TRW Automotive Holdings Corp. the global leader in active and passive safety systems, has reported second quarter 2014 financial results with sales of $4.6 billion, an increase of 2% compared to the prior year period (up 8% excluding the effect of businesses exited). The Company reported GAAP second quarter net earnings of $265 million or $2.27 per diluted share, which compares to net earnings of $248 million or $1.99 per diluted share in the prior year period.
Excluding special items from the Company’s current and prior year quarterly results, the Company reported second quarter 2014 net earnings of $270 million, or $2.32 per diluted share, an increase of 15% compared to last year’s second quarter earnings of $2.02 per diluted share.
“TRW’s second quarter results reflect the Company’s focus and ability to capitalize on increasing global demand for its active and passive safety technologies,” said John C. Plant, Chairman and Chief Executive Officer. “TRW is well positioned to reach its full year goals given the Company’s strong operating performance achieved through the first half of 2014.”
Second Quarter 2014
The Company reported second quarter 2014 sales of $4.6 billion, an increase of $79 million from the prior year period. The higher level of sales was driven by increasing demand for TRW’s active and passive safety technologies, higher vehicle production volumes in the Company’s major markets, and the positive impact of currency movements between the two periods, partially offset by the negative impact related to exiting certain businesses within the Company’s North American brake component and assembly operations.
The Company’s second quarter 2014 operating income was $383 million, compared with $385 million in the 2013 period. Both the 2014 and 2013 periods included restructuring charges totaling $6 million and $1 million, respectively. Excluding these charges, operating income for the second quarter was $389 million (margin of 8.5%), which compares to $386 million (margin of 8.6%) in the prior year period. The year-to-year increase in profit was primarily driven by the higher level of sales, partially offset by planned increases in costs to support future growth.
Net interest expense for the second quarter of 2014 totaled $26 million, which compares to $34 million in the 2013 period. In addition, a net loss on retirement of debt totaling $5 million was recognized in the second quarter of 2013.
Tax expense for the second quarter of 2014 was $92 million, which compares to a tax expense of $97 million in the prior year period. The 2014 period included a $1 million net tax benefit related to restructuring actions, compared to the 2013 period which included a net tax benefit of $2 million related to debt retirement.
The Company reported 2014 second quarter GAAP net earnings of $265 million, or $2.27 per diluted share, which compares to GAAP net earnings of $248 million, or $1.99 per diluted share in the 2013 period.
Excluding special items, the Company reported second quarter 2014 net earnings of $270 million, or $2.32 per diluted share, an increase of 15% compared to last year’s second quarter earnings of $2.02 per diluted share.
Earnings before interest, taxes, depreciation and amortization and special items (“adjusted EBITDA”) were $500 million in the second quarter of 2014, compared to the prior year level of $492 million. See page A6 for a description of the special items excluded in calculating adjusted EBITDA.
First Half 2014
The Company reported first half 2014 sales of $9.0 billion, an increase of $308 million compared to prior year sales. The higher level of sales was driven by increasing demand for TRW’s innovative technologies, higher vehicle production volumes and the positive impact of currency movements between the two periods, partially offset by the negative impact related to exiting certain businesses within the Company’s North American brake component and assembly operations.
For the first half of 2014, the Company reported operating income of $691 million which compares to $638 million of operating income in the prior year period. Both the 2014 and 2013 periods included restructuring and asset impairment charges totaling $26 million and $38 million, respectively. Excluding these items from both periods, the Company reported operating income of $717 million (margin of 7.9%) in the 2014 period, which compares to $676 million (margin of 7.7%) in the prior year. The positive contribution from the higher level of sales was partially offset by planned increases in costs to support future growth.
Net interest expense for the first half of 2014 totaled $57 million, which compares to $64 million in the prior year period. In addition, the 2013 period included a net loss on retirement of debt totaling $5 million.
First half 2014 tax expense was $170 million, which compares to $159 million in the prior year. Excluding the tax benefits related to the special items previously noted in both periods, tax expense was $175 million and $171 millionin the first half of 2014 and the first half of 2013, respectively.
The Company reported first half 2014 GAAP net earnings of $464 million, or $3.95 per diluted share, which compares to GAAP net earnings of $410 million, or $3.28 per diluted share in the prior year period.
Excluding special items, the Company reported net earnings of $485 million in the first half of 2014, or $4.12 per diluted share, an increase of 17% compared to last year’s first half earnings of $3.52 per diluted share.
Adjusted EBITDA totaled $937 million in first half 2014, compared to $888 million in the prior year period. See page A6 for a description of the special items excluded in calculating adjusted EBITDA.
Cash Flow and Capital Structure
Second quarter 2014 net cash flow provided by operating activities was $257 million, which compares to $271 millionin the second quarter of 2013. Capital expenditures were $131 million in the current quarter compared to $167 million last year. Second quarter free cash flow (cash flow from operating activities less capital expenditures) was$126 million, compared to $104 million in the prior year quarter.
For the six month period ended June 27, 2014, net cash provided by operating activities was $74 million, which compares to $93 million in the first half of 2013. First half capital expenditures were $236 million, compared to $271 million in 2013. Free cash flow was an outflow of $162 million, compared to an outflow of $178 million for the same period last year.
During the first half of 2014, TRW used $400 million of cash to initially repurchase 3.9 million shares of its common stock through an accelerated share repurchase agreement. The agreement, as previously disclosed, is expected to be completed by the end of the third quarter 2014.
As of June 27, 2014, the Company had $1,892 million of debt and $931 million of cash and cash equivalents, resulting in net debt (defined as debt less cash and cash equivalents) of $961 million. The $222 million decrease in total gross debt compared to year end 2013 primarily reflects $469 million of face value bond debt that matured during the first quarter, partially offset by an increase in borrowings under short-term uncommitted lines of credit.
2014 Outlook
TRW expects full year industry production volumes to total 17.0 million units in North America and 19.9 million units in Europe. Within the forecast for Europe, normal seasonality is expected to place modest downward pressure on vehicle production in the near-term despite continuing signs the industry in the region appears to be headed in the right direction. Outside North America and Europe, the Company continues to expect expansion in vehicle production volumes in China whereas Brazil remains challenged by negative economic conditions. Based on these production levels, the Company’s first half performance and expectations for foreign currency exchange rates, full year 2014 sales are expected to range between $17.5 billion and $17.7 billion, with third quarter sales expected to be approximately $4.2 billion.
