Delphi Corporation has reported pro forma first quarter 2002 earnings of $US123 million, up from a pro forma loss of $20 million in Q1 2001. But the pro forma results exclude the impact of a net charge to earnings of $174 million after-tax for restructuring and portfolio actions.
Go deeper with GlobalData
Earnings per share for the quarter was $0.22 compared to analyst consensus (as reported on First Call) of $0.21 per share.
On a GAAP basis, including the impact of special charges taken in the quarter, Delphi reported a loss of $51 million or $(0.09) per share versus a loss of $429 million or $(0.77) per share in Q1 2001.
Delphi’s pro forma net income margin increased to 1.8 percent compared to (0.3) percent in Q1 2001.
Pro forma operating cash flow in the first quarter, excluding payments for special charges, improved to $185 million, up from $152 million during the same period in 2001.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataQ1 2002 revenue of approximately $6.69 billion was up two percent from $6.54 billion in Q1 2001, reflecting modest strengthening in the North American automotive market. Sales to customers other than General Motors accounted for 33 percent of revenue for the quarter.
“While our results reflect an increase in North American production compared to last year, Delphi’s business in other major automotive markets remained weak. We continue to face price pressure and increased operating costs, principally in wage, health care and pension expenses, that we must offset in 2002,” said Delphi chief financial officer Alan Dawes.
“To meet these continued challenges, we have had to initiate additional restructuring actions and operating cost reductions, carefully time discretionary spending for certain internal process improvement programmes to match performance improvements, and further reduce the size of Delphi’s global workforce.”
In March 2001, Delphi announced a comprehensive restructuring programme designed to reduce its breakeven point and restructure the company for reduced industry-wide production levels.
“We made a commitment to complete aggressive restructuring actions by March 2002 in order to meet the challenges of a recessionary market. We completed this programme on time, following the parameters announced in March 2001,” said Dawes. “The results of these activities helped us stay ahead of the impact of soft production schedules and continuing cost and pricing pressure experienced during 2001.”
The 2001 restructuring plan, now completed, included the closure of nine plants, global reduction of 11,440 positions, and a consolidation of activities at more than 40 global locations.
To complete these actions, during the first quarter of 2002, Delphi concluded operations at its Southampton facility in the United Kingdom and reduced headcount by 1,340 positions.
Delphi used cash totalling $106 million to complete actions associated with the restructuring plan during Q1 2002. During Q2 2002 an additional $8 million will be spent to complete deferred severance payments to employees who separated in 2001. Including the first and second quarter 2002 amounts, cash used for the entire 2001 restructuring programme will total $457 million.
Consistent with previous guidance, Delphi is taking a special charge in the first quarter of 2002 to accelerate additional restructuring activities and complete portfolio actions by the end of Q1 2003.
“Specifically, we are taking a net charge of $174 million after-tax ($262 million pre-tax) to restructure additional operations in the United States and Europe,” said Dawes. “We are continuing to address market and portfolio challenges. With this action we plan to fund separation programmes and other restructuring activities to eliminate approximately 6,100 hourly and salaried positions at more than 25 sites in the United States and Europe. We also will complete portfolio actions, principally generators. All of the actions associated with this charge will be complete before the end of Q1 2003.”
Delphi already has begun to implement this plan, eliminating 3,300 salaried and hourly positions during the quarter through separation programmes funded through this charge.
Cash used to implement these activities is expected to total $237 million. During Q1 2002, Delphi used $68 million in cash to fund separation programmes and other actions and expects to use the balance over the next 12 months.
“We expect the 2002 restructuring programme to lift our forward earnings by approximately a $125 million annual rate by early 2004,” said Dawes.
These actions bring the total workforce reduction-to-date from the 2001 and 2002 restructuring plans to 14,740 positions, towards a cumulative total of 17,540 positions to be eliminated.
During the quarter, Delphi continued its efforts to address previously announced portfolio actions, specifically with its $0.5 billion generator and $0.5 billion instrumentation product lines.
“Delphi, Delco Remy International and the product line’s largest customer had successful discussions on the proposed sale of the generator product line, subject to the resolution of employee contract matters with the largest union,” said Dawes. “Over the course of the second quarter, Delphi will continue discussions with the largest impacted union on this matter. We expect to complete these activities in Q2 2002. Failing a satisfactory resolution, Delphi intends to quickly wind down the generator product line.”
Dawes reported that during the quarter Delphi’s instrumentation product line moved through the sale process and shifted from the bidding phase to final due diligence phase, including the preparation of definitive agreements. The completion target continues to be set for the second half of 2002.
During the quarter, Delphi launched new technology, won several contracts with multiple manufacturers, expanded existing business opportunities and changed its name to more aggressively pursue new market business opportunities.
Delphi also completed the closure of manufacturing operations in Casablanca, Morocco and is consolidating or downsizing operations at 12 other sites in Europe.
In Mexico, consolidation activities will move all product lines and people from Delphi’s Chihuahua III facility into existing available Delphi manufacturing space, allowing for the closure of that facility.
In China, Delphi’s Packard division is consolidating all the manufacturing, engineering and administrative activities of Delphi Packard Electric Shanghai, Delphi Packard Electric Baicheng and Delphi Packard Electric Guangzhou to form a new venture named Delphi Packard Electric Systems Company Ltd., headquartered in Shanghai.
Redundancy from the consolidation is expected to allow for reduction of approximately five percent of the existing venture’s workforce over the next year.
“We expect sales to be up slightly for the second quarter in a row,” said Dawes. “With North American dealer vehicle inventories back in line and retail sales of North American vehicles still being strengthened by incentives, Delphi expects revenue of approximately $7.1 billion during Q2 2002, and net income at the $200 million level, or $0.35 EPS. Operating cash flow, excluding restructuring payments, is anticipated between $250 and $350 million.”
During the quarter, Delphi expects to use up to $80 million cash to continue implementation of restructuring actions.
Delphi’s total sales for 2002 calendar year are estimated at $26.2 billion, without reflecting planned divestitures. Sales to customers other than GM are expected to be 35 percent. Total annual sales, based on organic growth plans, are expected to rise from $26.2 billion in 2002 to $28.2 billion in 2004. Based on this organic growth plan, sales to customers other than GM are expected to grow to 44 percent of total sales.
“We continue to build our base of business with customers outside of General Motors and to the end of 2004 are projecting a compound annual growth rate in excess of 10 percent, which will offset our anticipated reduction in business with GM of approximately three percent annually,” said Dawes.
