Federal-Mogul Net Income Soars to $90 Million on Record Quarterly Sales
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Net income of $90 million in Q2 2008 up from $4 million in Q2 2007
Record net sales of $2 billion and eighth consecutive quarter of year-over- year growth
SOUTHFIELD, Mich., July 25 -- Federal-Mogul Corporation today reported record second quarter sales of $2 billion and an eighth consecutive quarter of year-over-year increased sales combined with a sharp rise in quarterly net income to $90 million.
Sales for the three-month period ending June 30, 2008, were a record $1,995 million, an increase of 13 percent, compared to $1,763 million for the same period a year ago. Federal-Mogul reported a gross margin of $396 million or 19.8 percent of sales, compared to $322 million or 18.3 percent of sales, representing an increase of $74 million, or 23 percent over the prior year. Federal-Mogul's Operational EBITDA(1) was $257 million or 12.9 percent of sales, compared to $212 million or 12.0 percent of sales during the same period in 2007, representing an increase of $45 million or 21 percent. The company recorded net income of $90 million or earnings per share of $0.90, up from $4 million in second quarter 2007.
"We experienced another record sales quarter with strong earnings performance. We have anticipated and reacted to changing market conditions including a market downturn in mature automotive markets. We implemented numerous successful actions to offset macro-economic factors and benefited from our strong market, customer and product diversification," said Jose Maria Alapont, Federal-Mogul President and Chief Executive Officer.
"Federal-Mogul's global market presence and customer base is well diversified. We serve over 250 vehicle platforms and over 700 vehicle powertrain programs. No single customer represents more than six percent of our global revenue and over 60 percent of our revenue is generated from sales outside the United States and Canada. Further, we have a significant global aftermarket business with well-recognized leading brands and we generate over 10 percent of our revenue from a global commercial and industrial customer base. This diversification strengthens our performance and compensates for market and customer volatility," Alapont continued.
Financial Summary (in $millions) Three Months Ended Six Months Ended
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June 30 June 30
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2008 2007 2008 2007
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Net sales $1,995 $1,763 $3,854 $3,480
Gross margin 396 322 662 630
Adjusted gross margin (2) 396 322 730 630
Selling, general and (212) (213) (421) (420)
administrative expenses
Net income 90 4 58 9
Adjusted net income (3) 90 4 121 9
Operational EBITDA (1) 257 212 462 412
Federal-Mogul reported sales of $1,995 million for the three-month period ending June 30, 2008, up from $1,763 million in the same period of 2007. Sales increased by $232 million or 13 percent and were positively impacted by favorable foreign exchange of $125 million. The company has reported year-over-year quarterly sales increases for eight consecutive quarters as a result of expanding sales to customers in Europe, Asia and South America.
Gross margin for the quarter was $396 million or 19.8 percent of sales, as compared to $322 million or 18.3 percent of sales during the same period a year ago, an increase of 23 percent or $74 million. The automotive market has faced decreasing regional production volumes, rising energy prices, inflationary raw material costs and other economic challenges. The company effectively offset the impact of these and other macro-economic factors through profitable incremental revenue from new business contracts and improved productivity from operations. Gross margin was also favorably impacted by reduced depreciation and foreign exchange.
Selling, General and Administrative (SG&A) expenses were reduced to 10.6 percent of sales during the quarter, compared to 12.1 percent of sales in the same period of 2007. The company realized a reduction in SG&A expense despite an adverse foreign exchange impact of $11 million.
Federal-Mogul's Operational EBITDA(1) for the second quarter was $257 million, a 21 percent or $45 million increase, compared to $212 million during the same period in 2007.
Net income was $90 million in the second quarter 2008, with earnings per share of $0.90, compared to $4 million of net income in second quarter 2007.
Federal-Mogul continued to make progress executing its sustainable global profitable growth strategy by growing in emerging markets and strengthening its presence in mature markets. The company achieved 50 percent growth in sales to customers in BRIC (Brazil, Russia, India and China) markets during the quarter. The company recently completed the successful launch of a new powertrain component plant in Araras, Brazil and launched its new portfolio of wipers and brake pads in the Russian market.
Federal-Mogul reported sales of $3,854 million for the six-month period ending June 30, 2008, an increase of $374 million or 11 percent versus $3,480 million for the same period in 2007.
Gross margin increased to $662 million in the first half of 2008 versus $630 million in 2007, despite a non-cash charge of $68 million recorded in the first quarter of 2008 relating to re-valuation of inventory, as required by fresh-start reporting.
Operational EBITDA(1) increased 12 percent, or $50 million, to $462 million in the first half of 2008, as compared to $412 million in the same period the prior year.
Adjusted net income(3) rose $112 million to $121 million or 3.1 percent of sales during the first half of 2008, versus $9 million in the first half of 2007.
The company recorded strong operating cash flow(4) of $116 million in the first half of 2008, which compares to $79 million in the same period of 2007.
"Federal-Mogul's results demonstrate the solid foundation we have put in place through our sustainable global profitable growth strategy. Global customer, regional and product portfolio diversification, together with leading product technologies and brands, development in best cost locations and strong commitment to customer service differentiate Federal-Mogul and contribute to our strong performance in this challenging market environment," Alapont said.
(1) Operational EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, and certain items such as restructuring and impairment charges, Chapter 11 related reorganization expenses, gains or losses on the sales of businesses, and the impact on gross margin of the fresh-start reporting valuation of inventory as described in the attached reconciliation of non-GAAP financial measures.
(2) Adjusted gross margin is equal to reported gross margin excluding the $68 million impact on gross margin of the fresh-start reporting valuation of inventory recorded in the first quarter 2008 as described in the attached reconciliation of non-GAAP financial measures.
(3) Adjusted net income is equal to reported net income excluding the $68 million impact on gross margin on the fresh-start reporting of inventory adjusted for the tax benefit on the inventory adjustment of $5 million recorded in the first quarter 2008 as described in the attached reconciliation of non-GAAP financial measures.
(4) Cash flow is equal to net cash provided by operating activities less net cash used by investing activities as displayed in the attached statement of cash flows.
About Federal-Mogul
Federal-Mogul Corporation is a leading global supplier of powertrain and safety technologies, serving the world's foremost original equipment manufacturers of automotive, light commercial, heavy-duty and off-highway vehicles, as well as in power generation, aerospace, marine, rail, industrial, and the worldwide aftermarket. The company's leading technology and innovation, lean manufacturing expertise, as well as marketing and distribution deliver world-class products, brands and services with quality excellence at a competitive cost. Federal-Mogul is focused on its sustainable global profitable growth strategy, creating value and satisfaction for its customers, shareholders and employees. Federal-Mogul was founded in Detroit in 1899. The company is headquartered in Southfield, Michigan, and employs 50,000 people in 35 countries. Visit the company's Web site at www.federalmogul.com.
