Delphi has announced that its earnings outlook for Q4 and CY 2004 has worsened, reflecting ‘continued pressures from low global production volumes and commodity price increases in Q4, which are expected to have an even greater impact in the first part of 2005.’
Go deeper with GlobalData
The company also said that it would be taking aggressive cost-reduction actions including implementing plans to further reduce 8,500 positions, in addition to continuing to manage down discretionary costs and capital requirements. Delphi is also placing three additional facilities into its Automotive Holdings Group (AHG) to address underperforming sites.
“We expect that the plans Delphi has in place will, over time, offset the majority of these headwinds; however, the combined forces of the near-term cost and revenue pressures will outpace our progress in the early part of 2005,” said J.T. Battenberg III, Delphi chairman, CEO and president. “The environment is highly competitive, but we are resolute in our commitment to R&D and in delivering technology-rich, differentiating products as we continue to diversify our customer base.”
“Based on these lower production volumes, we are now forecasting Q4 revenues between $6.9 billion and $7.0 billion, approximately $200 million lower than our prior guidance on a constant exchange basis,” said Alan S. Dawes, Delphi vice chairman and chief financial officer. “Concurrent with slowing attrition, this has resulted in a major rise in our U.S. high-wage redundant workforce, which is now approximately 2,300. Coupled with the continued commodity price pressures, these challenges created earnings headwinds that we were only partially able to offset in the quarter with aggressive cost-reduction actions. In the face of these challenges, we still generated operating cash flow(1) and expect to meet our previous guidance for the quarter through continued focus on effective capital spending and working capital improvements.”
“As is our custom in the fourth quarter, Delphi is evaluating the recoverability of its assets. Given the North American production outlook, this may result in asset impairment charges for selected U.S. legacy cost structures during the fourth quarter,” Dawes added. “Additionally, we are currently discussing with GM the resolution of certain of our pre-separation tax obligations and expect to positively conclude these discussions by the end of the year. Upon conclusion, we will reevaluate the related accruals and make any required adjustments.”
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataSince the U.S. legacy cost structure recoverability study and GM discussions regarding pre-separation tax obligations are not yet concluded, each of the foregoing Q4 GAAP and pro forma amounts exclude the effect, if any, of these items.
“We are making substantial progress on all fronts to reduce Delphi’s legacy cost structure,” Dawes said. “To date, we have met or exceeded all of our workforce reduction targets, have completed the consolidation of one of our AHG facilities in Q3 and will have ceased operations in the three other previously announced AHG sites by the end of this year, as well as two additional U.S. sites.”
“We see many of the same pressures we experienced in Q4 continuing into 2005,” Dawes said. “With an uncertain outlook, we have chosen to make fairly conservative assumptions and base our aggressive improvement plans off of this low level. Specifically, we have assumed GMNA production volumes 125,000 below 2004, a challenging level of troubled suppliers, higher healthcare inflation and commodity price increases, which will be intensified as contracts come up for renewal. Additionally, the likely further reduction in our benefit liability discount rates will present earnings headwinds in 2005.”
“These pressures will reduce our earnings run-rate during the first part of 2005, as we saw during the second half of 2004, but we expect that our cost-reduction initiatives and improvements in production volumes during the second half of the year will put us at, or above, a break-even run-rate at the end of 2005. While our 2005 calendar year results will ultimately, in part, be a function of traction on our initiatives, we currently expect to generate a pro forma loss of $200 million for the year.”
In response to these challenges, Delphi is planning to further reduce its workforce by 8,500 positions in 2005 through GM flowbacks, normal attrition and incentivized retirements. Of the total reductions, 3,000 are expected to be U.S. hourly employees and 5,500 are planned to be non-U.S. employees,” Dawes said.
