our financial performance in the comparison period," Freeland continued.
