CHICAGO -- Delphi Corp. on Tuesday warned that its third-quarter loss would be far wider than expected, the latest auto parts supplier to say motor vehicle production cuts and high materials costs would hurt results.
Delphi shares fell more than 5 percent after hours following the warning that Delphi expects a net loss ranging from $113 million to $120 million, substantially wider than its prior forecast for a loss of from $10 million to $40 million.
"Delphi is operating too close to our break-even point and we must move more aggressively to reduce costs enterprise wide," Chief Financial Officer Alan Dawes said in a statement.
Delphi, the No. 1 U.S. auto parts supplier, said the wider loss could be attributed about one-third each to lower U.S. vehicle production, increased raw materials costs and to various factors including program launch costs.
Troy, Michigan-based Delphi said it expects volume and commodity price pressures to continue in the fourth quarter particularly from resins and steel and that it was was too early to comment on the outlook for 2005.
The company, which took in more than half of its 2003 revenue from General Motors, said it has been able to offset some of the pressure from planned production cuts and the high raw materials costs. GM and Ford Motor Co. announced production cuts in September.
Delphi said it is deferring noncritical spending and will limit hiring in areas that will not affect customer commitments. It also said it would work with unions, suppliers and customers to identify additional potential cost cuts.
As a top tier supplier to automakers, Delphi relies on thousands of smaller suppliers that have been feeling the heat from rising commodity costs as well.
"This is not moderating, the companies that have the steel and the plastics and the resins are certainly taking advantage of the situation and aggressively pursuing increases faster than we had anticipated," Chairman and Chief Executive J.T. Battenberg said in a conference call.
Earlier Tuesday, parts maker Tower Automotive Inc. warned that its third-quarter loss would be twice as deep as prior forecasts because of production cuts and steel costs.
Last month, American Axle & Manufacturing Holdings Inc., Visteon Corp. and Hayes Lemmerz International Inc. all cut forecasts and parts casters Citation Corp. and Intermet Corp. filed for bankruptcy.
Delphi said it is watching Intermet for its potential impact on fourth quarter results, as well as numerous other suppliers that may be close to filing for bankruptcy.
"It's a very delicate situation right now," Battenberg said.
Excluding restructuring charges, Delphi now expects a loss of $65 million to $72 million in the third quarter, compared with prior forecasts that ranged from a loss of $20 million to a profit of $10 million.
Delphi said it expects fourth-quarter net income to range from a loss of $18 million to a profit of $32 million on revenue of from $7 billion to $7.2 billion. The company expects net income for 2004 to range from $47 million to $104 million on revenue of from $28.6 billion to $28.8 billion.