TRW Automotive Holdings Corporation (TRW)

TRW 
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TRW Automotive Holdings (TRW)

Q3 2012 Earnings Call

October 30, 2012 8:30 am ET

Executives

Mark Oswald - Director of Investor Relations

John C. Plant - Chairman, Chief Executive Officer and President

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

Analysts

Brett D. Hoselton - KeyBanc Capital Markets Inc., Research Division

Christopher J. Ceraso - Crédit Suisse AG, Research Division

Presentation

Operator

Good morning, and welcome to the TRW conference call. [Operator Instructions] 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 Third Quarter 2012 Financial Results Conference Call. This morning, 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 2011 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 2011 10-K and 2012 quarterly SEC filings by visiting the Investors section of our website at trw.com or through the SEC's website. On a related matter, we expect to file the third 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 in 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 the webcast on our website. Replay instructions were included in our release this morning. We have not given our permission for any other 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 C. Plant

Thank you, Mark, and good morning, everyone. TRW's Q3 results continued the positive momentum established earlier in the year. The third quarter achievements demonstrate the strong market position of TRW, especially against the backdrop of the difficult industry conditions in Europe.

During the third quarter, our sales were $4 billion, an increase of about 9% adjusting for currency and divestitures. This is a strong and positive outcome and continued evidence of the increasing demand for TRW's technologies considering the decline in European vehicle production. For your information, Europe accounted for 40% of Q3 sales.

Operating profits before special items was $265 million, an increase of about 10% compared to last year. Net income was $157 million, and earnings per share were $1.24 on the same basis. This is a 13% year-on-year increase compared to last year's adjusted results for the tax valuation allowance reversal. And finally, in line with company expectations, the company generated cash from operations of $156 million during the quarter.

In addition to the solid financial results posted this morning, the company recently announced a $1 billion, 2-year share repurchase program, which will commence in the fourth quarter of this year. The repurchase program signals confidence in our ability to sustain positive earnings and cash flow and demonstrates our commitment to maximizing shareholder returns over time. Joe will discuss our recent financial results and capital structure in more detail in just a few moments.

The company's solid operating performance through September will support another strong year for TRW despite the weakness that we are seeing in Europe as we exit the year. I'll expand on the year-to-date results in just a few minutes. First, just a few additional comments on the third quarter.

In North America, vehicle production remained strong and tracked in line with the expectations industry observers established at the beginning of the quarter. The strength within the region continued to partially offset the year-on-year decline in vehicle production in Europe. Overall North American production was up 14% compared with the third quarter of 2011. As expected, normal seasonality resulted in a sequential drop of about 350,000 units compared to the second quarter of the year. Within this quarter's vehicle build, the Detroit 3 manufacturers lagged the overall growth for the region, with production up 5% year-on-year.

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