Suppliers brace for earnings hit from slowdowns

Some suppliers already are feeling pain in the pocketbook stemming from the terrorist attacks on the United States.

Visteon Corp. cut its third-quarter earnings and says it expects an after-tax loss of $60 million to $70 million, excluding any restructuring charges. The shortfall is a direct result of Ford's Sept. 15 decision to lower third-quarter production by 110,000 to 120,000 units. Visteon relies on Ford for more than 80 percent of its revenues.

Ford cited the terrorist attacks and subsequent parts shortages for its lower production.

Despite difficulties in bringing freight into the United States, Visteon said it has been able to meet all production commitments to Ford.

"Although we've been able to hold our forecast until now, there is no way we can contain this level of reduction this late in the quarter," Visteon President Michael Johnston said in a prepared statement.

The company is holding off on full-year earnings estimates because of economic and auto sales uncertainty. Auto sales were curtailed severely during the week of the terrorist attacks, and many analysts expect that sales will continue to falter through December.

Intermet Corp., a maker of cast metal parts, also downgraded third-quarter expectations. The company is now expecting to lose $2.5 million to $3 million, or 10 cents to 12 cents per share, during the period.

"Sales are being affected by a slowing economy and the reduction of vehicle production at our customers as a result of the tragic events of last week and, at this point, appear to be less than $200 million for the quarter, thus impacting earnings," Intermet Chairman John Doddridge said in a statement on Friday, Sept. 21.

Sales volume could actually decline even more, he warned, as Intermet is receiving daily order changes due to the worsening economic conditions.

Too soon for predictions

The Ford cutbacks also will hurt supplier Freudenberg-NOK, which counts Ford as one of its top three customers.

"Definitely, it's something we're taking seriously," said Sharon Wenzl, Freudenberg-NOK vice president of corporate relations. "We have some concerns that we might be looking at some lower production schedules."

The overall affect on orders is not clear yet, but the aftermath makes a recent decision to extend holiday shutdowns even more prudent, Wenzl said. The company, which makes seals and suspension components, said it would extend the Thanksgiving and Christmas holidays with six days of unpaid vacation for all employees at U.S. facilities. That decision had been made based on weakening economic conditions before the attacks.

Many suppliers say it's too early to predict how business might be damaged until customers adjust their orders. The fallout could be felt in North America and in Europe, where exporters have enjoyed strong sales in the United States in recent years.

Still, "everyone should be very careful in talking down the economy," said Mathias Lenz, vice president of corporate public relations at ZF Friedrichshafen AG. "We think there can be an impact, but it's impossible to evaluate how strong it will be and if it's maybe only a short-term impact or maybe a bigger impact."

ZF hasn't had significant problems meeting its production schedule or making deliveries, Lenz said. But a bomb scare at its suspension plant in Lapeer, Mich., shut down production for a few hours on Sept. 13.

Autoliv Inc. said it would suffer because of the attacks, though the exact degree isn't known.

"Production is going down," Autoliv spokesman Mats Odman said. "The outlook for the next few quarters has been reversed downward."

The Swedish safety systems supplier already has received fewer orders, though the figures are changing daily, Odman said, making it hard to predict what the financial outcome will be for Autoliv. Affected customers include North American producers as well as European automakers that export to North America.

Problems at the borders

Autoliv hasn't caused any delivery or production problems for its customers in North America, but it has had problems shipping parts from Mexico and Canada into the United States.

Said Odman: "We have also been helped by the demand. The need for the components from us has been a little less because they have closed the plants for a day or two."

You can reach Amy Wilson at awilson@crain.com

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