Detroit Diesel Reports Record Fourth Quarter Earnings 1999
4 February 1999
Detroit Diesel Reports Record Fourth Quarter Earnings 1999 Forecast Indicates Continued Improvement
DETROIT, Feb. 4 -- Detroit Diesel Corporation
announced today fourth quarter 1998 revenues of $563 million and record fourth
quarter earnings of $10.3 million or $0.42 per common share. These figures
compare with fourth quarter 1997 revenues of $563 million and earnings of
$7.9 million or $0.32 per common share. The fourth quarter 1998 results
represent a 30% increase in earnings versus the previous fourth quarter on
consistent revenues.
For the year ended December 31, 1998, Detroit Diesel reported total
revenues of $2.3 billion, an increase of 4% over full year 1997 revenues.
Earnings, before a special charge, rose 35% to $40.5 million or $1.64 per
common share. After the special charge related to the previously announced
agreements with the Environmental Protection Agency and the California Air
Resources Board, the Company's full year 1998 earnings were $28.0 million, or
$1.13 per common share.
Total fourth quarter 1998 engine shipments were 37,500 units compared to
39,800 units in fourth quarter 1997, and total 1998 engine shipments were
156,000, a decline of 4% compared to full year 1997 shipments. Strong
increases in the Company's Series 60 engine shipments, for a number of
markets, were offset by anticipated reductions in two-cycle and automotive
engine deliveries.
Roger S. Penske, Chairman, said "We are very pleased by the efforts of
the entire Detroit Diesel team resulting in our best ever fourth quarter
performance. In addition to strong demand in a number of our key markets, our
consistent focus on improving our operations has generated solid increases in
our earnings. More importantly, we have laid the foundation for further
improvements in the future. Detroit Diesel is in the strongest position it
has ever been, and we are poised to deliver significantly better results in
1999 and beyond."
Regarding the Company's outlook for 1999, Timothy D. Leuliette, Vice
Chairman, said, "We currently anticipate the positive earnings momentum
generated in 1998 will continue into 1999. Should market conditions remain
strong, we see the potential to revise our 1999 target beyond our current
10-15% improvement on 1998 pre-charge earnings. Strong Series 60 demand
coupled with continued overall operating improvements and increased Series
2000 and Series 4000 shipments should support a continuation of our record
performance in the first quarter of 1999. Furthermore, as we have previously
stated, in 1998 we focused on actions which would lead to earnings
improvements, which we believe are beginning to generate the appropriate
impact. Now, with our strong balance sheet, we will begin to more
aggressively pursue revenue enhancements, including external growth
opportunities."
Total 1998 service parts and remanufactured products revenues, after
intercompany eliminations were $445 million, consistent with full year 1997
results. Consistent growth in the four-cycle component demand and increased
acceptance of the Company's remanufactured products continue to produce solid
results.
Operating income (earnings before interest and taxes) increased 53% to
$19.1 million compared to fourth quarter 1997. Gross margin was 23.4% in the
fourth quarter, an increase of 0.4 percentage points over the fourth quarter
1997. The increase in gross margin is a result of strong product sales mix
and continued improvements in productivity and material cost reduction
efforts. Full year 1998 gross margin was 23.3%, compared with 22.9% for the
full year 1997.
Research and development expenses were $23.0 million for the quarter, a
decline of 12% compared to fourth quarter 1997. Total 1998 research and
development expenditures were $93.9 million, a decrease of $3.6 million
compared to 1997. Selling, general, and administrative expenses were $89.6
million for the quarter, compared to $90.9 million in fourth quarter 1997, and
total 1998 selling, general and administrative expenses were $355.6 million.
Expenses associated with increased unit volumes were partially offset by
decreases in selling and administrative related categories due to cost
reduction efforts.
The following is a review of the Company's revenue by major market:
On-Highway. Revenues increased 8% to $348 million in the fourth quarter
compared to fourth quarter 1997. Demand for the Company's Series 60 product
for truck and coach applications remained at record levels. Industry order
trends continue to exceed current North American Class 8 truck monthly
production rates. As previously discussed, the Company added Series 60
capacity during the fourth quarter, which has resulted in an 18% potential
increase in the daily production. Total 1998 revenues increased 11% to a
record $1.34 billion compared to 1997.
Off-Road. Revenues were $142 million in the fourth quarter compared to
$155 million in 1997. Deliveries of the Company's Series 2000 and Series 4000
engines increased significantly during the fourth quarter, partially
offsetting the decline in two-cycle shipments. Demand in the off-road market
continues to be focused more on larger horsepower units, and the performance
characteristics of the Company's new four-cycle products have increased
customer interest. Introduction of the Series 2000 and Series 4000 engines
with numerous marine manufacturers has been completed, and order flow
continues to increase.
Despite decline in overall market demand in recent months, emphasis in the
mining and petroleum services sectors remains directed towards increasing
penetration with the new four-cycle products. Total 1998 revenues rose 4% to
$594 million compared to full year 1997 results.
Automotive. Revenues were $40 million in the fourth quarter compared to
$52 million in the fourth quarter 1997. Automotive shipments are currently
expected to remain at reduced levels until the second half of 1999, when the
production for new programs is expected to commence. Total 1998 revenues were
$186 million compared to $240 million in 1997.
Power Generation. Revenues were $33 million in the fourth quarter
compared to $35 million in the fourth quarter 1997. Customer demand for
larger output packages, particularly in the domestic market, remains quite
strong. Shipment of the Company's two-cycle products is anticipated through
the early part of 1999 as acceptance of the Series 60, Series 2000 and Series
4000 products continues to increase. Sales to overseas markets in 1998 were
affected by economic events, however the overall effect is not considered to
have been material to the Company's results. Total 1998 revenues were $130
million compared to $141 million in 1997.
Detroit Diesel Corporation is engaged in the design, manufacture, sale and
service of heavy-duty diesel and alternative fuel engines, automotive diesel
engines, and engine related products.
The Company offers a complete line of diesel engines from 22 to 10,000
horsepower for the on-highway, off-road (including power generation), and
automotive markets. Detroit Diesel services these markets directly and
through a worldwide network of more than 2,800 authorized distributor and
dealer locations. DDC is a QS-9000 certified company.
Detroit Diesel's major shareholder is Penske Corporation, a closely-held,
diversified transportation services company whose operations include Penske
Truck Leasing Company, Diesel Technology Company, Penske Automotive Group,
Inc., Penske Auto Centers, Inc., Penske Motorsports, Inc., and Penske Capital
Partners. The Penske Group of businesses has annual revenues exceeding $6
billion and employs more than 28,000 people around the world.
This news release may include projections, forecasts and other forward-
looking statements about the Company, the industry in which it competes and
the markets it serves. The achievement of such projections is subject to
certain risks and uncertainties, fully detailed in the "Cautionary Statement
for purposes of 'Safe Harbor' under the Private Securities Litigation Reform
Act of 1995" in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, which is on file with the Securities and Exchange
Commission.
Detroit Diesel Corporation
Consolidated Statements of Income
(In millions, except per share amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
1998 1997 1998 1997
(Unaudited)
Net revenues $562.5 $562.7 $2,250.6 $2,163.9
Cost of sales 430.8 433.3 1,726.0 1,669.1
Gross profit 131.7 129.4 524.6 494.8
Expenses:
Selling and administrative 89.6 90.9 355.6 338.9
Research and development 23.0 26.0 93.9 97.5
Interest 3.0 3.2 11.8 12.9
Special Charge - - 12.5 -
Total 115.6 120.1 473.8 449.3
Income before income taxes
and minority interests 16.1 9.3 50.8 45.5
Provision for income taxes 5.8 1.4 22.8 15.5
Minority interests - - - 0.1
Net income available
for common shares $ 10.3 $ 7.9 $ 28.0 $ 29.9
Basic net income per share $ .42 $ .32 $ 1.13 $ 1.21
Diluted net income per share $ .42 $ .32 $ 1.13 $ 1.21
Sales Data by Market
(In millions)
Three Months Ended Twelve Months Ended
December 31, December 31,
1998 1997 1998 1997
(Unaudited)
On-Highway $ 348 $ 321 $1,341 $1,210
Off-Road 142 155 594 573
Automotive 40 52 186 240
Power Generation 33 35 130 141
Total $ 563 $ 563 $2,251 $2,164
Detroit Diesel Corporation
Consolidated Balance Sheets
(In millions, except per share amounts)
Dec. 31, Dec. 31,
1998 1997
ASSETS
CURRENT ASSETS:
Cash $ 3.2 $ 3.2
Receivables, net of allowances 313.3 318.8
Inventories 344.2 305.8
Prepaid expenses, deferred charges and
other current assets 14.9 13.0
Deferred tax assets 61.8 52.1
TOTAL CURRENT ASSETS 737.4 692.9
PROPERTY, PLANT AND EQUIPMENT
Net of accumulated depreciation of
$191.6 and $153.7, respectively 309.4 298.3
DEFERRED TAX ASSETS 15.1 18.4
INTANGIBLE ASSETS, net 144.7 104.8
OTHER ASSETS 34.1 42.1
TOTAL ASSETS $1,240.7 $1,156.5
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 38.3 $ 44.7
Accounts payable 278.2 297.0
Accrued expenses 210.3 175.0
Current portion of long-term debt
and capital leases 4.1 6.9
TOTAL CURRENT LIABILITIES 530.9 523.6
LONG-TERM DEBT AND CAPITAL LEASES 62.6 73.8
OTHER LIABILITIES 240.5 183.1
DEFERRED TAX LIABILITIES 28.9 25.3
DEFERRED INCOME 5.5 5.9
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $0.01 per
share, no shares issued - -
Common Stock, par value $0.01 per share,
24.7 million shares issued .2 .2
Additional paid-in capital 224.2 224.2
Retained earnings 166.8 138.8
Additional minimum pension adjustment (9.7) (9.7)
Currency translation adjustment (9.2) (8.7)
TOTAL STOCKHOLDERS' EQUITY 372.3 344.8
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,240.7 $1,156.5