ArvinMeritor Reports Higher Profits for Second-Quarter Fiscal Year 2008
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Company Announces Strong Quarter Despite Industry Headwinds in North America
TROY, Mich., April 29 -- ArvinMeritor, Inc. today reported financial results for its second quarter ended March 31, 2008.
Highlights for Second-Quarter Fiscal Year 2008
-- Sales of $1.8 billion - approximately $150 million higher than the same
period last year primarily due to the effects of changes in foreign
currency.
-- Net income was $20 million, or $0.28 per diluted share, compared to a
net loss of $94 million, or $1.34 per diluted share in the second
quarter of fiscal year 2007.
-- Income from continuing operations, before special items, was $27
million, or $0.37 per diluted share, compared to $12 million, or $0.17
per diluted share one year ago.
-- Cash flow from operations, net of capital expenditures, was $134
million compared to an outflow of $71 million in the same period last
year.
-- Commercial Vehicle Systems (CVS) EBITDA margins increased by 1.5
percentage points, before special items, in the second quarter of
fiscal year 2008 compared to the same period last year, despite lower
commercial vehicle volumes in North America.
-- Performance Plus initiatives were implemented during the second quarter
that will result in savings of $32 million on an annual run-rate basis.
The company continues to expect Performance Plus cost reductions of $75
million this year net of known risks; growth opportunities previously
announced will provide incremental profit opportunities.
"In spite of the downturn in the North American commercial vehicle market that has lasted longer than we anticipated, and volume declines in the light vehicle market in North America, we delivered strong results this quarter," said Chairman, CEO and President Chip McClure. "Initiatives driven through Performance Plus, including lean improvements in our global manufacturing operations, are helping us put in place a solid foundation for continued earnings growth."
Results for the Second-Quarter Fiscal Year 2008
In the second quarter of fiscal year 2008, ArvinMeritor posted sales from continuing operations of $1.8 billion, up from the same period last year. Excluding the impact of foreign currency translation, sales were approximately flat due to a continued weak economy in North America, offset by strong sales growth in South America, Europe and Asia.
EBITDA, before special items, was $104 million, up $27 million from the same period last year. This increase is primarily due to improved pricing and commodity cost recovery actions; cost reductions in direct material, overhead, labor and burden; increased throughput in the company's European facilities resulting from improved operational performance; stronger volumes in South America and higher sales of off-highway products in China and U. S. military products - all partially offset by lower vehicle volumes in North America and sharply rising commodity prices.
On a GAAP basis, the company's income from continuing operations was $24 million or $0.33 per diluted share, compared to a loss from continuing operations of $13 million or $0.19 per diluted share in the same period last year.
Income from continuing operations, before special items, was $27 million, or $0.37 per diluted share, compared to $12 million, or $0.17 per diluted share, a year ago. The only special item for the quarter was a $3 million after-tax charge associated with the company's previously announced restructuring program, compared to special items totaling $25 million after- tax in the same quarter of last year.
Free cash flow (cash flow from operations net of capital expenditures) was $134 million in the second quarter. Excluding non-recourse sales of receivables, free cash flow was $52 million this quarter compared to an outflow of $88 million one year ago. Free cash flow included $28 million in proceeds from the termination of interest rate swaps, but did not include $28 million received in connection with the final purchase price adjustment from the sale of our Emissions Technologies business.
Update on Performance Plus
As previously announced, ArvinMeritor expects cost reductions driven by its Performance Plus transformation program to generate $150 million in net savings by 2009, with $75 million occurring by the end of fiscal year 2008.
The company originally defined three areas of Performance Plus as cost reduction targets: Direct Material Optimization, Manufacturing and Overhead. In the second quarter, achievements in each of these areas contributed to the company's cost reduction targets including:
-- In-sourced manufacturing for certain CVS products to result in annual
savings of $7 million.
-- Continued performance improvements resulting from implementation of the
ArvinMeritor Production System.
-- Selected a single source provider for North American industrial labor
and global professional and clerical labor resulting in annual savings
of $4 million.
Performance Plus also included initiatives to enhance the company's profitable growth. The following growth actions were implemented this quarter:
-- Awarded a long-term, multi-million dollar, supply agreement to provide
remanufactured transmissions and axle carriers to Navistar Parts.
-- Launched remanufactured transmissions in the Plainfield, Ind.,
aftermarket facility.
-- Entered into a multi-year agreement with Tata Consultancy Services in
India to enhance Light Vehicle Systems (LVS) engineering capabilities
including product development and support in Asia Pacific.
-- Re-established the company's off-highway original equipment and
aftermarket components business in North America, South America, Europe
and Africa.
-- Awarded new business in conjunction with 2,200 new MRAP orders since
January 2008.
-- Booked new business with an Asian manufacturer to supply more than two
million additional window regulator motors in China beginning in mid-
2008.
-- Announced new products designed specifically for the Asian market
including the New Asian Latch product range of modular door latch
designs, and a new sliding door latch system.
Manufacturing Footprint Improvements
In addition, several actions were implemented in the second quarter of fiscal year 2008 to improve the company's global manufacturing footprint.
-- Building three new light vehicle manufacturing plants in Asia Pacific
to support increased business in the region.
-- Began production at the LVS facility in Salonta, Romania, to supply
window regulators, cables, latches and actuators directly to Dacia - as
well as for export to Western European customers.
-- On track for July 2008 completion of the company's new commercial
vehicle Monterrey, Mexico facility; also upgrading the company's
Asheville, N.C. axle facility to include a new carrier assembly line
for the NG14X - the next generation line haul axle to be launched in
February 2009.
Mitigating Rising Steel Prices
The commodity markets are currently experiencing unprecedented volatility. Scrap steel, iron ore, and coking coal prices have simultaneously risen faster and higher than levels seen in the past. One of the world's largest steel producers has recently announced a $250 per short ton surcharge on contract sales of sheet steel.
Other factors contributing to the volatility include: -- Weak dollar resulting in a decline in imported steel -- Global consolidation in the steel industry -- Fuel and energy costs -- Global demand
The combined impact of these factors has created a situation more significant to the global transportation industry than the effect of steel price increases encountered in 2004.
While ArvinMeritor continues to drive lean improvement actions throughout the company's global operations, and strives to implement Performance Plus initiatives to gain additional efficiencies, it will not be possible to mitigate increases of this proportion through existing cost reduction programs alone. The company has steel cost recovery programs with most major OEMs, and will aggressively pursue additional recovery actions to address these extraordinary costs.
Outlook
The company's calendar year 2008 forecast for light vehicle sales is 15.2 million vehicles in North America, down from the previous forecast. The company's forecast for Western Europe is 17.1 million vehicles, unchanged from the prior forecast.
ArvinMeritor's fiscal year 2008 forecast for North American Class 8 truck production is in the range of 200,000 to 220,000 units. The company's fiscal year 2008 forecast for heavy and medium truck volumes in Western Europe is 565,000 to 575,000. On a calendar year basis, the company anticipates North America Class 8 truck production to be in the range of 220,000 to 240,000 units; and heavy and medium truck volumes in Western Europe to be in the range of 580,000 to 590,000.
The company now expects sales from continuing operations in fiscal year 2008 in the range of $7.1 billion to $7.3 billion, up $200 million from the previous guidance primarily due to foreign exchange movements and continued growth outside the U.S.
The outlook for full-year EBITDA from continuing operations, before special items, is expected to be in the range of $385 million to $405 million for the fiscal year. ArvinMeritor reaffirms its forecast for diluted earnings per share from continuing operations, before special items, to be in the range of $1.40 to $1.60. This guidance is based on the assumption of 1.4 percent U.S. GDP growth, and excludes gains or losses on divestitures and restructuring costs. ArvinMeritor reaffirms its forecast for free cash flow to be in the range of negative $75 million to negative $125 million.
"Commodity prices are spiking in a dramatic fashion," said McClure. "These increases, combined with resulting higher energy costs, require us to take additional recovery actions to mitigate future impact. For fiscal year 2008, we remain focused on our strategy to deliver results and are confident we will achieve our full-year guidance."
About ArvinMeritor
ArvinMeritor, Inc. is a premier global supplier of a broad range of integrated systems, modules and components to the motor vehicle industry. The company serves commercial truck, trailer and specialty original equipment manufacturers and certain aftermarkets, and light vehicle manufacturers. Headquartered in Troy, Mich., ArvinMeritor employs approximately 18,000 people in 24 countries. ArvinMeritor common stock is traded on the New York Stock Exchange under the ticker symbol ARM. For more information, visit the company's Web site at: ARVIN MERITOR.
