Federal-Mogul Reports Increase in Sales

Federal-Mogul Corporation reports that its sales for the second quarter of 2003 were up slightly, though the company still registered a slight loss.
The increase in sales was due to favourable currency exchange and divestitures. Overall sales and global aftermarket sales (which make up 45% of revenues) were both down 5% in real terms.
For the second quarter of 2003, Federal-Mogul posted sales of $1,445 million, up slightly compared to $1,442 million in 2002. Excluding the effect of foreign exchange and divestitures, second quarter 2003 sales were down 5%. All figures in U.S. dollars.
Federal-Mogul reported a second quarter net loss of $5 million, compared to net earnings of $16 million in the second quarter of 2002. Excluding the effects of Chapter 11 and Administration related reorganization expenses and business divestitures, Federal-Mogul reported pretax results from operations of $48 million in the second quarter 2003 compared to $60 million in the second quarter 2002 (a reconciliation of pretax results from operations to reported net income is provided in the supplemental data).
Operating cash flows for the second quarter of 2003 were $168 million, compared to $75 million in the second quarter of 2002. The company’s strong cash flow was used to pay down the Debtor-in-Possession (DIP) financing by $90 million. 2003 year-to-date cash flow from operating activities was $201 million compared to $107 million for the same period in 2002.
“We continue to make steady operational progress in a difficult market. Pricing continues to place pressure on the supplier community and we are working closely with our customers to identify mutually beneficial cost savings opportunities,” said Chip McClure, chief executive officer and president. “We remain on course with our strategic plan and I’m pleased with our execution, especially in the areas of cash flow and productivity. Through productivity, we have been able to offset industry pricing pressures, increased pension expense and inflation.
"We’ve also launched a renewed focus on innovation to drive organic growth,” added McClure. “This initiative is backed by an energized team dedicated to developing new products and creating value by differentiating the products and services we provide to our customers.”
Sales of replacement parts to aftermarket customers totalled 45% of Federal-Mogul’s second quarter 2003 sales. Second quarter 2003 aftermarket sales were $655 million, compared to $660 million for second quarter 2002. Weak market conditions in Venezuela, Mexico and the Middle East as well as softness in retail sales in North America affected aftermarket sales. Excluding the effect of foreign exchange, aftermarket sales were down 5% compared to 2002. By geographic region, second quarter 2003 aftermarket sales were 75% in the Americas and 25% in Europe.
“We are very proud to have been honoured as Vendor of the Year from two significant aftermarket customers, IAPA and Uni-Select,” said McClure. “We have also just completed the expansion of our web order management system which is now serving more than 800 customers with over 24,000 transactions per month.”
New product launches for the second quarter include the Anco Hydroclear wiper blade in North America and the Ferodo DS Performance aftermarket brake pad in Europe. Federal-Mogul continues to experience success with the Wagner ThermoQuiet brake pad securing in the second quarter $10 million of annual new business for that product line.
Sales of parts to original equipment (OE) customers totalled 55% of the company’s second quarter 2003 sales. Second quarter 2003 OE sales were $790 million, compared to $754 million in 2002. Excluding the effect of foreign exchange, sales decreased 5% compared with 2002. By geographic region, second quarter 2003 OE sales were 38% in the Americas, 59% in Europe and 3% in the rest of the world. Second quarter OE sales for the global Friction product line improved to $110 million, from $95 million in 2002.
Excluding the effect of foreign exchange, friction sales increased by 3%. By geographic region, second quarter 2003 OE Friction product sales were 30% in the Americas and 70% in Europe. Second quarter OE sales for the global powertrain product lines of bearings, pistons, piston rings and liners, and sintered valve train and transmission products were $475 million, compared to $426 million in 2002. Excluding divestitures and the effect of foreign exchange, sales were relatively flat.
By geographic region, second quarter 2003 OE powertrain product sales were 28% in the Americas, 71% in Europe and 1% in the rest of the world. Second quarter OE sales for the global product lines of Sealing Systems and Systems Protection were $164 million, compared with $171 million in 2002. Excluding the effect of foreign exchange, sales were down 8%. By geographic region, second quarter 2003 OE Sealing Systems and Systems Protection sales were 70% in the Americas, 29% in Europe and Africa, and 1% in the rest of the world. Second quarter OE sales in all other product lines (which consists primarily of OE Lighting and Asia Pacific) were $39 million compared with $62 million in 2002.
The decrease in sales was primarily attributable to the divestiture of the Signal-Stat lighting business in 2002. By geographic region, sales were 48% in the Americas and 52% in the rest of the world.