Detroit Diesel Reports 29% Earnings Increase
22 April 1999
Detroit Diesel Reports 29% Earnings Increase Sets New First Quarter Earnings Record
DETROIT, April 22 -- Detroit Diesel Corporation
announced today record first quarter net income of $12.5 million, or $0.51 per
common share, an increase of 29% over first quarter 1998 net income of $9.7
million, or $0.39 per common share. Total revenues for the first quarter
reached $592 million, consistent with first quarter 1998 revenues of $589
million. The first quarter 1999 revenues and net income also represent a 5%
and 21% increase over comparable fourth quarter 1998 figures, respectively.
Total first quarter 1999 engine shipments were 42,400 units compared to
43,700 units in first quarter 1998. The Company has continued to experience
strong shipments within the North American heavy-duty truck segment and new
four-cycle product applications, offsetting reduced two-cycle engine volumes
as its PowerEvolution program is implemented.
Roger S. Penske, Chairman, said, "We have again delivered record results
and continue to generate solid operating improvements. Demand for many of our
products remains quite strong, and we are building momentum with our cost
reduction initiatives. Based upon the currently strong market conditions,
particularly within on-highway, we continue to expect outstanding 1999
results. Solid Series 60 engine demand, combined with programs designed to
generate earnings improvements, such as PowerEvolution and CCVI (Continuous
Customer Value Improvement), suggests further strength throughout the year
despite continued weakness in selected markets such as mining and petroleum.
Should market trends continue, we feel confident that our full year earnings
target of 15% above 1998 pre-charge results is achievable. Additionally, we
continue to have an eye towards external growth opportunities to supplement
our earnings improvements."
Total first quarter service parts and remanufactured products revenues,
after intercompany eliminations, were $106 million, compared to $118 million
in first quarter 1998. Consistent growth in four-cycle component demand and
increased acceptance of the Company's remanufactured products continue to
produce solid results offset by reducing demand for service parts within
commodity-related markets.
Operating income (earnings before interest and taxes) increased 18% to
$22.2 million compared to first quarter 1998 and 16% above fourth quarter 1998
results. Gross margin was 23.5% in the first quarter, an increase of 0.7
percentage points over the first quarter 1998.
Research and development expenses were $24.6 million for the quarter,
consistent with first quarter 1998 expenditures. Selling, general and
administrative expenses were $92.4 million for the quarter, compared to $91.2
million in first quarter 1998.
The following is a review of the Company's three markets:
On-Highway. Revenues increased 14% to $379 million in the first quarter
compared to first quarter 1998, and 9% versus fourth quarter 1998 revenues.
Demand in this market continues at all-time record levels, particularly within
the North American Class 8 heavy-duty truck market. Orders for the Company's
Series 60 engine currently remain very strong.
Off-Road. Revenues were $161 million in the first quarter compared to
$194 million in 1998, primarily the result of anticipated reduced sales of
two-cycle engines in conjunction with the Company's PowerEvolution program and
reduced service parts spending in the mining and petroleum markets during the
period.
Shipments of the Company's Series 2000 and Series 4000 products increased
59% in the first quarter compared to first quarter 1998 as volumes in these
new products begin to ramp up. The introduction of additional four-cycle
product applications is expected to generate similar growth for the products
throughout the remainder of 1999 to offset lower two-cycle engine revenues.
Automotive. Revenues were $52 million in the first quarter compared to
$63 million in the first quarter 1998, and represented a 30% increase over
fourth quarter 1998 revenues. Demand for automotive diesel engines from the
Company's facilities in Italy and Brazil has stabilized, and, the underlying
demand for vehicles remains steady. The Company currently anticipates the
launch of additional product applications near the end of this year and into
the 2000 calendar year.
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 2,500 authorized distributors and dealers. 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 L. L. C. 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 Reform Act of 1995"
in the Company's most recent Annual Report on Form 10-K, which is on file with
the Securities and Exchange Commission.
Detroit Diesel's World Wide Web address is http://www.detroitdiesel.com.
DETROIT DIESEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
Three Months Ended
March 31,
1999 1998
(Unaudited)
Net revenues $ 591.5 $ 588.8
Cost of sales 452.3 454.4
Gross profit 139.2 134.4
Expenses:
Selling and administrative 92.4 91.2
Research and development 24.6 24.5
Interest 2.3 3.3
Total 119.3 119.0
Income before income taxes 19.9 15.4
Provision for income taxes 7.4 5.7
Net income available for
common shares $12.5 $9.7
Basic and diluted net
income per share $.51 $.39
SALES DATA BY MARKET
(In millions)
Three Months Ended
March 31,
1999 1998
(Unaudited)
On-Highway $379 $332
Off-Road 161 194
Automotive 52 63
Total $592 $589
DETROIT DIESEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
Mar. 31, Dec. 31,
1999 1998
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $2.4 $3.2
Receivables, net of allowances 368.8 313.3
Inventories 345.6 344.2
Prepaid expenses, deferred charges
and other current assets 14.3 14.9
Deferred tax assets 62.8 61.8
TOTAL CURRENT ASSETS 793.9 737.4
PROPERTY, PLANT AND EQUIPMENT
Net of accumulated depreciation
of $199.7 and $191.6,
respectively 296.0 309.4
DEFERRED TAX ASSETS 14.3 15.1
INTANGIBLE ASSETS, net 137.9 144.7
OTHER ASSETS 41.6 34.1
TOTAL ASSETS $1,283.7 $1,240.7
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $36.5 $38.3
Accounts payable 305.9 278.2
Accrued expenses 224.5 210.3
Current portion of long-term debt
and capital leases 3.6 4.1
TOTAL CURRENT LIABILITIES 570.5 530.9
LONG-TERM DEBT AND CAPITAL LEASES 63.3 62.6
OTHER LIABILITIES 238.2 240.5
DEFERRED TAX LIABILITIES 27.4 28.9
DEFERRED INCOME 5.3 5.5
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 176.2 166.8
Additional minimum pension
adjustment (9.7) (9.7)
Currency translation adjustment (11.9) (9.2)
TOTAL STOCKHOLDERS' EQUITY 379.0 372.3
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,283.7 $1,240.7