Federal-Mogul reports second quarter 2016 results
July 27, 2016
Federal-Mogul Holdings Corporation has announced financial results for the second quarter ended June 30, 2016. Net sales for the second quarter were $1,924 million, compared to $1,962 million in Q2 2015. Higher OE sales and sales from the acquired valvetrain business were offset by lower aftermarket sales and $15 million of negative impact from currency exchange rate fluctuations.
For the first half ended June 30, 2016, net sales were $3,821 million, a $24 million, or 1%, increase compared with the prior year period, despite $67 million of negative impact from currency exchange rate fluctuations. Gross profit for the second quarter was $304 million, 15.8% of sales, a 1 percentage point margin improvement, compared with Q2 2015.
The improved gross profit margin was driven primarily by operational improvements in both divisions as well as the favourable impact of ongoing restructuring and integration programs, partially offset by the impact from lower sales. Net income from continuing operations attributable to Federal-Mogul in the quarter was $31 million, compared with net income from continuing operations attributable to Federal-Mogul of $15 million in Q2 2015.
Adjusted net income in Q2 2016 was $47 million. Operational EBITDA in Q2 2016 was $196 million, compared to $182 million in Q2 2015. The Company ended the second quarter 2016 with liquidity of $461 million, including cash of $290 million and $171 million of availability under its revolving credit facility.
Powertrain Division
Federal-Mogul’s Powertrain division reported second quarter revenue of $1,172 million, compared to $1,167 million in the same prior year period. The increase in Powertrain’s revenue was principally driven by an increase in sales volume, which was enhanced by revenue from the acquired valvetrain business. This increase was partially offset by a $7 million negative impact from currency exchange fluctuations.
At constant exchange rates, Federal-Mogul Powertrain Q2 2016 sales were up 1% over Q2 2015, primarily due to the valvetrain acquisition, and were partially offset by continued weakness in the heavy-duty and industrial segments, as well as declines in the Brazilian market.
Operational EBITDA in Q2 was $135 million or 11.5% of revenue, a $20 million improvement compared to $115 million, or 9.9% of revenue, in Q2 2015. While EBITDA was negatively impacted by the decrease in production in the heavy-duty and industrial segments, overall operational performance, including material cost savings, was significantly improved. In addition, EBITDA was positively impacted by $3 million of currency exchange fluctuations.
For the first half of 2016, the Powertrain division reported revenue of $2,300 million, $5 million lower than the same period of 2015. The year-over-year comparison was impacted by $37 million of negative currency exchange, but in constant dollars revenue increased by $32 million or just over 1%. Operational EBITDA for the first half of the year was $254 million or 11.0% of revenue, compared to $226 million or 9.8% of revenue in the prior year, largely driven by improved operational performance in material sourcing, manufacturing and overall cost management.
During Q2, Federal-Mogul Powertrain received several notable customer awards. The company received the 2016 Volkswagen Group Award for supplier excellence, recognised for its delivery of pistons, piston rings, bearings and valves on various engine programs for the vehicle manufacturer group. The company was also the recipient of a Green Supplier of the Year award from Yazaki and a Pinnacle Award from Delphi Automotive, both in recognition of its systems protection solutions.
Federal-Mogul Powertrain’s engine content was included in all 12 car engine category winners in the 2016 International Engine of the Year Awards. The top award went to the Ferrari 3.9-litre biturbo V8, which features Federal-Mogul Powertrain’s cylinder head gaskets and engine valvetrain components.
“While we are pleased with our overall results for the quarter, our sales were relatively flat during this period. We must continue to work to drive additional growth in our top line as we look ahead to the second half of 2016,” stated Rainer Jueckstock, Federal-Mogul co-CEO and CEO, Federal-Mogul Powertrain. “We remain well-positioned throughout the world to continue developing innovative powertrain solutions for the light, industrial and heavy-duty vehicle segments that we serve.”
Motorparts Division
Federal-Mogul’s Motorparts division reported second quarter revenue of $818 million, a $53 million, or 6%, decrease from the prior year period, including $8 million of negative impact from currency exchange rate fluctuations. North American aftermarket sales decreased by 10% in the quarter, at constant exchange, representing most of the year-over-year decline. The second quarter of 2015 experienced unusually high sales volume as a result of supply chain issues that impacted the first quarter 2015, leading to a challenging comparison. Sales in EMEA declined to $297 million compared to $305 million in the same period last year, primarily due to lower aftermarket sales in Germany and the Middle East, partially offset by stronger OE volume. Asia Pacific sales were $61 million compared to $57 million in Q2 2015. Motorparts continued to experience solid growth in the China aftermarket (26%), the India aftermarket (12%), and its OE business (11%), each at constant exchange rates, which was partially offset by lower export sales to the region as well as the downsizing of operations in Australia.
In Q2 2016, the Motorparts division recorded Operational EBITDA of $61 million, or 7.5% of revenue, compared to $67 million, or 7.7% of revenue, in Q2 2015. The decrease in Operational EBITDA was largely due to increased marketing investment ($4 million) and a legal reserve ($3 million) during the quarter as improved operational performance and commercial actions offset the impact of lower volumes.
Through the first half 2016, the Motorparts division recorded revenue of $1,649 million compared to $1,644 million in the prior year period, including $30 million of negative impact from currency exchange rate fluctuations. EBITDA was $135 million, or 8.2% of revenue, in the six months ending June 30, 2016 compared to $98 million, or 6.0% of revenue, in the same period last year.
Daniel Ninivaggi, Federal-Mogul co-CEO and CEO, Federal-Mogul Motorparts commented, “Sales in the second quarter of 2016 were somewhat disappointing but our operational performance was solid. In addition, we continue to make progress on our strategic initiatives. Key highlights during the second quarter included the opening of new regional distribution centres in Belgium and China, the acquisition of a filter manufacturing business in Mexico, expansion of our ‘Tech First’ technical training and support platform for vehicle repair specialists and continued investment in our globally-recognized brands. We remain very focused on delivering value to our customers every day through better products, service and field support.”
