TRW Improves on High Volume

TRWAutomotive Holdings Corp. (TRW) reported a profit of $292 million or $2.21 per share (excluding special items) in the first quarter of 2011, beating the Zacks Consensus Estimate by an impressive margin of 42 cents per share. The profits improved 40% from $209 million and 34% from or $1.65 per share (excluding special items) in the first quarter of 2010, driven by higher sales volume.

Revenues in the quarter escalated 15% to $4.11 billion, up from the Zacks Consensus Estimate of $3.93 billion. The increase in sales was attributable to higher global vehicle production volumes and rising demand for TRW’s active and passive safety products.

Excluding restructuring and fixed asset impairment charges, the company’s operating income increased $75 million to $382 million (9.3% of sales) from $307 million (8.6%) a year ago. The increase was driven by positive impact from higher sales, partially offset by inflationary pressures, including higher raw material prices and increased costs to support future expansions


TRW had cash and cash equivalents of $1.04 billion as of April 1, 2011, down from $1.08 billion in the corresponding period a year ago. Long-term debt amounted to $1.73 billion as of the above date, reflecting a long-term debt-to-capitalization ratio of 42%, down from 47% as of December 31, 2010.

In the quarter, the company’s net cash flow from operating activities improved to $81 million from $21 million in the prior year quarter. The improvement in cash flow was primarily attributable to an increase in net income during the period.

Capital expenditures increased to $67 million from $45 million in the first quarter of 2010. However, free cash flow (cash flow from operating activities less capital expenditures) improved to $14 million compared with an outflow of $24 million in the same period last year.

Subsequent to the end of the quarter, TRW reached an agreement with lenders comprising $175 million under the 2012 portion of the company’s revolving credit facility to extend the maturity date of their commitments to November 30, 2014. This brought the total 2014 portion of the revolving credit facility to $1.02 billion.


TRW anticipates full year production of 13.0 million units in North America and 19.3 million units in Europe. The company assumed a loss in light vehicle production in the second quarter due to supply chain disruptions resulting from the earthquake and tsunami in Japan. However, production in China and the rest of world regions is expected to remain relatively stable throughout the year as near-term production disruptions are expected to have a lesser impact on those regions.

Based on the production level guidance and the company’s revised expectations for foreign currency exchange rates, sales are now expected to range between $15.7 billion and $16.0 billion for full year 2011, including sales of $3.9 billion for the second quarter of 2011.

TRW Automotive is a leading manufacturer of advanced technology products and services for the automotive markets. Headquartered in Michigan, U.S., the company operates in 27 countries through its subsidiaries. These operations primarily involve the design, manufacture and sale of active and passive safety related products.

The company retains a Zacks #3 Rank (Hold) on its stock for the short term (1 to 3 months) and we have reiterated a “Neutral” recommendation on the shares for the long term (more than 6 months).

Peer Performance

TRW’s competitor, Autoliv Inc. (ALV), posted a 43% rise in profit to $181.5 million in the first quarter of 2011 from $126.5 million in the same quarter of 2010. On earnings per share basis, the company recorded a profit of $1.93, up 39% from $1.39 a year ago and exceeding the Zacks Consensus Estimate by 19 cents per share.

The increase in profit was attributable to higher sales in all the regions, except Japan and restructuring actions initiated in July 2008. Consolidated sales appreciated 23% to $2.11 billion reflecting a boost of 6% due to acquisitions and 3% due to currency translation effect. It was higher than the Zacks Consensus Estimate of $1.97 billion. Organic sales rose by 14% during the quarter, which was in line with the company’s guidance.

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