Delphi Automotive PLC — Form 10-Q summary
Business context and reporting period
This unaudited quarterly report covers the three and nine months ended September 30, 2014. The registrant named in the filing is Delphi Automotive PLC, a global vehicle-components supplier; the filing is not identified as an Aptiv PLC report. Delphi’s products span electrical/electronic architecture, powertrain, electronics and safety, and thermal systems.
Financial performance and liquidity
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Net sales | $4.144B | $4.017B | $12.871B | $12.281B |
| Gross margin | $756M; 18.2% | $679M; 16.9% | $2.364B; 18.4% | $2.140B; 17.4% |
| Operating income | $414M | $387M | $1.361B | $1.267B |
| Net income attributable to Delphi | $305M | $271M | $1.007B | $914M |
| Diluted earnings per share | $1.02 | $0.87 | $3.32 | $2.92 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $1.262B | $1.070B |
| Capital expenditures | Not stated for quarter | Not stated for quarter | $666M | $512M |
- For the first nine months, operating cash flow less capital expenditures was approximately $596M, compared with $558M in 2013; this is a simple cash-flow measure, not a company-defined free-cash-flow figure.
- At September 30, cash and cash equivalents were $1.026B; total debt was $2.454B and net debt was approximately $1.428B. The $1.5B revolving facility was undrawn, with about $12M of letters of credit outstanding. Management reported approximately $2.5B of cash and available financing liquidity.
- Current assets were $5.682B and current liabilities $3.844B. Pension obligations were $911M. Cash declined $363M from year-end 2013.
- Management cited sufficient liquidity to fund operations, capital investment, restructuring, dividends and anticipated obligations. The credit agreement’s leverage covenant was below 2.75x; Delphi reported compliance.
Material changes versus comparable periods
- Q3 sales increased 3%; nine-month sales increased 5%. Management attributed growth mainly to North America and Asia Pacific, with nine-month volume growth of 6% partly offset by contractual price reductions. Favorable foreign exchange also contributed.
- Gross margin expanded in both comparison periods, which management attributed to improved operational performance and favorable sales growth/mix, partly offset by volume-related costs and currency effects.
- Q3 operating income rose $27M and nine-month operating income rose $94M. SG&A increased $42M in Q3 and $104M year to date, primarily due to incentive compensation accruals, IT and service-provider costs.
- Restructuring charges rose to $47M in Q3 and $124M year to date, from $37M and $95M, respectively. Nine-month charges included $32M for a new workforce reduction at a European Powertrain Systems site.
- Segment adjusted operating income for the first nine months was $1.498B versus $1.372B. Growth was reported across all four segments; Electronics and Safety sales were up modestly, while its adjusted operating income increased to $256M from $242M.
- Nine-month operating cash flow increased $192M. Capital spending rose $154M, while financing outflows increased, including $674M of share repurchases and $228M of dividends.
- During 2014 Delphi issued $700M of 4.15% notes due 2024, redeemed $500M of 5.875% notes due 2019 and repaid part of its term loan. The refinancing produced a $34M debt-extinguishment loss, partly offset in other income by a $14M insurance settlement.
Outlook, commentary, risks and unusual items
- The filing gives no specific numerical earnings or revenue guidance. Management expected global vehicle production to rise about 3% in 2014, but cited expected regional weakness: approximately 2% production growth in Europe and a 17% decline in South America versus 2013.
- Management highlighted automotive cyclicality, uneven regional recovery, OEM pricing pressure, commodity and labor inflation, customer-program dependence, supply availability, currency exposure and potential shifts in vehicle mix. It plans to maintain a lean cost structure and continue restructuring, particularly in Europe and South America.
- GM and Volkswagen together represented about 27% of Q3 sales and 28% of nine-month sales. Delphi was responding to government inquiries and product-liability claims connected with GM’s ignition-switch recall. Delphi said it did not consider a loss probable and recorded no reserve; it was not named in two consolidated class-action complaints filed October 14, 2014.
- Brazil claims totaled approximately $205M, against which Delphi had accrued $31M; management cautioned that final outcomes could differ materially. Environmental reserves were approximately $22M.
- Delphi voluntarily disclosed potentially improper, immaterial employee payments in China to the U.S. Department of Justice and SEC and was cooperating. The ultimate outcome remained uncertain.
- The IRS issued a proposed adjustment asserting Delphi Automotive LLP should be treated as a U.S. corporation for federal tax purposes, potentially affecting Delphi PLC’s status and future taxes. Delphi disputed the position, recorded no adjustment, and said an unfavorable outcome could increase its future effective tax rate.
- After quarter-end, Delphi acquired Unwired Holdings on October 1 for $190M net of specified adjustments and expected the Antaya Technologies acquisition, agreed at approximately $140M plus up to $40M contingent consideration, to close in Q4 2014.
- Delphi repurchased $674M of shares in the first nine months under its $1B authorization. The quarterly dividend was $0.25 per share; the annualized rate set in January 2014 was $1.00.
Important facts for investors to verify
- Confirm the issuer and security: this source is a Delphi Automotive PLC 10-Q for 2014 Q3, not a filing identified as Aptiv PLC.
- Track whether revenue growth and margin improvement persist after restructuring costs, higher SG&A, contractual price reductions and regional production changes.
- Monitor cash conversion and capital spending, and reconcile share repurchases, dividends and acquisitions with cash balances and net debt.
- Follow the IRS tax-status dispute, China compliance review, GM recall litigation, Brazil claims and environmental exposures for changes in probability, reserves or potential impact.
- Assess acquisition closing, contingent consideration and integration outcomes, and confirm subsequent-period liquidity and debt covenant compliance.