Borg-Warner Automotive Reports Q2 Results
22 July 1998
Borg-Warner Automotive Reports Second Quarter; GM Strike Costs $.13 Per Share
CHICAGO, July 22 -- Borg-Warner Automotive, Inc.
today reported 1998 second quarter earnings of $.83 per share (diluted)
compared with $1.23 in the same 1997 period. Without the General Motors
strike, the company's earnings would have been in line with Wall Street
expectations. As anticipated, results for the quarter were hurt by weak sales
in Asia and a low installation rate of four-wheel drive products on a major
truck model.
Second quarter net earnings for 1998 were $19.6 million compared with
$29.6 million in the 1997 quarter. Sales were up slightly to $451.3 million
compared with $449.7 million the prior year.
Net earnings for the first six months of 1998 were $45.6 million, or
$1.92 per share (diluted) compared with $54.4 million, or $2.27 per share, in
the first six months of 1997. Sales were up 3% to $916.0 million compared
with $893.2 million in 1997.
"Despite a difficult first half and the continuing work stoppage at
General Motors, we believe that we can deliver solid growth in the second half
of the year and into 1999," said John F. Fielder, chairman and chief executive
officer of Borg-Warner Automotive. "We expect the improvement to come from
the launch of a new automatic transmission program at Chrysler with increased
BWA content, improved sales of four-wheel drive transfer cases to Ford, an
increase in production of four-wheel drive systems for Mercedes and continued
stability in the overall auto market. In addition, we have taken a number of
aggressive actions to strengthen our business. A $10 million cost-cutting
effort has been launched across all of our operations to reduce material costs
and improve productivity. To minimize the decline in Asia, our actions
include the re-sourcing of production from other areas to use open Asian
capacity."
The weak Asian economy continues to affect a number of the company's
operations. Sales of vehicles with higher-end features with BWA content, such
as automatic transmissions and four-wheel drive, are depressed.
The shutdown of General Motors' production due to the strike cost
Borg-Warner Automotive approximately $10 million in sales and $.13 of net
earnings per share during the second quarter. General Motors in North America
represents about 15% of the company's combined worldwide sales. GM is a major
customer for the company's engine and automatic transmission products. As the
strike continues beyond the early July summer shutdown period, it is expected
to cost the company up to $6 million in lost revenue per week.
For the second quarter, revenue at Morse TEC rose 2% to $83.5 million.
The group experienced continued strong demand in North America for its engine,
transmission and four-wheel drive components and systems. This demand offset
the weakness in its business in Asia and the impact of the GM strike. The
launch of new engine timing systems for Chrysler and the growth of direct
injected diesel engines which require timing systems will drive continued
growth.
Powertrain Systems' sales of $127.6 million were 19% below last year's
strong second quarter results. The group was adversely affected by a 37%
decline in four-wheel drive transfer case shipments for the Ford F-150 truck
and a decline in four-wheel drive transfer case shipments to Korea. Product
shipments are expected to strengthen in the second half of the year.
Automatic Transmission Systems' sales were down 11% to $119.8 million.
Strong European demand could not offset the impact of the Asian market, the
General Motors strike and revenue lost through the partial sale of a product
line last year. Improvement in the second half of 1998 is anticipated from
the new automatic transmission program at Chrysler.
Sales for Air/Fluid Systems were off 2% to $89.0 million, in part due to
year-over-year changes in Chrysler LH production. Increased demand for air
induction modules for new Chrysler LH vehicles and other air management
products both in North America and Europe is expected to fuel future
improvement.
Sales from the European turbocharger business through AG Kuhnle, Kopp &
Kausch, in which the company owns a majority interest, were $42.4 million.
Chicago-based Borg-Warner Automotive, Inc. is a product leader in highly
engineered components and systems primarily for automotive drivetrain
applications. The company operates manufacturing facilities in 12 countries
serving the North American, European and Asian automotive markets.
Statements contained in this press release which are not historical facts
are "forward-looking" statements as contemplated by the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risks and uncertainties, which could cause actual results to differ materially
from those projected or implied in the forward-looking statements. Such risks
and uncertainties include fluctuations in domestic or foreign automotive
production, the continued use of outside suppliers by original equipment
manufacturers, and general economic conditions, as well as other risks
detailed in the Company's filings with the Securities and Exchange Commission,
including the Cautionary Statements filed as Exhibit 99.1 to the Form 10-K for
the fiscal year ended December 31, 1997.
Borg-Warner Automotive, Inc.
Consolidated Statement of Operations (Unaudited)
(millions of dollars, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
Net sales $451.3 $449.7 $916.0 $893.2
Cost of sales 355.3 346.9 720.7 692.6
Depreciation 19.3 17.7 38.6 34.5
Selling, general and
administrative expenses 38.6 34.0 76.1 70.0
Minority interest 0.8 0.5 1.5 1.2
Goodwill amortization 4.2 4.1 8.4 8.2
Equity in affiliate earnings
and other income (2.9) (4.6) (8.4) (8.6)
Earnings before interest
expense, finance charges
and taxes 36.0 51.1 79.1 95.3
Interest expense
and finance charges 7.0 6.3 13.0 12.8
Provision for income taxes 9.4 15.2 20.5 28.1
Net earnings $19.6 $29.6 $45.6 $54.4
Net earnings per
share -- basic $0.84 $1.25 $1.94 $2.30
Net earnings per
share -- diluted $0.83 $1.23 $1.92 $2.27
Average shares outstanding
-- basic (in millions) 23.6 23.7 23.6 23.7
Average shares outstanding
-- diluted (in millions) 23.8 23.9 23.8 23.9
Borg-Warner Automotive, Inc.
Sales by Operating Group (Unaudited)
(millions of dollars, average shares outstanding)
Three Three % Six Six %
Months Months Change Months Months Change
1998 1997 1998 1997
Powertrain Systems$127.6 $157.6 -19.0% $261.5 $315.1 -17.0%
Automatic
Transmission
Systems 119.8 134.6 -11.0% 244.5 262.4 -6.8%
Morse TEC 83.5 81.9 2.0% 171.9 161.3 6.6%
Air/Fluid Systems 89.0 90.6 -1.8% 180.1 182.9 -1.5%
AG Kuhnle, Kopp
& Kausch 42.4 0.0 N/A 82.5 0.0 N/A
Subtotal 462.3 464.7 -0.5% 940.5 921.7 2.0%
Eliminations (11.0) (15.0) -26.7% (24.5) (28.5) -14.0%
Total $451.3 $449.7 0.4% $916.0 $893.2 2.6%