Market deflates suppliers

Forecasts account for economic turmoil

DETROIT - Some of the largest U.S. auto parts makers warned last week that their profits are tumbling in the wake of economic shocks.

  • Lear Corp., the largest maker of automotive interiors, said profit could drop by as much as 20 cents a share this year because of lower vehicle production at Ford Motor Co.

    Lear expects Ford to account for as much as 17 cents of that 20-cent shortfall because the automaker plans to cut North American production in the third quarter. Lear had been expected to earn $2.80 per share.

  • Eaton Corp., the world's largest maker of engine valves, said third-quarter results could decline as much as 30 percent below estimates of 88 cents a share. For the full year, profit could be as much as $3.40 a share. The analysts' consensus had been $3.93 per share.

    n Dana Corp., the largest maker of light-truck axles, said it expects a small loss from operations for the third quarter after the Sept. 11 terrorist attacks interrupted vehicle production and parts shipments.

  • ArvinMeritor Inc. said it expects to earn between 20 cents and 25 cents per share for its fourth quarter ended Sept. 30. Analysts' consensus put expected earnings at 23 cents per share. The company has been hurt by reduced volume from its customers.

  • Textron Inc., which makes auto interior parts, auto fuel systems, Cessna planes and Bell Helicopters, said it is lowering its earnings expectations for the third and fourth quarters of this year but gave no specifics. Moody's Investors Service placed Textron's debt rating under review for downgrade. The rating action, which affects $7 billion of debt, was triggered by concerns that the company's near-term earnings and cash flow will be under more pressure by the continuing operating difficulties from its manufacturing businesses.

  • Goodyear Tire & Rubber Co., North America's largest tire maker, said third-quarter profit would be less than previously estimated because of lower demand. Total third-quarter profit will be about 5 cents a share, the company said. The company had been expected to earn 22 cents per share.

    Supplier stocks underperformed the broader market after the oil shock of 1980, the market crash of 1987 and Operation Desert Storm in 1991, noted analyst Matthew Stover of SalomonSmithBarney. But those stocks "tend to move quicker off the bottom," he said.

    Stover said supplier stocks should underperform the S&P 500, a broad-based measurement of changes of stock market conditions, by an average 9 percent in the first three months after Sept. 11.

    The parts group had underperformed the S&P 500 by 16 percent since the open of trading Sept. 17 through late week, according to SalomonSmithBarney.

    Stover said the parts industry "is likely to get hit with the double whammy of lower volumes and erratic production schedules over the coming six months." But because suppliers tend to be smaller and more nimble operations, they tend to move much quicker off the bottom, he said.

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