Delphi Automotive plc (DLPH)

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Delphi Automotive PLC (DLPH)

Q3 2012 Earnings Call

November 01, 2012 9:00 am ET

Executives

Jack Monti - Analyst

Rodney O'Neal - Chief Executive Officer, President and Director

Kevin P. Clark - Chief Financial Officer and Senior Vice President

Analysts

Brian Arthur Johnson - Barclays Capital, Research Division

Rod Lache - Deutsche Bank AG, Research Division

Christopher J. Ceraso - Crédit Suisse AG, Research Division

Itay Michaeli - Citigroup Inc, Research Division

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

Matthew T. Stover - Guggenheim Securities, LLC, Research Division

John Murphy - BofA Merrill Lynch, Research Division

Richard J. Hilgert - Morningstar Inc., Research Division

Presentation

Operator

Good morning. My name is Tracy, and I will be your conference facilitator. At this time, I would like to welcome everyone to Delphi's Third Quarter 2012 Earnings Conference Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Jack Monti from Delphi's Investor Relations Group. Sir, you may begin your conference.

Jack Monti

Thanks, Tracy. And thanks so much, everyone, for joining Delphi's Third Quarter Earnings Call. Please see Slide 2 for the disclosure on forward-looking statements, which we'll be making on today's call and only reflect Delphi's current view of future financial performance, which may be materially different from our actual performance.

Joining today's call will be Rod O'Neal, Delphi's President and CEO; and Kevin Clark, our CFO. As seen on Slide 3, Rod O'Neal will begin the call with an overview of our third quarter, followed by Kevin Clark, who will review our financial performance in greater detail and provide an update to our guidance. After Rod's closing remarks, we'll open the line for Q&A.

With that, I'll now turn it over to Rod.

Rodney O'Neal

Good morning, everyone, and thanks for joining us. I'd first like to extend our deepest thoughts to those along the East Coast, who've been affected by Hurricane Sandy. And we do appreciate everyone's flexibility in the rescheduling of this call. So let me just quickly summarize our quarter, and then we'll get into the details.

We had a very solid quarter in a pretty challenging environment. We saw increased softening in Europe beginning in late August, and we were able to rapidly respond by adjusting our cost structure. We are on track to expand our EBITDA margins 40 to 50 basis points in 2012 on a reduction in reported revenues. And with this positive operating momentum, we are well positioned as we move into 2013. So let's turn to the quarter and if you could move to Slide 5, please.

So while our revenue growth was flat, adjusted EBITDA margins increased to 13.7%, and earnings per share increased just under 13%. And as I've mentioned in my opening remarks, we've taken and we will continue to take aggressive actions to increase the flexibility of our cost structure and better position us for margin expansion. We've initiated restructuring plans as we continue to rotate our footprint, optimize our cost structure and proactively address a much softer market. And at the same time, we continued to invest in strategic growth initiatives. Production is up and running at 2 new plants in China, and we've broke ground on another in this quarter. We've introduced 7 new technologies. And as you know, we also completed the acquisition of MVL, all of which has us well positioned for top and bottom line growth in 2013 and beyond.

Turning to Slide 6. Kevin and I just returned from China, where we held the grand opening for one of our electrical architecture line plants in Chongqing. Demand has been so strong at this plant that we expect to double our capacity next year. Throughout our visit, the customer responses could not have been more positive. We met with senior leadership from SIIC for China in SBW. I came away from those meetings more optimistic than ever about our growth prospects in China. We will continue to significantly outgrow the underlying market there. And we are on track to double the slide of our China business over the next 4 years. We also held a groundbreaking ceremony for our new diesel facility in Yantai. The start of production is expected late next year. And recently, we also opened a wire facility in Chengdu. So these 3 plants: Chengdu, Chongqing and Yantai, are great examples of our success in China's rapidly growing market.

Let's move to Slide 7 and discuss some of our technology. We had a great portfolio of high-tech products, and we plan to continue to shape the market with our innovation. I know many of you have seen comments as recently as last week from the U.S. government regarding automated vehicles being the next evolutionary step of innovation in automotive transportation safety. Well, Delphi is already part of the Department of Transportation's pilot program, which is putting 2,800 vehicles on the road for a year of testing of vehicle-to-vehicle and vehicle-to-infrastructure communication. There are 8 leading OEMs that are participating, and it's the largest field test ever, and they're all using Delphi's advanced software and systems integration capability on these vehicles. The objective is to reduce collisions and improve traffic flow by having these vehicles literally talk to each other and surrounding infrastructure. So we're working with the government, and we're working with our customers, and this is a great example of Delphi's stand on the leading-edge of connectivity and active safety technologies.

Let's move to Slide 8. Another significant investment in 2012 has been the acquisition of MVL, as I mentioned. And as I told you back in May, when we originally announced the transaction, that I was really thrilled about this acquisition. MVL has been at the very top of our list of potential acquisitions for years, and it really does fit us like a glove. It significantly strengthens our high-growth, high-margin connector business and from a product portfolio of customer and Asia footprint perspective. So when you look at MVL's performance to date, it has actually performed better than we originally planned. And as we sit here today, we are even more confident in our ability to deliver those significant synergies that will expand margins and accelerate earnings growth. We are highly confident in our ability to fully achieve run rate synergies of $80 million by 2015. And we expect 40 to 50 basis points of margin enhancement and $0.24 of accretion in 2013, excluding the integration of onetime costs. Bottom line, it's a great acquisition, and we're happy to welcome MVL to Delphi.

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