Delphi Automotive PLC (DLPH), Visteon Corp (C): Strong Supplier Earnings Suggest Booming Autos Growth

Page 1 of 2

A little over a month ago, Scotia Bank released a global auto report, predicting a modest-but-respectable 4.3% uptick in auto sales for 2013. As second quarter earnings reports roll in, it might be time to question whether that’s a bit low.

Auto manufacturers themselves calmed investors with strong second quarters, but the correspondingly robust quarter for their suppliers promises repetition of that success later this year. When suppliers post big numbers, it means that auto manufacturers are buying. That doesn’t guarantee that consumers will buy later down the road, but it does indicate that manufacturers expect them to.

Electric growth

Delphi Automotive PLCDelphi Automotive PLC (NYSE:DLPH) supplies electronic parts—anything from air conditioning technology to motion sensors—to auto manufacturers. The company’s revenue is actually down 3% compared to the previous year, but it posted a strong second quarter and still improved its full-year guidance for earnings (up roughly 1% from previous estimates). Perhaps most compellingly, the company feels strong about its own financial health, repurchasing 2.45 million shares in the Second Quarter (Q2).

Visteon Corp (NYSE:VC) has yet to report for Q2, but it certainly beat Delphi Automotive PLC (NYSE:DLPH) on first-quarter growth. A self-described innovator for auto-parts relating to climate, interior, and electronics, Visteon repurchased 4% of outstanding shares in Q1, saw cash flow explode almost 400%, and grew sales at a 7.5% clip. It seems likely that Delphi’s struggles more reflect market re-positioning than a lack of overall market vitality.

In fact, after a poor 2012, Visteon Corp (NYSE:VC) looks poised to lead a rebound. Very manageable debt levels, a fair P/E (and highly attractive forward P/E of 9.8), and aggressive growth plans all lie in Visteon’s favor. The company will need to prove it can hold steady with the impressive numbers, but all signs seem to indicate that they can.

Safety Strong

Meanwhile, Autoliv Inc. (NYSE:ALV) supplies seat belts, radar sensors, and other safety technology. In addition to announcing new buildings in China (to account for growth), the company exceeded second-quarter growth expectations, and now expects 6% growth in organic sales for the third quarter. Part of the sales increase simply arose from Autoliv gaining market share, as the company even grew 5% in Europe. But, with an additional 8% growth in North America, Autoliv’s spike also highlights a broader trend of production growth.

Fellow safety systems provider TRW Automotive Holdings Corp. (NYSE:TRW) also boasted a healthy second quarter, and the company explicitly cited higher vehicle production in North America and China as one of the main causes for its 6% sales growth. Because of the strong second quarter, TRW improved its 2013 halfway numbers 3% compared to the year-ago midpoint, and expressed renewed confidence in its ambitious full-year guidance, despite a huge exposure to European markets. CEO John Plant even expressed a cautious optimism that the European vehicle market might be stabilizing.

TRW Automotive Holdings Corp. (NYSE:TRW)’s earnings make auto makers a solid buy independently, but coupled with its debt reduction measures and strong presence in key growth markets, they could make the company itself a solid play.

Expectations surpassed

Even Tenneco Inc (NYSE:TEN), which offers clean air products and enhanced ride comfort, among other products, delivered its highest ever revenue performance during the second quarter, up 8% over the previous year. While earnings dropped, reportedly because of higher taxes, they still beat analyst estimates. Like TRW Automotive Holdings Corp. (NYSE:TRW), Tenneco attributed much of its growth to stronger vehicle production globally.

This trend, coupled with the company’s ability to exceed analyst expectations, provides renewed optimism for sustained global auto growth. Long-term debt (roughly 5x equity) could doom the company’s profitability, but its sales look primed to thrive.

Who are the winners?

It’s usually a good sign to see so many suppliers, reflecting so many different aspects of a car, expanding sales. Generally speaking, a healthy group of suppliers translates into stronger product sales, for two reasons.

First, the stronger vehicle production indicates a belief, among auto companies, that vehicle sales will expand. Often, these suppliers serve as a leading indicator for future trends. Second, suppliers can create a good effect on auto manufacturers as well.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!