TRW Automotive Holdings Corp. (NYSE:TRW) supplies components, automotive systems, and modules to automotive OEMs and related aftermarkets. Three major customers of TRW are Ford, General Motors, and Volkswagen AG, with these three together accounting for nearly 50% of its revenue.
In addition,TRW Automotive Holdings Corp. (NYSE:TRW)’s products also find their way to Europe and Asia through OEMs and independent distribution networks. With the auto market being on a good run in the U.S. and TRW having some of the most well-known car makers as clients, it isn't surprising that the company has been doing well and is up 40% this year.
TRW posted its second-quarter results recently and it beat consensus estimates on both revenue and earnings by an impressive margin.
Revenue & earnings
The automobile sector is seeing growth in general and this is definitely good news for all auto ancillary/component/technology suppliers. For example, General Motors' biggest market is now China, as in the last quarter, it sold more vehicles in China than in the U.S. TRW Automotive Holdings Corp. (NYSE:TRW) got its share of the pie and as a result, its quarterly revenue grew 6.5% to $4.5 billion.
Needless to say, this jump was facilitated by higher volumes of vehicle production in North America, China, and Brazil. Also, TRW Automotive Holdings Corp. (NYSE:TRW)’s innovative technologies were in strong demand. The company beat consensus estimates by $100 million on revenue, which is not a small figure by any means. This is despite weak signals from the automotive industry in Europe.
Operating profit (before special items) stood at $386 million and is definitely a matter to cheer about, as this is the highest 2Q profit ever generated in its entire history. Increased sales volume was the primary driving factor behind the $47 million increase in operating income on a year over year basis, which was partly offset by a scheduled increase in costs to support future growth of the company.
TRW Automotive Holdings Corp. (NYSE:TRW) also reported an increase in earnings of 17.4% to $2.02 per share as compared to $1.72 in the year-ago quarter, and this beat consensus estimates of $1.70.
Production of light vehicles in North America is expected to continue rising, reaching 17 million units by 2015, which in June 2013 stood at 15.9 million units. This, by far, is the highest number reached since December 2007.
China currently is turning out to be a strong opportunity. For the first half of 2013, unit sales increased an impressive 17%. Passenger car sales in June grew 12.3% and Ford was on a roll in China in June, primarily because of its new models. General Motors is already selling more in China than in the U.S.
European market conditions are stabilizing and this also will have a positive impact on the auto industry. One promising indicator for the future is that the rate of decline in registrations moderated sequentially in Q2 compared with the first quarter, suggesting that demand in the region may be stabilizing, although at lower levels. The continued decline has stopped.
World Bank in its report had also mentioned that the world economy in general will be less volatile and has a bullish opinion on growth of economies of the U.S. and Japan as compared to the BRIC nations, which has been revised downward due to expected slowdown in China and India.
TRW also spends on innovative products so as to ensure sustained growth. It recently started production of 'AC100' 24 GHz forward-looking radar based on the new PSA platform ‘EMP2’ and is a valuable product addition/enhancement to the ‘DAS’ -- Driver Assisted System -- business of the company. The company expects the fitment growth of this technology to be phenomenal as governments globally try to reduce road fatalities.