Echlin Announces Third-Quarter Operating Earnings Up 47%
18 June 1998
Echlin Announces Third-Quarter Operating Earnings Up 47%, to 78 Cents Per ShareBusiness Editors
BRANFORD, Conn.--June 18, 1998 --
-- Auto Parts Company Confirms Better Results Due To
Strategic Repositioning and Unit Sales Volume Growth --
Echlin Inc. today announced operating earnings per share of 78 cents for its third fiscal quarter ended May 31, 1998, an increase of 47.2% over the 53 cents per share earned in the third quarter last year. After subtracting 11 cents of costs related to the hostile takeover attempt initiated and withdrawn by SPX Corporation, and 1 cent of expenses involving the pending merger with Dana Corporation, Echlin reported basic earnings per share of 66 cents. Echlin Chairman, President and CEO Larry McCurdy, in announcing the strong results, noted that this year's third-quarter operating earnings per share were the second highest in the company's history.
"Our third-quarter performance demonstrates the continuing success of the extensive repositioning strategy we outlined last September," Mr. McCurdy explained. "Results also benefited from growth in unit sales volume, which on a comparable basis was up 1.3%. This was Echlin's first quarterly unit sales volume increase since the fourth quarter of fiscal 1996."
Echlin's repositioning strategy calls for a reorganized and simplified corporate structure; an EVA-focused management; plant rationalizations; workforce reductions; and divestiture of non-core and underperforming businesses. "Our repositioning efforts are ahead of schedule, and our earnings power is expanding as a result," Mr. McCurdy said. "We reorganized our corporation from 66 independent units into four core business groups, each headed by a very capable operating manager; our EVA training is near completion, and its implementation underway; of 14 plants to be rationalized, we have completed eight, while four are in progress and two are being planned; we've achieved 70% of our workforce-reduction goals; and, in April, we sold our Midland-Grau heavy-duty brake business, the last of six previously announced divestitures whose combined sales totaled $500 million, but whose aggregate net profit margins were less than 2%."
Third-Quarter Comparable Sales Grew 6%
In this year's third quarter, sales of comparable operations -- those part of Echlin for at least a year -- increased 5.6% year-over-year due to a combination of price increases, new products and the unit sales volume improvement. Acquisitions, primarily Brosol, AIMCO and General Automotive Specialty, boosted sales 7.3%, while the divestitures brought sales down 13.3% year-over-year. Net sales totaled $927 million, 0.4% below last year's $931 million.
"Unit sales volume was strong in our global automotive brake and fluid handling product groups," Mr. McCurdy added, "but continued to be weak in North American engine systems parts and in the European aftermarket." The strength of the British pound, vis-`-vis other European currencies, leaves Echlin's Quinton Hazell products at a temporary price disadvantage.
Profit Margins Up Significantly
Echlin's operating results this year, in large part, reflect the positive benefits of its repositioning-strategy implementation, which has significantly reduced costs and improved efficiencies.
In the third quarter, Echlin drove up its gross profit-to-sales ratio by 150 basis points, from 24.0% last year to 25.5% this year. It was the company's best gross profit margin in almost two years.
Excluding expenses of $11 million relating to the SPX hostile takeover and the pending merger with Dana, Echlin reduced its operating expenses 2.5% from last year, resulting in an operating profit-to-sales ratio improvement of 185 basis points.
Nine-Month Operating Profits Jumped 14%
For the first nine months of fiscal 1998, Echlin's reported net sales grew 1.1% to $2.65 billion. Acquisitions, which added 6.7%, were offset by divestitures that reduced sales 8.3%.
Excluding last year's gain on the sale of the company's Sensor Engineering division and this year's expenses relating to SPX and Dana, operating profits increased 13.8% to $190 million. Reported net income for the first nine months was $101 million, up 6.2% from last year's $95 million.
Balance Sheet Healthier
Consistent with its previously announced repositioning plans, Echlin made noteworthy progress in shoring up its financial position during the third quarter. This reflected the sale of the heavy-duty brake business, as well as the company's efforts to reduce inventories and debt.
At May 31, 1998, working capital totaled $522 million, down $199 million from twelve months earlier and down $67 million from three months earlier. Total debt to capitalization stood at 40.7% at quarter-end, the lowest level it has been since August 31, 1996.
More Improvements Ahead
In March, Echlin announced several steps it was taking to continue strengthening its operations. "Our worldwide sourcing initiatives, distribution realignment, strategic acquisitions and operational optimization will all add to higher earnings and cash flow potential for the company," Mr. McCurdy said. "Our action plans are in place, and we are excited about our bright future."
Merger With Dana Progressing
Echlin and Dana have made good progress toward their pending business combination. Both companies have scheduled special meetings of stockholders on June 30 to vote on matters related to the merger, and have mailed their Joint Proxy Statement/Prospectus.
Last week, the two firms announced that the required waiting period under the Hart- Scott-Rodino Antitrust Improvements Act of 1976 had expired, and they expected other regulatory approvals would be obtained prior to mid-July.
Mr. McCurdy explained, "Echlin's merger with Dana is a win-win for all our constituents, including stockholders, employees, customers and suppliers."
Comparative Results
The following are results for the third quarter and first nine months of fiscal years 1998 and 1997: