SOUTHFIELD, Mich. — Federal-Mogul Corp. reported its second quarter 2010 financial results, with sales of $1.6 billion, 23 percent higher versus second quarter 2009, strong gross margin of $274 million or 17.1 percent, and net income of $49 million or 49 cents per diluted share. Analysts’ consensus earnings expectation was 32 cents per share for second quarter 2010.
"Federal-Mogul’s results in the second quarter of 2010 show our ability to deliver strong financial performance by converting incremental revenue to profitability due to our continued focus on efficiently managing our cost base established during 2009," said Jose Maria Alapont, president and chief executive officer. "Federal-Mogul’s margins, both in absolute terms and as a percentage of sales, are significantly higher than a year ago and we have strongly improved year-over-year cash flow."
For the first half of 2010, compared to the same period one year ago, Federal-Mogul converted additional sales of $545 million into additional net income of $161 million, a conversion rate of 30 percent.
The company’s stronger sales performance is the result of market share gains in all regions and markets, on top of a significant improvement in global automotive original equipment light vehicle and commercial vehicle market demand. Federal-Mogul’s sales in second quarter 2010 of $1.598 billion improved 23 percent, versus $1.304 billion recorded during the same period one year ago.
The company’s original equipment sales increased in North America by 81 percent, Asia Pacific by 46 percent and Europe by 31 percent. Federal-Mogul’s growth in key developing markets continued strong with year-over-year growth of 63 percent in China and 20 percent in India.
Gross margin in second quarter 2010 was $274 million or 17.1 percent of sales, versus $198 million or 15.2 percent in second quarter 2009, a 2 percentage point improvement. Federal-Mogul recorded SG&A expense of $165 million or 10.3 percent of sales during Q2 2010, versus $170 million or 13.0 percent of sales in Q2 2009.
"SG&A expense control remains a key focus as we strive to enhance profitability while supporting the sales increase of 23 percent," Alapont said.
The company earned net income of $49 million or 49 cents per diluted share in Q2 2010 versus net income of $3 million or 3 cents per diluted share in Q2 2009. The company has reported positive net income for the last four quarters, reflecting the benefit of its revenue diversification, cost management focus, leading technology and innovative products.
Operational EBITDA in second quarter 2010 was $203 million or 12.7 percent of sales, 53 percent higher than operational EBITDA of $133 million or 10.2 percent of sales in second quarter 2009. EBITDA, in absolute terms and as a percent of sales, improved in every reporting segment of the company, demonstrating Federal-Mogul’s ability to increase efficiency, offset the impact of weaker currencies and commodity price increases and compensate for regional markets where light vehicle production remains low.
The company generated strong positive cash flow of $47 million during second quarter 2010 and internally funded the recent $39 million strategic acquisition of the Daros Group, a well-recognized manufacturer of large bore piston rings. Net of the acquisition price, cash flow for second quarter 2010 was $8 million.
Consistent, strong cash management and operating performance generated cash flow of $97 million, before the acquisition, for the first six months of 2010 and over $400 million for the last 12 months.
The company maintains solid liquidity with over $1 billion cash and an undrawn $500 million revolver.
"This ability to generate significant cash flow, contain costs in the face of a significant volume increase and deliver strong earnings is indicative of the strength of the company’s sustainable global profitable growth strategy," Alapont said.
"Our strong second quarter earnings and cash flow performance demonstrates once again that we are on the right track," Alapont continued. "The company’s commitment to leading technology and innovation to drive growth in developing markets was recently confirmed with the official grand opening of our Asia Pacific Headquarters and Technical Center. Federal-Mogul’s 100,000-square-foot facility in Shanghai contains some of the most sophisticated development, testing and analysis equipment in our global engineering network. We already manufacture in Asia Pacific the main products in our portfolio within our 21 manufacturing sites located in the region, supporting leading light vehicle, heavy-duty and aftermarket customers. We remain committed to enhancing and developing our presence in the Asia Pacific region."
"The company’s recent acquisition of the Daros Group will expand Federal-Mogul’s global presence and portfolio of energy, industrial and transport products. Both of these initiatives demonstrate our growth and focus on developing innovative solutions to meet the increasing requirements of our customers and solve the industry’s most pressing challenges for fuel efficiency, emissions reduction and improved vehicle safety. Through strong financial performance, customer satisfaction and leading technology, we are demonstrating our capability to generate sustainable global profitable growth," Alapont concluded.
(1) Operational EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, and certain items such as restructuring and impairment charges, Chapter 11-related reorganization expenses, gains or losses on the sales of businesses, and the expense relating to U.S.-based funded pension plans.
(2) Cash flow is equal to net cash provided by operating activities less net cash used by investing activities, as set forth on the attached statement of cash flows, excluding cash received from the 524g trust and impacts of the Chapter 11 plan of reorganization.
