Delphi has today reported unaudited first quarter 2005 financial results with revenues of $6.9 billion, and a GAAP net loss of $409 million or $0.74 per share. The company blamed the loss on weaker than expected production volumes from its North American customers.
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Delphi said that the first quarter loss was significantly impacted by Delphi’s inability to record the non-cash deferred tax benefit of its US losses. The company had previously expected to record a tax benefit during 2005 of between 40-60 percent of its pre-tax losses.
The Q1 loss of $409 million compares to Q1 2004 net income of $53 million. Delphi said that the company’s decision to no longer record the tax benefit associated with its US losses resulted in the exclusion of approximately $190 million of tax benefit.
In the fourth quarter of 2004 Delphi posted a loss of $102 million.
“Versus our expectations for the first quarter, we were significantly challenged by weaker-than-expected production volumes with some of our larger North American customers,” said J.T. Battenberg III, Delphi’s chairman, and chief executive officer.
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By GlobalData“We expect these pressures to continue for the remainder of the year. Delphi’s management team is focused on addressing these issues while remaining committed to serving our customers’ needs. At the same time as we work to address our short-term challenges, we continue to grow our business through our ongoing technology leadership, global expansion and adjacent market growth. During the quarter, Delphi was able to reach a new milestone with non-GM revenues reaching 51 percent of total sales.”
The unaudited financial results reflect adjustments for the effects of the improper accounting for transactions identified as a result of Delphi’s Audit Committee’s internal investigation. The unaudited results are preliminary and subject to review by Delphi’s independent auditors. Final results may differ due to any activities occurring after March 31, 2005, but before their finalization, which is planned to occur by June 30, 2005.
Delphi said that non-GM revenue for the quarter was $3.5 billion, up approximately 8 percent from $3.2 billion in Q1 2004 (up 5 percent excluding the impact of foreign exchange). Non-GM business reached a record high of 51 percent of Q1 revenues, compared to year-ago levels of 43 percent.
“Like many other companies in the automotive sector, Delphi’s first quarter performance was impacted by high commodity costs year-over-year and low production volumes, particularly with GM North America,” said John D. Sheehan, Delphi’s acting chief financial officer. “We are engaging our entire global workforce to identify additional opportunities to reduce SG&A and discretionary spending so that we can focus on our restructuring activities and overall transformation. Concurrently, we are successfully growing our non-GM revenues domestically, overseas and in adjacent markets, evidenced by strong first quarter bookings. Additionally, 64 percent of Delphi’s first quarter bookings were from non-GM customers — further proof that our diversification efforts are working.”
Delphi said that it is making progress on its 2005 restructuring initiatives to further reduce its workforce by 8,500 positions, as announced in Delphi’s 2005 outlook in December 2004. In Q1, Delphi reduced its global workforce by approximately 1,500 positions, including 870 U.S. hourly and 630 international positions.
“In addition to these restructuring activities, Delphi is continuing to refine our product portfolio by assessing the effectiveness of all of our operations, which may include partnering, joint venturing or sale,” Battenberg said.
“Most recently, Delphi signed a non-binding letter of intent with Johnson Controls Inc. to sell our global lead-acid battery business for approximately $212 million. Additionally, as previously disclosed, we continue to pursue other divestitures / asset sales. We expect total proceeds from all currently-identified transactions to approximate $400 million.”
Sheehan said second quarter revenues are projected to range between $7.2 billion and $7.4 billion. Given the fixed-cost nature of Delphi’s US legacy business, the company’s cost structure will remain largely comparable to the first quarter. Margins are expected to improve slightly due to the revenue increases from Q1 to Q2 2005. Also in Q2, Delphi is required to make a minimum contribution of $0.6 billion to fund U.S. pensions.
Sheehan reported that 2005 is becoming an extremely challenging year for the U.S. automotive industry. For the remainder of the year, Delphi expects to continue to be pressured by high commodity prices and lower production volumes with its largest customer in the U.S. In addition, U.S. attrition is expected to become more challenging in this low volume environment.
“We are currently forecasting GM North America calendar year production volumes in the 4.5 – 4.6 million unit range — a 6-8 percent decline from Delphi’s prior guidance — which will impact revenues by $900 million to $1.1 billion versus prior guidance,” Sheehan said. “Our earnings and operating cash flow are certainly exposed to this revenue decline due to the fixed nature of our U.S. cost structure, and we must look for ways to offset these declines. While we are beginning to gain traction on our material cost reduction initiatives, to date, Delphi has had slower-than-expected success in these areas. Given these factors, we do not believe that our prior calendar year guidance from December 2004 of a GAAP net loss of $350 million (including $150 million in restructuring charges) is achievable.”
“Our leadership fully understands the challenges before us and we are not satisfied with where we are. We are evaluating all critical areas where we can further reduce costs and are looking at the business very judiciously,” said Rodney O’Neal, Delphi’s president and chief operating officer.
“We know that we must accelerate our transformation activities to get ahead of these challenges and are engaging our key constituents to address our U.S. legacy cost structure. Furthermore, by streamlining our operations through restructuring actions while keeping a tight rein on staffing levels and letting attrition reduce our workforce, we’re positioning Delphi for future growth.”
