A flurry of auto suppliers' quarterly earnings reports last week showed widespread strength - with some exceptions.
In general, suppliers prospered despite a flat North American market and lingering stagnation in Asia. Stronger vehicle sales in Europe helped, as did growth in the heavy-truck market.
Basic issues such as factory efficiency and currency stability are also affecting profits. Dana Corp., a key supplier to the truck market, attributed its 16 percent earnings gain to two key factors: better cost control and better plant utilization.
ITT Automotive modestly increased operating income in the face of reduced sales by curbing manufacturing expenses.
Standard Products Co., a Dearborn, Mich., producer of sealing and vibration-control products, pinned its 2,600 percent profit gain on better supply-chain management and improved plant processes. That reflects a changing pattern for parts makers. In recent years, big-league parts makers have been reporting double-and triple-digit gains in sales and profits because of new acquisitions.
Swedish safety systems maker Autoliv Inc. has swallowed its share of competitors. But it reported flat sales for the quarter. Pretax income fell to $71 million, from $94 million a year earlier. Autoliv cited pricing pressures caused by global competition and the strong U.S. dollar. Seventy percent of its business is outside North America. The company said recent acquisitions raised administrative costs and research expenses.
ITT Automotive had a 2 percent increase in operating earnings for the quarter, despite a 14 percent decline in sales. The company netted $20 million from the sale of its Precision Die Casting unit, although that income is not reflected in the earnings. The profit gains were attributed to manufacturing cost reductions; the lost sales were blamed on divestitures and currency fluctuations.
Trimming expenses appears to be a common thread. At Tenneco Automotive, sales reached $800 million, compared with $778 million in the first quarter of 1997. Operating income rose $9 million for the quarter, to $89 million. The automotive unit credited strong worldwide sales and recent restructuring efforts. But it also noted that it had cut $68 million in costs out of the quarter through an efficiency program.
The efforts may suggest the industry is hunkering down. The 'tight control of expenses' Dana President Joe Magliochetti spoke of in his company's earnings statement arose from Dana's decision to play it conservative this year. Late last year, executives told department heads to submit budgets that assumed 1998 would be a soft year.
In fact, sales fell nearly $235 million in the first quarter - but that was due to the sale of some unprofitable lines rather than an industry slowdown. Dana spokesman Gary Corrigan said the conservative budgets enhanced profitability.
Currency swings also are a factor.
Interior systems supplier Lear Corp. said sales and profits rose in the quarter. Acquisitions and internal growth brought Lear sales to $2 billion - $300 million more than in the 1997 quarter. Yet Lear's 13 percent gain in net income reflected a difference of about $7 million over 1997's first quarter. Lear said currency fluctuations cost it $62 million in this year's first quarter.
Like many other suppliers going global, Lear is growing susceptible to currency dips. The company says 80 percent of its first-quarter growth came from outside North America.
Walbro Corp., whose fuel tank plants in Indiana and Connecticut were busy, said sales figures declined because of currency shifts. Meritor Automotive Inc. of Troy, Mich., said that its European sales growth was diminished by a decline in foreign currency values.
Despite its big increase in profits, Standard Products saw sales decline $2.8 million in Canada because of the strong U.S. dollar. European sales declined by nearly $2 million due entirely to a weaker French franc.