TRW Automotive Holdings Corporation (TRW)

TRW 
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TRW Automotive Holdings (TRW)

Q2 2011 Earnings Call

August 03, 2011 8:30 am ET

Executives

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

Mark Oswald - Director of Investor Relations

John Plant - Chairman, Chief Executive Officer and President

Analysts

Rod Lache - Deutsche Bank AG

Christopher Ceraso - Crédit Suisse AG

John Murphy - BofA Merrill Lynch

Brett Hoselton - KeyBanc Capital Markets Inc.

Himanshu Patel - JP Morgan Chase & Co

Presentation

Operator

Good morning, and welcome to the TRW Conference Call. [Operator Instructions] And as a reminder this conference call is being recorded. 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'd like to welcome everyone to our second quarter 2011 financial results conference call. This morning, as usual, I'm joined by John Plant, our Chairman 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 the year. 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 2010 Form 10-K and our first quarter 10-Q contain additional information about risks and uncertainties that could impact our business. You can access a copy of our 2010 10-K and 2011 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 second quarter 10-Q within the next 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 again 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 recording 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 second quarter performance continued to build on the good performance achieved earlier this year. During the second quarter, sales, which totaled $4.2 billion, were 16% higher compared with the prior year quarter. Operating profits before special items was $349 million and marked the highest level of operating profit for any second quarter in our history. Net income was $264 million, and earnings per share were $1.99 on the same basis.

Regarding cash, the company generated cash from operations of $271 million and free cash flow of $171 million. We continue to be pleased with our cash performance for the quarter and the first half of the year, especially considering the increased investments that we've made required to fund our growth.

And finally, TRW ended the most recent quarter with net debt of $554 million. This outcome marks a new low net debt for the company and highlights the continued importance being placed on further strengthening the balance sheet.

Combining TRW's second quarter performance with its record first quarter results provide a solid foundation as we head into the second half of 2011. I'll explain on the year-to-date results in just a few minutes.

First, just a few additional comments on the second quarter. During the most recent quarter, low production volumes exceeded the expectations of most industry observers as TRW and the industry worked hard to avoid and mitigate the negative impact of production disruptions caused by supply shortages due to the Japanese earthquake. It was a very substantial effort considering the many diverted labor hours and frictional costs associated with the mitigation plan.

In North America, the headline numbers were solid, as overall vehicle production was up a modest 1% compared with the second quarter of 2010. However, looking at the details, it's important to point out that Detroit 3 production was up 11% year-on-year and 5% sequentially compared with the first quarter. TRW's results clearly benefited from this production mix. Most industry observers believe consumer demand remains strong in North -- in the North American region, even though the annual sales rate in the second quarter dropped below the first quarter's 13 million unit level due to the constrained vehicle build from the Japanese vehicle manufacturers.

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