News / Federal-Mogul Reports Third Quarter 2016 Results
Date: 2016-10-29
Federal-Mogul Reports Third Quarter 2016 Results
* Third quarter net sales of $1.8 billion, nine months net sales of $5.6 billion
* Gross profit of $275 million, a nearly 1 percentage point margin improvement over Q3 2015
* Net income from continuing operations attributable to Federal-Mogul of $15 million compared to net loss of $(63) million in Q3 2015
* Operational EBITDA of $173 million compared to $156 million in Q3 2015
Federal-Mogul Holdings Corporation (NASDAQ:FDML) today announced financial results for the third quarter ended September 30, 2016. Net sales for the third quarter were $1,825 million, compared to $1,824 million in Q3 2015. Higher OE sales in both divisions were offset by lower aftermarket sales and $13 million of negative impact from currency exchange rate fluctuations. For the nine months ended September 30, 2016, net sales were $5,646 million, a $25 million increase compared with the prior-year period, despite $80 million of negative impact from currency exchange rate fluctuations. Gross profit for the third quarter was $275 million, or 15.1 percent of sales, a nearly 1 percentage point margin improvement compared with Q3 2015, driven primarily by operational improvements in both divisions. Net income from continuing operations attributable to Federal-Mogul in the quarter was $15 million, or $0.09 per share, compared with a net loss from continuing operations attributable to Federal-Mogul of $(63) million, or $(0.37) per share, in Q3 2015. Adjusted net income in Q3 2016 was $26 million, or $0.15 per share. Operational EBITDA in Q3 2016 was $173 million, compared to $156 million in Q3 2015. The Company ended the third quarter 2016 with liquidity of over $500 million, including cash of $330 million and $173 million of availability under its primary revolving credit facility.
Division Results
Powertrain Division
Federal-Mogul's Powertrain division reported third quarter revenue of $1,089 million, compared to $1,079 million in the same prior-year period, driven by an increase in overall sales volume, specifically strengthened sales in Asia Pacific. The increase in sales was negatively impacted by $6 million in currency exchange rate fluctuations.
At constant exchange rates, Q3 2016 sales were up 1.5 percent over Q3 2015, partially offset by continued production declines in the commercial vehicle and industrial segments and the impact of economic conditions in Brazil. Operational EBITDA in Q3 was $104 million or 9.6 percent of revenue, a $7 million improvement compared to $97 million, or 9 percent of revenue, in Q3 2015.
Through the first nine months of 2016, the Powertrain division reported revenue of $3,389 million, $5 million higher than the same period of 2015. The year-over-year comparison was impacted by $43 million of negative currency exchange. In constant dollars, revenue increased by $48 million or 1.4 percent. Operational EBITDA for the first nine months of the year was $358 million or 10.6 percent of revenue, compared to $323 million or 9.5 percent of revenue in the prior year, largely driven by improved operational performance in material sourcing, manufacturing and overall cost management.
"Our improved EBITDA during Q3 demonstrates the benefits of the ongoing operational improvements we've made throughout 2016, as we continue to improve our cost management structure and manufacturing efficiencies," said Rainer Jueckstock
, Federal-Mogul co-CEO and CEO, Federal-Mogul Powertrain. "We also benefitted from continued positive light vehicle production in North America, Europe and Asia Pacific, particularly China, where light vehicle production is up over 20 percent compared to Q3 2015. Currency fluctuation remained a challenge in the third quarter, as did the decline in commercial vehicle production and the continued economic conditions in Brazil. However, our sales reflect that we are continuing to perform in line with the market, despite these factors."
Motorparts Division
Federal-Mogul's Motorparts division reported third quarter revenue of $797 million, a $20 million, or 2 percent, decrease from the prior-year period, including $7 million of negative impact from currency exchange rate fluctuations. North American aftermarket sales decreased by 5 percent in the quarter, at constant exchange, representing most of the year-over-year decline. The primary drivers of this decline were challenging conditions in the North American commercial vehicle market, lower export sales from North America, primarily to the Middle East, as well as some lost business. North American sales benefitted from $6 million of incremental sales from the Interfil acquisition in Mexico. Sales in EMEA increased to $294 million from $292 million in the same period last year. Stronger OE volume in the region was largely offset by lower aftermarket sales in certain European countries and in the Middle East. Asia Pacific sales were $64 million compared to $56 million in Q3 2015. A 31 percent increase in OE business, continued growth in the China aftermarket (up 21 percent), each at constant exchange rates, and solid performance in the India aftermarket were partially offset by the planned downsizing of operations in Australia.
In Q3 2016, the Motorparts division recorded Operational EBITDA of $69 million, or 8.7 percent of revenue, compared to $59 million, or 7.2 percent of revenue, in Q3 2015. The increase in Operational EBITDA was largely due to improved operational performance and commercial actions, partially offset by the impact of lower volumes.
Through the first nine months of 2016, the Motorparts division recorded revenue of $2,446 million compared to $2,461 million in the prior-year period, including $37 million of negative impact from currency exchange rate fluctuations. EBITDA was $204 million, or 8.3 percent of revenue, in the nine months ending September 30, 2016 compared to $157 million, or 6.4 percent of revenue, in the same period last year.
Daniel Ninivaggi
, Federal-Mogul co-CEO and CEO, Federal-Mogul Motorparts, commented, "During the third quarter, we continued to execute reasonably well despite challenging conditions in our commercial vehicle segment and generally weak light vehicle aftermarket demand in our primary markets. Overall, we are encouraged by the operating performance of the business as we continue to execute our strategic plan. Key highlights during the third quarter included the ramp up of our new regional distribution centers in Belgium and China and our announced plan to open a distribution center in Hungary in late 2017. We continue to enhance our distribution footprint to achieve efficiencies and optimize our supply chain capabilities, while investing in our online presence, ‘Tech First' initiatives and globally-recognized brands. In everything we do, we are focused on delivering value to our customers through better products, service and field support."
Offer from Majority Shareholder
On September 6, 2016, Federal-Mogul Holdings Corporation ("Company"), American Entertainment Properties Corp., a Delaware corporation ("AEP"), and IEH FM Holdings LLC, a Delaware limited liability company ("Merger Sub"), entered into an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Merger Sub commenced a cash tender offer (the "Offer") to acquire, subject to the terms and conditions of the Merger Agreement, all of the issued and outstanding shares of the Company's common stock, par value $0.01 per share, not already owned by AEP, Merger Sub, the Company and their respective affiliates, for a purchase price of $9.25 per share, net to the seller in cash, without interest, less any applicable tax withholding.
The Offer will expire at 12:00 midnight, New York City time, on October 28, 2016 (one minute after 11:59 P.M., New York City Time, on October 28, 2016), unless extended. Complete terms and conditions of the Offer are set forth in AEP and Merger Sub's Offer to Purchase and Letter of Transmittal and the Company's Solicitation/Recommendation Statement on Schedule 14D-9 and other materials filed with the Securities and Exchange Commission on September 26, 2016, each as subsequently amended.
Analyst Call
Federal-Mogul will conduct an earnings conference call and audio webcast on Wednesday, October 26 at 9:30 a.m., EDT. To facilitate rapid connection the morning of the call, please click here to pre-register.
To participate in the call:
Domestic calls: (855) 789-8161
International calls: (631) 485-4890
Passcode I.D.: 93402073
Further information is available at www.federalmogul.com/investors.
Reconciliation to GAAP
In addition to GAAP results included within this press release, the Company has provided certain information which is not calculated according to GAAP ("non-GAAP"), such as sales at constant exchange rates, this measure excludes the effect of currency exchange on current year results; Operational EBITDA; and Adjusted Net Income. Management uses these non-GAAP measures to evaluate the operating performance of the Company and its business segments and to forecast future periods. Management believes that investors will likewise find these non-GAAP measures useful in evaluating such performance. Such measures are frequently used by security analysts, institutional investors and other interested parties in the evaluation of companies in our industry.
Non-GAAP measures should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP and, as calculated, may not be comparable to similarly titled measures of other companies. For a reconciliation of non-GAAP measures to the most comparable GAAP financial measure, please see the financial schedules that accompany this release.
Forward-Looking Statements
Statements contained in this press release which are not historical fact constitute "Forward-Looking Statements." Actual results may differ materially due to numerous important factors that are described in Federal-Mogul's most recent annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K as well as the Tender Offer Statement on Schedule TO/Schedule 13E-3 filed by Icahn Enterprises with the SEC and the Solicitation/Recommendation Statement and Schedule 13E-3 filed by Federal-Mogul with the SEC. Such factors include, but are not limited to, the consummation of the acquisition of Federal-Mogul by Icahn Enterprises, the company's ability to successfully integrate and achieve the anticipated synergies from recent acquisitions, fluctuations in domestic or foreign vehicle production, fluctuations in the demand for vehicles containing our products, the company's ability to generate cost savings or manufacturing efficiencies to offset or exceed contractually or competitively required price reductions or price reductions to obtain new business, conditions in the automotive industry, and corresponding effects and general global and regional economic conditions. Federal-Mogul does not intend or assume any obligation to update any forward-looking statements.
About Federal-Mogul
Federal-Mogul Holdings Corporation (NASDAQ:FDML) is a leading global supplier of products and services to the world's manufacturers and servicers of vehicles and equipment in the automotive, light, medium and heavy-duty commercial, marine, rail, aerospace, power generation and industrial markets. The company's products and services enable improved fuel economy, reduced emissions and enhanced vehicle safety.
Federal-Mogul operates two independent business divisions, each with a chief executive officer reporting to Federal-Mogul's Board of Directors.
Federal-Mogul Powertrain designs and manufactures original equipment powertrain components and systems protection products for automotive, heavy-duty, industrial and transport applications.
Federal-Mogul Motorparts sells and distributes a broad portfolio of products through more than 20 of the world's most recognized brands in the global vehicle aftermarket, while also serving original equipment vehicle manufacturers with products including braking, wipers and a range of chassis components. The company's aftermarket brands include ANCO® wipers; BERU®* ignition systems; Champion® lighting, spark plugs, wipers and filters; Interfil® filters; AE®, Fel-Pro®, FP Diesel®, Goetze®, Glyco®, Nüral®, Payen® and Sealed Power® engine products; MOOG® chassis components; and Ferodo®, Jurid® and Wagner® brake products and lighting.
Federal-Mogul was founded in Detroit in 1899 and maintains its worldwide headquarters in Southfield, Michigan. The Company has more than 53,000 employees globally.
*BERU is a registered trademark of BorgWarner Ludwigsburg GmbH
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