TRW Automotive Holdings Corporation (TRW)

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TRW Automotive Holdings (TRW)

Q3 2010 Earnings Call

November 03, 2010 8:30 am ET

Executives

Joseph Cantie - Chief Financial Officer, Executive Vice President and Treasurer

John Plant - Chief Executive Officer, President and Director

Mark Oswald - Director of Investor Relations

Analysts

Rod Lache - Deutsche Bank AG

Christopher Ceraso - Crédit Suisse AG

John Murphy - BofA Merrill Lynch

Himanshu Patel - JP Morgan Chase & Co

Presentation

Operator

Good morning, and welcome to the TRW Conference Call. [Operator Instructions] Presentation material for today's call was posted to the company's website this morning at trw.com/results. Please download the material now if you have not already done so. [Operator Instructions] I would now like to introduce your host for today's conference call, Mark Oswald, Director of Investor Relations. Sir, you may begin.

Mark Oswald

Thank you, and good morning. I would like to welcome everyone to our Third Quarter 2010 Financial Results Conference Call. As usual, I am joined by John Plant, our President and Chief Executive Officer; and Joe Cantie, our Chief Financial Officer.

On today's call, John will provide an overview of the current automotive environment and its impact on TRW. John will also provide a brief summary of the financial results and discuss other related business matters, including our outlook for the remainder of 2010. After John's comments, Joe will provide an expanded review of the financial information. At the conclusion of Joe's comments, we will open the call to your questions.

Before I turn the call over to John and Joe, there are a few items I'd like to cover. First, today's conference call will include forward-looking statements. These statements are based on the environment as we see it today and therefore involve risks and uncertainties. I would caution you that our actual results could differ materially from the forward-looking statements made on this call. Please refer to Slide 2 of the presentation for our complete Safe Harbor Statement.

The Risk Factors section of our 2009 Form 10-K and our first and second quarter 10-Qs contain additional information about risks and uncertainties that could impact our business. You can access a copy of our 2009 10-K and our 2010 quarterly SEC filings by visiting the Investors section of our website at trw.com or through the SEC's website at sec.gov. On a related matter, we expect to file our third quarter 10-Q within the day or so. Once filed, the 10-Q can also be accessed through either website.

In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found on the conference call materials, which are posted on the Investors section of our website at trw.com. Finally, a replay of this call can be accessed via dial-in or through a webcast on our website. Replay instructions were included in our release this morning. We have not given our permission for any other recordings of this call and do not approve or sanction any transcribing of the call.

This concludes my comments. I'll now turn the call over to John Plant.

John Plant

Thank you, Mark, and good morning, everyone. As you can see from the results posted this morning, TRW's third quarter performance continued to build on the positive momentum and the record results posted in the first half of the year.

During the quarter, sales which totaled $3.4 billion were 10% higher compared to the prior year quarter and just over 14% on a currency adjusted basis. Operating profit was $269 million, a margin of 7.6%. This marks the highest level of operating profits and margin for any third quarter. And when considering the seasonality of our customer's vehicle production, we're very pleased with these results.

Net income was $199 million, and earnings per share were $1.54. The company generated cash from operations, less capital expenditures of $206 million. And finally, and possibly most importantly, net debt for the second straight quarter reached a historic low for the company at fractionally above $1 billion.

TRW's performance for the first nine months of the year is very, very solid. I'll expand on the year-to-date results in just a few minutes. First, just a few additional comments on the third quarter. During the most recent quarter, industry production volumes remained robust and once again exceeded the expectations of most industry observers that was set in June.

In North America, overall vehicle production was up 26% compared with the third quarter of 2009. On a sequential basis compared to the second quarter of this year, production was down 3%. Normal seasonality of the production schedules and our customers accounted for the quarter-on-quarter decline and ended the trend of five consecutive quarter increases in production for this region.

In Europe, vehicle production was flat compared with last year. Planned summer shutdowns were indeed shortened in some instances to keep pace with customer demand outside of Europe, as exports from Europe continue to provide support to the region's overall production levels and help offset the weaker demand in the European markets.

In Europe, the seasonal shutdowns resulted in a sequential decline in third quarter production compared to Q2 and this was about 18%. For Western Europe, third quarter production was down about 15% or some 700,000 units compared to the second quarter.

Partially offsetting the negative effects of the lower absolute production levels was the continued improvement in vehicle mix, as the majority of the exports tend to be larger and higher contented vehicles compared with the scrappage scheme incentivized vehicles, which are mainly A and B class vehicles in 2009.

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