Automotive part company Federal Mogul (FDML, Financial) recently announced financial results for the third quarter. Its acquired businesses such as Affinia chassis and Honeywell made significant contribution to its performance this quarter. Also, strong volume and new business wins for its powertrain division helped the company to put up a sensible show on the board for the quarter.
Impressive growth
Federal Mogul for the third quarter posted revenue of $1.87 billion, an uptick of almost 11% from $1.69 billion in the same quarter a year earlier. Its revenue also topped the consensus estimates of $1.82 billion in revenue for the quarter. Also, its net income for the quarter came in at $20 million or earnings of $0.13 per share as against $37 million or earnings of $0.26 per share in the same quarter last year. The softness in net income reflects charges related to restructuring and acquisition.
Looking ahead, the company looks quite strong. It continues to make significant progress with its strategic priorities that are driving its performance. Federal Mogul is strategically investing in its distribution and IT capabilities that should drive growth for the company in the longrun. It plans to expand its regional distribution centers. It remains upbeat on launching a new distribution centers in various regions such as South Carolina and East Pennsylvania in the fourth quarter.
This new distribution centers will support full product line for the company and will reduce extra cost related to transportation going forward. The company said, “Almost 50% of its products are being packaged in high-cost distribution centers.” Further, the company is also planning to merge its non-plant packaging activities in low-cost locations that should not only enable the company to reduce its delivery order but also efficiently manage and clear its inventory going forward. This should also assist the company in complexity arising in extended supply chain. These strategic initiatives will undoubtedly enhance its bottom line performance going forward.
More moves
In addition, the company should benefit from the roll out of a new on-line IT platform in regions like United States and Canada. This extended live IT platform is expected to enhance its full B-to-B e-commerce capabilities, inventory availability information, a state of the art e-catalog, customer relationship management module, as well as training modules and other features. The customers can easily make order, track it and receive it with improved services.
This new IT platform will also assist the company in better capturing the data on order pattern and customer preferences. This will also help the company to efficiently ensure the right availability of its inventory and further enhance its customer services. Moreover, Federal Mogul has already secured several locations and started with the build-out of new Tech-Support Centers in the United States that should not only improvise and provide rich training resources but also enhance sales support to its customer in the future. These will undeniably reduce its costs and improve its sales performance in the future. The company plans to launch this new IT platform in the second-quarter 2015.
Furthermore, the company is effectively executing the integration for its recently acquired Affinia chassis and Honeywell brake component businesses. Affinia chassis is expected to generate revenue of approximately $200 million annually. The company expects this integration to fully be completed by mid-2015. This integration is also expected to generate total synergy of $20 million annually upon completion. Also, the company should benefit from the recently opened friction plants of Honeywell in Romania and China. This will certainly assist the company in ramping up its production in the future. The company expects Honeywell integration to produce synergies of $45 million annually.
Apart from these strategic moves, Federal Mogul is also planning for spin-off of its Motorparts business. It is planning to separate its Powertrain and Motorparts divisions into two separate independent, publically traded companies. This spinoff should facilitate additional operating and financial flexibility for each of these divisions going forward. Both these divisions can enhance its discreet businesses while preserving commercial benefits of continued collaboration in certain areas.
Conclusion
Federal Mogul looks quite strong with plenty of growth initiatives that should perhaps drive growth for both the top as well as bottom lines in the long-run. Its investment in the distribution channels will eliminate extra transportation costs and new IT platform will help the company to effectively serve its customer going forward. The analysts have estimated CAGR of 41.80% for next year that unveils tremendous return on the stock in the short run. The stock is currently trading at the forward P/E of 11.77 that looks pretty appealing and should yield returns to shareholders going forward. Its balance sheet carries total cash of $469.00 million, while its total debt stands at $2.70 billion. It has operating cash flow of $422.00 million and leverage free cash flow of $141.62 million.
