Excluding special items, fourth quarter earnings totaled $1.06 per diluted share. The Company also reported revenue of $1.2 billion for the quarter and $4.9 billion for the full year, a decrease of 5% and flat revenue compared to the respective equivalent prior periods, on an adjusted basis.
Full year 2018 highlights
Revenue of $4.9 billion, flat(*) year-on-year
U.S. GAAP net income of $358 million, diluted earnings per share of $4.03
Excluding special items, earnings of $4.38 per diluted share
U.S. GAAP operating income of $434 million, or 8.9% margin
Adjusted operating income of $548 million, or 11.3% margin
Generated $419 million of cash from operating activities
At December 31, 2018 cash and cash equivalents equaled $359 million
(*) Adjusted for currency exchange and certain aftermarket revenue retained by the former parent
CEO comments
“2018 was a milestone year for Delphi Technologies. In our first full year as a public company we continued to build on our momentum in key growth technologies, resulting in a record $10 billion of new business awards. Our industry leading portfolio of technologies are at the heart of the propulsion revolution that enable vehicles to drive cleaner, better and further. We also made great progress in creating a strong foundation as a stand-alone company from which to drive long-term growth,” said Richard F. Dauch, Chief Executive Officer of Delphi Technologies. “During my first two months as CEO, I have discovered that while 2019 is expected to be another transitional year with slower industry growth, we have an even greater potential to make this good company a great one. However, we clearly need to execute better and with more urgency and discipline to ensure we continue to support our customers and deliver value to our shareholders. Over the coming months, I expect to have a fuller perspective on the actions we will take to drive our operational and financial performance to ensure we capture the long-term profitable growth ahead of us. I look forward to the future with confidence.”
Fourth quarter 2018 results
The Company reported fourth quarter 2018 revenue of $1.2 billion, a decrease of 9% from the prior year period. Adjusted for currency exchange and certain aftermarket original equipment service revenue retained by the former parent, revenue decreased by 5% in the fourth quarter. Adjusted revenue reflects a decrease of 6% in Powertrain Systems and growth of 3% in Aftermarket. On a regional basis, adjusted revenue also reflects a decrease of 26% in Asia Pacific, partially offset by growth of 6% in North America, 3% in Europe and 16% in South America.
The Company reported fourth quarter 2018 U.S. GAAP net income of $135 million and net income of $1.52 per diluted share, compared to $56 million and $0.63 per diluted share in the prior year period. Fourth quarter Adjusted Net Income, totaled $94 million, or $1.06 per diluted share, which compares to Adjusted Net Income in the prior year period of $117 million, or $1.32 per diluted share. The decrease in Adjusted Net Income was primarily due to unfavorable product mix and spin-related costs associated with becoming a stand-alone public company, partially offset by reduced incentive compensation accruals.
Fourth quarter U.S. GAAP operating income was $93 million, compared to $106 million in the prior year period. Adjusted Operating Income was $125 million, compared to $164 million in the prior year period. Adjusted Operating Income margin decreased 200 basis points in the fourth quarter of 2018 to 10.7%, compared with 12.7% in the prior year period. The decrease in Adjusted Operating Income was primarily related to an unfavorable product mix and spin-related costs associated with becoming a stand-alone public company, partially offset by reduced incentive compensation accruals. Depreciation and amortization expense (including asset impairment charges and amortization of deferred debt issuance costs) totaled $53 million in the fourth quarter as compared to $57 million in the prior year period.
Interest expense for the fourth quarter totaled $20 million, as compared to $13 million in the prior year period, which reflects the interest related to the issuance of approximately $1.5 billion of debt in connection with the separation from the former parent.
U.S. GAAP tax benefit in the fourth quarter of 2018 was $63 million, resulting in an effective tax rate of approximately (81)%. This compares to U.S. GAAP tax expense of $27 million, or an effective tax rate of approximately 30%, in the prior year period. The income tax benefit recognized in the fourth quarter of 2018 is primarily due to net releases of deferred tax asset valuation allowances in various jurisdictions.
The Company generated cash from operating activities of $126 million in the fourth quarter, compared to $95 million in the prior year period, which reflects improvement in net working capital offset by a decrease in net income, excluding the impact of non-cash items. Capital expenditures totaled $80 million in the fourth quarter, compared to $86 million in the prior year period.
Full year 2018 results
For the full year 2018, Delphi Technologies reported revenue of $4.9 billion, flat compared to the prior year. Adjusted for currency exchange, and certain aftermarket original equipment service revenue retained by the former parent, revenue also remained flat during the year. Adjusted revenue reflects a decrease of 1% in Powertrain Systems and growth of 1% in Aftermarket. On a regional basis, adjusted revenue also reflects a decrease of 10% in Asia Pacific, partially offset by growth of 5% in North America, 2% in Europe and 11% in South America.
For the full year 2018, the Company reported U.S. GAAP net income of $358 million and $4.03 per diluted share, compared to $285 million and $3.21 per diluted share in the prior year. Full year 2018 Adjusted Net Income totaled $389 million, or $4.38 per diluted share compared to the prior year of $464 million, or $5.23 per diluted share. The decrease in Adjusted Net Income was primarily due to unfavorable product mix, spin-related costs associated with becoming a stand-alone public company and interest expense related to the issuance of debt in 2017. Those items were partially offset by favorable impacts related to operational performance, foreign currency and reduced incentive compensation accruals.
The Company reported U.S. GAAP operating income of $434 million, compared to $446 million in the prior year. For the full year 2018, Adjusted Operating Income was $548 million, compared to $637 million in the prior year. Adjusted Operating Income margin was 11.3% for full year 2018, a decrease of 180 basis points, compared with 13.1% in the prior year. The decrease in Adjusted Operating Income was primarily related to an unfavorable product mix and spin-related costs associated with becoming a stand-alone public company, partially offset by favorable impacts related to operational performance, foreign currency and reduced incentive compensation accruals. Depreciation and amortization expense (including asset impairment charges and amortization of deferred debt issuance costs) totaled $201 million as compared to $201 million in the prior year.
Interest expense for full year 2018 totaled $79 million, an increase from $15 million in the prior year, which reflects the interest related to the issuance of approximately $1.5 billion of debt in connection with the separation from the former parent.
U.S. GAAP tax benefit for full year 2018 was $9 million, resulting in an effective tax rate of approximately (2)%. This compares to $106 million, or an effective tax rate of approximately 25%, in the prior year. The income tax benefit recognized for full year 2018 is primarily due to net releases of deferred tax asset valuation allowances in various jurisdictions.
The Company generated cash from operating activities of $419 million in 2018, compared to $388 million in 2017, which reflects improvement in net working capital offset by a decrease in net income, excluding the impact of non-cash items. Capital expenditures totaled $265 million in 2018, compared to $197 million in 2017. The increased spending is primarily due to investments to support becoming a stand-alone public company and long-term growth in key technologies.
Reconciliations of Adjusted Net Income, Adjusted Net Income per Share and Adjusted Operating Income, which are non-GAAP measures, to the most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) are provided in the attached supplemental schedules.
Full year 2019 outlook
The Company’s full year 2019 financial outlook is as follows:
(in millions, except per share amounts)
Full Year 2019
Revenue
$4,650 – $4,750
Adjusted operating income margin
~9%
Adjusted earnings per share
$3.00 – $3.20
Cash flow from operations
$320 – $350
Capital expenditures
$310 – $330
Adjusted effective tax rate
~18%
Key non-GAAP reconciliation items to the projected 2019 adjusted operating income
are as follows (in millions):
Full Year 2019
Estimated separation charges
$45 – $50
Estimated charges for restructuring
$25 – $35
SOURCE: Delphi
