Aeroquip-Vickers Announces Expected Fourth-Quarter Earnings
14 December 1998
Aeroquip-Vickers Announces That It Expects Fourth-Quarter Earnings to be 25 Cents to 30 Cents Before Restructuring Expenses
MAUMEE, Ohio--Dec. 14, 1998--Aeroquip-Vickers, Inc. announced today that it expects its fourth-quarter earnings to be below analysts' current estimates. The company said that although the quarter is not complete and events can occur which could cause actual earnings to differ from expectations today, it currently expects that fourth-quarter earnings will be between 25 cents and 30 cents per share, before the impact of restructuring expenses in the quarter. The current consensus estimate reported on First Call is 85 cents.The lower earnings expectation is principally related to the performance of Vickers' industrial and mobile operations which began to decline in the third quarter. In the U.S., agriculture, an important sector for Vickers, was off sharply from the third quarter, and non-U.S. markets have also declined. Vickers' European sales and orders are trending down in the fourth quarter, Asia-Pacific remains depressed, and Brazil has declined dramatically. Lower global demand, combined with the fact that Vickers essentially eliminated its past due industrial and mobile orders in the first half of the year, has reduced pump production levels by 40%. This significant reduction has occurred just as Vickers commenced pump manufacturing operations at a new facility in Greenwood, South Carolina. However, Vickers' new piston pump facility will enable the elimination of inefficient and excess capacity at its Omaha, Nebraska, plant. The startup costs of the Greenwood plant have also negatively affected results.
In addition, Aeroquip's industrial operations for the fourth quarter will be negatively affected by the weaknesses in Europe and Brazil and expenses related to bringing an industrial distribution center online in Europe.
Aerospace, Automotive Continue Strong
The 1997 fourth quarter was the best ever for Aeroquip-Vickers' aerospace operations. While aerospace results continue strong and the outlook for 1999 remains positive, aerospace results in the 1998 fourth quarter will be below a year ago. Automotive results continue to be strong, but will fall short of last year due to the start-up costs of two new facilities. These facilities are required to meet demand for booked business for the next several years.
Restructuring Expenses
Aeroquip-Vickers announced the quarter would also include restructuring expenses amounting to $5 million, or 11 cents per share, to resize operations to reflect current business levels. These expenses will be principally for incurred severance costs and other exit costs associated with reconfiguring the business. During 1999, Aeroquip-Vickers will continue cost-reduction efforts and expects to announce additional charges as it implements courses of action to improve manufacturing and operating efficiencies.
Outlook for 1999
Aeroquip-Vickers is cautiously optimistic that 1999 earnings, before any restructuring charges, will be significantly better than the level it has experienced for the last six months of 1998. Automotive (19% of sales and 19% of operating income for the first nine months of 1998) should continue to grow in 1999, based on booked business and automotive manufacturers' planned production. Aerospace (25% of sales and 41% of operating income for the first nine months of 1998) should remain near 1998 performance levels and continue to be a strong profit contributor in 1999. The 1999 outlook for the Industrial business (56% of sales and 40% of operating income for the first nine months of 1998) is much more difficult to assess because of the uncertainty surrounding many of the global markets it serves. However, Aeroquip's industrial operations should continue to grow in 1999, just as they have done to date in 1998, both in sales and operating income. Vickers' industrial and mobile operations should rebound from recent performance levels with the reconfiguration of Vickers' industrial and mobile business over the next few months. Actions by Vickers will include further workforce reductions and facility consolidations that will reposition Vickers' industrial and mobile operations for profitable growth and enable Vickers' industrial and mobile operations to continue their tradition of providing quality and cost-effective products that meet customer needs.
Forward-Looking Statements
Portions of this release which are not historical in nature are forward-looking statements. The forward-looking statements made in this release, as well as all other forward-looking statements or information provided by Aeroquip-Vickers or its officers and employees, whether written or oral, are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements of Aeroquip-Vickers are based upon, among other things, internal estimates, preliminary information and management assumptions, and the performance of the U.S. and international economies, as well as the industrial, aerospace and automotive industries in which Aeroquip-Vickers does business. These statements should be considered in light of risks and uncertainties and other factors which may affect Aeroquip-Vickers' actual performance, including continued demand in the industrial, aerospace and automotive industries, and Aeroquip-Vickers' ability to continually improve margins by achieving anticipated cost reductions in manufacturing processes in all of its businesses, to consistently win new business in each of its industries by delivering quality products and maintaining competitive pricing, and successfully implementing Aeroquip-Vickers' growth strategies.
Aeroquip-Vickers, Inc. is two companies, Aeroquip Corporation and Vickers, Incorporated, world leaders in the design, manufacture and distribution of engineered components and systems to the industrial, aerospace and automotive markets.