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
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

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!