A month has gone by since the last earnings report for Delphi Technologies (DLPH). Shares have lost about 17.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Delphi Technologies due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Delphi TechnologiesLags Q3 Earnings, Tweaks '18 View
Delphi Technologies reported mixed third-quarter 2018 results, wherein earnings lagged the Zacks Consensus Estimate but revenues surpassed the same.
Adjusted earnings per share of 72 cents missed the consensus mark by a penny and declined 42.4% year over year onunfavorable product mix, interest expense related to the issuance of debt in 2017 and spin-related costs associated with becoming a standalone public company.
Revenues in Detail
Revenues of $1.16 billion beat the consensus mark by $15.5 million. However, the top line was down 3.8% year over year on a reported basis and 1% on an adjusted basis (adjustments were made for currency exchange and certain aftermarket original equipment service revenue retained by the former parent).
The top line was hurt by lower revenues in China (down 12%) due to a decline in GDi revenues to local OEM customers and overall market decline. This was, however, partially offset by strong growth in Power Electronics and Commercial Vehicle Systems, which grew approximately 35% and 20%, respectively, in the reported quarter.
Segment-wise, Powertrain Systems revenues of $1.01 billion decreased 3.1% year over year on a reported basis and 2% on an adjusted basis. In the reported quarter, lower revenues in passenger car diesel, the impact of WLTP and softness in GDi was partially offset by strong growth in Power Electronics and Commercial Vehicle.
Revenues for Delphi Technologies Aftermarket declined 10.7% year over year on a reported basis and 1% on an adjusted basis to $217 million. Lower sales through the OES channel more than offset higher sales to independent Aftermarket customers.
Region-wise, revenue growth was 15% in South America, 5% in Europe and 3% in North America. Revenues from Asia declined 13%.
Adjusted operating income of $108 million decreased 26.5% from the prior-year quarter due toan unfavorable product mix, spin-related costs associated with becoming a standalone public company, foreign exchange headwinds and higher commodity and tariff-related costs. Adjusted operating income margin declined from 12.2% in the year-ago quarter to 9.3%.
Segment-wise, adjusted operating income for Powertrain Systems and Delphi Technologies Aftermarket came in at $92 million (down 28.1% y/y) and $16 million (down 15.8% y/y), respectively.
Balance Sheet and Cash Flow
Delphi Technologies exited third-quarter 2018 with cash and cash equivalents of $340 million compared with $370 million at the end of the prior quarter. Long-term debt was $1.50 billion compared with $1.49 billion at the end of the prior quarter.
The company generated $54 million of net cash from operating activities in the quarter. Capital expenditures totaled $62 million.
The company returned $25 million to shareholders through share repurchases and dividend payments.
For 2018, Delphi Technologies tightened its guidance for revenues, adjusted earnings, adjusted operating income margin and cash flow from operations. The company now expects revenues in the range of $4.85-$4.90 billion compared with the previously guided range of $5.00-$5.10 billion.
Adjusted earnings are expected in the range of $4.20-$4.30 per share compared with the previously guided range of $4.65-$4.85.
Adjusted operating income margin is expected in the range of 11.3%-11.5%, down from the previously guided range of 12.1% - 12.3%.
Cash flow from operations are expected in the range of $370-$400 million compared with the previously guided range of $440-480 million.
The company has reiterated its full year guidance for capital expenditures and adjusted effective tax rate. Capital expenditure is projected to be in the range of $290-$310 million. Adjusted effective tax rate is expected between 16% and 17%.
2019 Preliminary Outlook
Delphi Technologies has unveiled a preliminary outlook for full year 2019. The company expects adjusted revenues to register growth in the range of approximately 1% to 2% and adjusted operating income margin to be between 9% and 10%. While capital expenditures are expected to be around 7% of revenues, free cash flow is expected at breakeven.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, Delphi Technologies has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Delphi Technologies has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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