By Jeff Bennett
Top U.S. auto-parts suppliers are fighting globalization
crosswinds with some slashing their 2015 earnings outlooks as a
strong dollar masks the volume gains that many are finding in a
global new-car market.
Harman International Inc., BorgWarner Inc. and Dana Holding
Corp. cut fiscal-year profits forecasts even as demand for their
parts continue to increase. Most of that volume increase is coming
from North America, where sales of new sport-utility vehicles and
pickup trucks are climbing. Meanwhile, suppliers say volumes are
strengthening among the European auto makers.
Harman, a maker of car stereos, and BorgWarner, a producer of
automotive turbochargers, lowered fiscal year 2015 profit forecasts
on Thursday, shaving at least 20 cents a share off full-year
per-share earnings outlook. BorgWarner warned year-over-year sales
will be flat to down as much as 4% over 2014. Its prior forecast
called for sales up between 2% and 6% over 2014's level.
On Thursday, parts maker Visteon Corp. releases its first
quarter results. Analysts' consensus forecast call for it to earn
29 cents a share compared to 63 cents a share a year ago, according
to data provider Thomson/First Call. It gets about 30% of annual
revenue from Europe.
The euro, which hit a two month high against the U.S. dollar on
Friday, was trading at about $1.115 on Monday. A year ago, the euro
was about $1.40.
Dana, a maker of automobile axles, lowered expectations early in
April, taking down its forecast for 2015 sales and tightening its
full-year adjusted earnings before taxes to between $740 million
and $750 million.
"The stronger dollar has made our products more expensive in
many global markets," Harman CEO Dinesh Paliwal said in an
interview. He added the car-stereo maker is offering higher
discounts to its customers to try to hold market share. "Obviously
this has had an adverse impact on our results."
Auto-parts makers are being hit harder because many recently
expanded their business abroad to capitalize on fast-growing
emerging markets. In 1999, for instance, North American shipments
accounted for more than 75% of Delphi Automotive PLC's sales; last
year North America accounted for just 35% of its business. In a
restructuring that followed a late 2005 bankruptcy filing, the
company opened new factories in places such as Morocco and Romania
while closing several U.S. plants.
Delphi said the strong dollar reduced last quarter's reported
revenue by $314 million. Lear Corp., a top car-seat supplier, also
said currency fluctuations sliced $369 million off its first
quarter sales.
"I think this currency issue will be with us for another couple
of years, " said Morningstar Inc. automotive analyst Richard
Hilgert. "I think the euro will improve a little bit in 2016 and
2017 and we will get a little tailwind, but I am not looking for
the euro to get back to $1.30 for the next three years."
Mr. Hilgert said these parts companies will remain under intense
pressure to continue manufacturing in the countries where they sell
their parts.
Harman, which reported fiscal third-quarter results on Thursday,
cut its full-year earnings per share to $5.65 from $5.85 excluding
restructuring charges.
Mr. Paliwal said in an interview the company is hedging by
buying and selling in euros and dollars where appropriate. About
75% to 85% of the company's 2016 business is now hedged, he
said.
Meanwhile, piston ring and braking components maker
Federal-Mogul Holdings Corp., which has substantial operations in
Europe, is pinched trying to meet the rising demand from German and
other European car makers that are benefiting from the weaker
euro.
"In Europe, we are seeing most engine manufacturers producing
significantly higher car and engine volumes for export to North
America and Asia to capitalize on the weak euro," co-CEO Rainer
Jueckstock said in a conference call with analysts last week. "This
is driving most of our plants here in Europe into overtime, special
freight and similar operational and financial burden. But we are
working to resolve this issue to free up capacity as fast as
possible."
Delphi Chief Executive Kevin Clark said that like other CEOs he
expects the euro to flatten out at about $1.10 for the remainder of
the year. A slip below that level will force most companies to
squeeze savings from elsewhere.
"It starts to get more challenging below $1.10," Mr. Clark said.
"We should have some ability to offset but it gets more
challenging...We wouldn't do price increases. We would have to look
where we could increase productivity elsewhere."
Write to Jeff Bennett at jeff.bennett@wsj.com
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