Federal-Mogul Holdings Corporation has announced financial results for the third quarter ended September 30, 2015. Net sales for the third quarter were $1,824 million, a decrease of 3% versus the third quarter of 2014. On a constant dollar basis, net sales increased by 7% versus Q3 2014 due to sales generated by the engine valve business acquired from TRW this year. Operational EBITDA was $153 million, or 8.4% of sales in Q3 2015 compared to $152 million, or 8.1% of sales in Q3 2014, despite $28 million of negative EBITDA impact due to exchange rate changes as compared to Q3 2014. Adjusted net income in Q3 2015 was $28 million, or $0.17 per share compared to $32 million in Q3 2014. The net loss from continuing operations attributable to Federal-Mogul in the quarter was $63 million, or ($0.37) per share, which includes the impact of non-cash impairment charges of $62 million and restructuring charges of $18 million, versus a net loss from continuing operations attributable to Federal-Mogul of $18 million, or ($0.12) per share in Q3 2014, which included the impact of non-cash impairment charges of $1 million and restructuring charges of $25 million.
Federal-Mogul’s Powertrain division reported revenue of $1,079 million in the quarter with approximately 67% generated outside of the United States. Exchange rate changes negatively impacted revenue by approximately $106 million versus Q3 2014. On a constant dollar basis, revenue increased by 10% compared to Q3 2014. The increase in Powertrain’s revenue reflects the inclusion of the valvetrain business acquired from TRW. When excluding the impact of sales from the engine valve acquisition, Powertrain sales in North America decreased by 1%, while light vehicle production increased by 6% and commercial vehicle production decreased by 2%. In EMEA, Powertrain sales decreased by 1% compared to a 6% increase in both light and commercial vehicle production, reflecting a significant reduction in engine exports from Europe to China, as well as the negative effect of Russia’s continuing recession. ROW sales decreased by 9% compared to a 4% decrease in light vehicle production and a 10% decrease in commercial vehicle production. The decrease in Powertrain’s sales reflects inventory adjustments taking place throughout the supply chain, including at the OE and dealer levels.
Operational EBITDA was $97 million, or 9% of revenue, compared to $104 million, or 9.5% in Q3 2014. Operational EBITDA was adversely impacted by $22 million in negative foreign currency movements.
During the third quarter, Federal-Mogul Powertrain completed its second phase of the acquisition of TRW’s engine valve business with the purchase of two plants located in the U.S. and Thailand. With this phase of the acquisition’s integration complete, the division’s global valvetrain footprint now includes 13 manufacturing sites ideally located to support its growing and diverse customer base.
“Federal-Mogul Powertrain held course in the third quarter, including a healthy boost to our top line from the TRW engine components acquisition,” said Rainer Jueckstock, Federal-Mogul co-CEO and CEO, Powertrain Division. “However, currency fluctuation remained a challenge in the third quarter, as did the decline in global commercial and industrial markets and the continued cooling of the vehicle markets in China, Brazil and Russia. Most notably, China’s new vehicle production volumes continue to trail prior growth trends as the market works to deplete its new vehicle inventories. As I stated on our second quarter earnings call, China is still the fastest-growing vehicle market in the world, and Powertrain’s plan to earn its fair share of that space has not wavered.”
Federal-Mogul’s Motorparts division reported Q3 2015 revenue of $817 million compared to $859 million in Q3 2014, a decrease of 5%. Excluding the negative currency impact of $68 million, revenue increased by 3%.
Sales of $465 million in the Americas were up 4%, at constant exchange rates, primarily driven by strong U.S. and Canadian domestic aftermarket sales, which were up 7% in the quarter, partially offset by lower export sales and the exit of unprofitable business.
Sales of $293 million in EMEA were up 2%, at constant exchange rates, compared to Q3 2014, with an increase in OE sales partially offset by slightly lower sales in the aftermarket. Asia Pacific sales were up 16%, mainly due to increased aftermarket sales in China (up 30%) and India (up 15%) driven by product line and customer expansions.
The Motorparts division recorded an $8 million increase in Operational EBITDA to $56 million, or 6.9% of sales in Q3 2015, compared to $48 million, or 5.6% of sales in Q3 2014. The $8 million EBITDA improvement included the benefits of prior restructuring programs, plant productivity improvements, pricing actions and material cost savings. These benefits were partially offset by $6 million of negative currency exchange and by incremental costs associated with the transition of the company’s North America distribution footprint.
Daniel Ninivaggi, Federal-Mogul co-CEO and CEO, Motorparts Division, commented, “I am encouraged by Federal-Mogul Motorparts’ third quarter operating performance. We saw measurable returns during the quarter from earlier investments in productivity initiatives, restructuring and commercial actions. We are investing aggressively to structurally improve our business by enhancing our global distribution network and IT systems. We are joining with our aftermarket distribution partners in supporting technicians and repair shops through our growing network of technical support centers and other ‘Tech First’ initiatives, including the recent opening of our eighth technical support center in south Florida. Additionally, we are continuing to establish our presence, distribution channels and premium branded products within emerging markets, particularly China and India, where the vehicle populations are both increasing and aging, creating significant opportunities for sustainable long-term growth.”