SOUTHFIELD, Mich. — Federal-Mogul Corp. has reported strong fourth quarter 2009 profitability, with higher gross margin, improved net income of $43 million, or 43 cents per diluted share, and $251 million record cash flow with increased sales versus fourth quarter 2008. The company said it improved financial performance in each consecutive quarter of 2009 as restructuring and cost-reduction initiatives enhanced Federal-Mogul’s operating leverage. Stronger demand in fourth quarter 2009, coupled with savings from prior restructuring initiatives lifted gross margin and operational EBITDA percent of sales back to levels approaching those attained prior to the automotive market downturn.
"The strong and profitable fourth quarter shows the benefits of higher sales combined with significant operational improvements throughout the year. Federal-Mogul’s improved margins demonstrate that we have successfully converted incremental fourth quarter revenue at a higher level of profitability than in prior quarters. Our record $251 million cash flow is the result of increased profitability combined with effective working capital management and efficient capital investments," said Jose Maria Alapont, Federal-Mogul president and CEO.
Federal-Mogul, on a year-over-year basis, reported fourth quarter 2009 sales of $1.4 billion versus $1.3 billion in fourth quarter 2008. The company reported that 17 percent of total revenue was generated outside the United States, Canada and Europe in fourth quarter 2009, representing a 24 percent increase over the fourth quarter of 2008. Federal-Mogul continues to expand its market share positions, manufacturing capacity and engineering presence in China, India, Brazil and other growth markets that have performed better during the global automotive downturn. Federal-Mogul benefits from strong customer, market and product diversity, with no single customer accounting for more than 5 percent of global revenue in 2009.
Gross margin was $225 million or 16 percent of sales in fourth quarter 2009 a $42 million or 2.1 percentage point margin improvement versus $183 million or 13.9 percent in the same period of 2008. The company’s ability to attain significantly higher gross margin than in fourth quarter 2008 reflects the increasing benefit of Federal-Mogul’s variable cost company strategy including the restructuring and cost-reduction initiatives largely completed during 2009.
"We have reduced the run-rate of the company’s global cost base by approximately $460 million annually, while simultaneously making strategic investments in leading technology and innovation, best cost global manufacturing and better processes and systems for world-class quality, cost competitiveness and customer support," Alapont explained.
Net income was $43 million in fourth quarter 2009 versus a net loss of $(530) million in fourth quarter 2008. Federal-Mogul’s operational EBITDA for fourth quarter 2009 was $170 million or 12.1 percent of sales, a $57 million or 3.5 percentage point increase, compared to $113 million or 8.6 percent of sales reported during the fourth quarter a year ago.
The company achieved an all-time record quarterly cash flow of $251 million in fourth quarter 2009, a $70 million increase over fourth quarter 2008. As a result, Federal-Mogul has $1.5 billion of liquidity with more than $1 billion of cash and an unused revolver of $0.5 billion.
"Federal-Mogul continued to improve sequential quarterly operating performance as a result of the increasingly positive effect of our cost-reduction and restructuring initiatives combined with the ongoing financial market and automotive industry stabilization."
"Through our global efforts, the company improved sales, raised operating margins, reduced SG&A, improved Operational EBITDA and significantly increased cash flow in each successive quarter," Alapont said.
Federal-Mogul, for full year 2009, reported sales of $5.3 billion or a decline of about $1.5 billion versus full year 2008. The global automotive and financial market downturn depressed industry volumes throughout most of 2009. On a constant dollar basis, when compared to 2008, Federal-Mogul’s 2009 sales were down 19 percent or $1.2 billion.
The company reported a net loss of $(45) million in full year 2009, versus a net loss of $(468) million in 2008. When adjusting net income for impairments and restructuring charges relating to the company’s capacity rationalization, Federal-Mogul achieved break-even results in 2009, which the company says demonstrates the effectiveness of its variable cost strategy to maximize earnings and cash flow performance.
"Together with our 2009 financial performance, our product and market strategy was well-aligned with global customer needs. We are well-positioned to meet market demands for improved fuel economy, reduced emissions and greater vehicle safety. Our strong cash flow and significantly improved liquidity provides the necessary flexibility to pursue portfolio enhancements or footprint realignment to accelerate our progress in spite of changing market conditions," said Alapont.
"Further, we are implementing strategies to increase our sales to customers in the Energy, Industrial and Transport (EIT) market segments, where we generate about 9 percent of our total revenue today. We believe business segments like the expanding wind energy market, improving industrial markets and growth in the global supply chain will increasingly benefit Federal-Mogul, due to our specialized products to serve these segments.
"Our performance throughout 2009 is indicative of the proactive and effective steps taken by Federal-Mogul to counter the impact of the financial markets downturn in 2009. We believe our progressively improving performance in 2009 establishes a strong indication of our ability to generate sustainable global profitable growth. We remain optimistic that the global markets will strengthen in 2010 and we expect to continue to drive further earnings efficiency within our existing infrastructure, while capitalizing on increasing sales in mature and new growth markets," Alapont concluded.
