Delphi Technologies reports second quarter 2019 financial results

Delphi Technologies, a global leader in vehicle propulsion systems, today reported second quarter 2019 U.S. GAAP earnings of $0.31 per diluted share compared to $0.97 per diluted share for the prior year period. Excluding special items, second quarter earnings totaled $0.58 per diluted share compared to $1.29 per diluted share for the prior year period. The Company also reported revenue of $1.1 billion for the quarter and $2.3 billion for the year-to-date period, a decrease of 9% and 10% compared to $1.2 billion and $2.5 billion for the respective equivalent prior periods, on a U.S. GAAP basis. Adjusting for currency exchange, the second quarter and year-to-date revenue decreased 5% and 6%, respectively.

Second quarter highlights

• Revenue of $1.1 billion, down 9% on a U.S. GAAP basis and down 5% on a constant currency basis, year-on-year
• U.S. GAAP net income of $27 million, diluted earnings per share of $0.31 (Excluding special items, earnings of $0.58 per diluted share)
• U.S. GAAP operating income of $56 million, or 5.0% margin (Adjusted operating income of $81 million, or 7.2% margin)
• Generated $70 million of cash from operating activities
• Returned $15 million to shareholders through share repurchases

Year-to-date highlights

• Revenue of $2.3 billion, down 10% on U.S. GAAP basis and down 6% on a constant currency basis, year-on-year
• U.S. GAAP net income of $43 million, diluted earnings per share of $0.49 (Excluding special items, earnings of $1.25 per diluted share)
• U.S. GAAP operating income of $111 million, or 4.9% margin (Adjusted operating income of $168 million, or 7.4% margin)
• Generated $91 million of cash from operating activities
• Returned $30 million to shareholders through share repurchases

CEO comments

“I am pleased with the progress we made in the second quarter, despite a challenging industry and macro environment, particularly in China,” said Richard F. Dauch, Chief Executive Officer of Delphi Technologies. “We established a new company vision and mission, simplified our organizational structure and continued to improve our execution on key initiatives. Consistent with our mission to make vehicles drive cleaner, better and further, we secured a number of key wins, including our largest Power Electronics program. We also announced our industry-first 500+ bar GDi system, which will significantly improve vehicle emissions. Our leadership in propulsion technologies, customer focus and differentiated value proposition for both passenger cars and commercial vehicles underscores my confidence in our long-term growth potential. In the shorter-term, we remain focused on delivering improved underlying profitability, and creating value for all our stakeholders.”

Second quarter 2019 results

The Company reported second quarter 2019 revenue of $1.1 billion, a decrease of 9% from the prior year period, on a U.S. GAAP basis. Adjusted for currency exchange, revenue decreased by 5% in the second quarter. Adjusted revenue, a non-GAAP financial measure defined below, reflects a decrease of 7% in Powertrain Systems and an increase of 3% in Aftermarket. On a regional basis, adjusted revenue also reflects decreases of 10% in both North America and in Asia Pacific, partially offset by growth of 3% in South America and consistent revenue in Europe.

The Company reported second quarter 2019 U.S. GAAP net income of $27 million and net income of $0.31 per diluted share, compared to $86 million and $0.97 per diluted share in the prior year period. Second quarter Adjusted Net Income, a non-GAAP financial measure defined below, totaled $51 million, or $0.58 per diluted share, which compares to Adjusted Net Income in the prior year period of $115 million, or $1.29 per diluted share. The decrease in Adjusted Net Income was primarily due to unfavorable product mix, most notably a decrease in revenues of higher margin diesel fuel injection systems, and an increase in revenues of lower margin advanced gasoline direct injection fuel systems. In addition, the decrease in Adjusted Net Income was also impacted by decreased volume and adverse currency exchange movements, partially offset by improvements in operational performance.

Second quarter U.S. GAAP operating income was $56 million, compared to $122 million in the prior year period. Adjusted Operating Income, a non-GAAP financial measure defined below, was $81 million, compared to $156 million in the prior year period. Adjusted Operating Income margin decreased 550 basis points in the second quarter of 2019 to 7.2%, compared with 12.7% in the prior year period. The decrease in Adjusted Operating Income was primarily due to unfavorable product mix as referenced above, lower volume and adverse currency exchange movements, partially offset by continued improvements in operational performance. Depreciation and amortization expense (including asset impairment charges and amortization of deferred debt issuance costs) totaled $58 million in the second quarter as compared to $49 million in the prior year period.

Interest expense for the second quarter totaled $18 million, as compared to $19 million interest expense in the prior year period.

U.S. GAAP tax expense in the second quarter of 2019 was $14 million, resulting in an effective tax rate of approximately 30%, compared to $20 million, or an effective rate of 19%, in the prior year period. The increase in the effective tax rate primarily reflects the impacts of unfavorable changes in geographic income mix.

The Company generated net cash flow from operating activities of $70 million in the second quarter, compared to $164 million in the prior year period, which primarily reflects the decline in net income and decreased net working capital. With respect to cash flow used in investing activities, capital expenditures totaled $103 million in the second quarter, compared to $57 million in the prior year period. The increased spending is primarily due to investments to support long-term growth in key technologies, particularly gasoline direct injection fuel systems and power electronics products, as well as higher capital expenditures related to becoming a stand-alone public company.

Year-to-date 2019 results

For the six months ended June 30, 2019, the Company reported revenue of $2.3 billion a decrease of 10% from the prior year period, on a U.S. GAAP basis. Adjusted for currency exchange, revenue decreased by 6% during the period. Adjusted revenue reflects a decrease of 7% in Powertrain Systems and 2% in Aftermarket. On a regional basis, adjusted revenue also reflects decreases of 18% in Asia Pacific and 7% in North America, partially offset by growth of 2% in Europe and 5% in South America.

For the 2019 year-to-date period, the Company reported 2019 U.S. GAAP net income of $43 million and net income of $0.49 per diluted share, compared to $184 million and $2.07 per diluted share in the prior year period. Year-to-date Adjusted Net Income totaled $110 million, or $1.25 per diluted share, which compares to Adjusted Net Income in the prior year period of $231 million, or $2.60 per diluted share. The decrease in Adjusted Net Income was primarily due to unfavorable product mix, most notably a decrease in revenues of higher margin diesel fuel injection systems, and an increase in revenues of lower margin advanced gasoline direct injection fuel systems. In addition, the decrease in Adjusted Net Income was also impacted by lower volume and adverse currency exchange movements, partially offset by improvements in operational performance.

The Company reported U.S. GAAP operating income of $111 million for the six months ended June 30, 2019, compared to $260 million in the prior year period. Adjusted Operating Income, a non-GAAP financial measure defined below, was $168 million for the six months ended June 30, 2019, compared to $315 million in the prior year period. Adjusted Operating Income margin decreased 510 basis points for the six months ended June 30, 2019 to 7.4%, compared to 12.5% in the prior year period. The decrease in Adjusted Operating Income was primarily due to unfavorable product mix as referenced above, lower volume and adverse currency exchange movements, partially offset by improvements in operational performance. Depreciation and amortization expense (including asset impairment charges and amortization of deferred debt issuance costs) totaled $112 million as compared to $100 million in the prior year period.

Interest expense for the six months ended June 30, 2019 totaled $36 million, as compared to $39 million in the prior year period.

U.S. GAAP tax expense for the six months ended June 30, 2019 was $22 million, resulting in an effective tax rate of approximately 31%, compared to $42 million, or an effective rate of 18%, in the prior year period. The increase in the effective tax rate primarily reflects the impacts of unfavorable changes in geographic income mix.

The Company generated net cash flow from operating activities of $91 million in the six months ended June 30, 2019, compared to $239 million in the prior year period, primarily due to the decrease in net income. With respect to cash flow used in investing activities, capital expenditures totaled $234 million during the six months ended June 30, 2019, compared to $123 million in the prior year period. The increased spending is primarily due to investments to support long-term growth in key technologies, particularly gasoline direct injection fuel systems and power electronics, as well as higher capital expenditures related to becoming a stand-alone public company.

Revised full year 2019 outlook

The Company’s full year 2019 financial outlook is as follows:

SOURCE: Delphi Technologies