TRW Automotive Lags Estimates

TRW Automotive Holdings Corp. (TRW - Analyst Report) reported more than a 6% fall in profit to $177 million or $1.37 per share (excluding debt retirement charges) in the third quarter of 2011 from $189 million or $1.47 per share (excluding debt retirement charges and favorable tax benefits) in the prior-year quarter. The earnings per share were lower than the Zacks Consensus Estimate of $1.40.

The decline in profit was attributable to increased raw material costs, higher legal fees and planned increases in costs to support the company’s future growth.

Revenues in the quarter grew 14% to $3.9 billion on higher vehicle production volumes, strong demand for the company’s active and passive safety products as well as a positive impact of currency movements.  

Operating income declined to $240 million compared with $269 million in the third quarter of 2010. Earnings before interest, taxes, depreciation and amortization and special items (adjusted EBITDA) were $354 million compared with $385 million in the prior-year quarter. 

TRW had cash and cash equivalents of $890 million as of September 30, 2011, down from $1.08 billion as of December 31, 2010. Total debt amounted to $1.53 billion as of September 30, 2011 compared with $1.85 billion as of December 31, 2010. This reflected a debt to capitalization ratio of 37% as of September 30, 2011 compared with 47% as of December 31, 2010.

In the first nine months of the year, net cash flow from operating activities was $512 million, a decrease from $690 million in the same period of 2010. The deterioration in cash flow was attributable to increases in accounts receivables (net) and inventories.

Meanwhile, capital expenditures were $304 million in the period under study compared with $168 million in the 2010-period. Consequently, free cash flow was $208 million in the first nine months of 2011 compared with $522 million in the comparable period last year. 

TRW anticipates production of 12.9 million units in North America and 19.9 million units in Europe for full year 2011. Based on this guidance and the company's estimate of foreign currency exchange rates, sales are expected to be $16.2 billion (including fourth quarter sales of approximately $3.9 billion) for the full year, which is at the lower end of its previous guidance.

TRW Automotive is a leading manufacturer of advanced technology products and services for the automotive markets. Headquartered in Michigan, U.S., the company operates in 27 countries through its subsidiaries. These operations primarily involve the design, manufacture and sale of active and passive safety related products.

The company retains a Zacks #3 Rank (Hold) on its stock for the short term (1 to 3 months) and we have reiterated a Neutral” recommendation on the shares for the long term (more than 6 months).

Its competitor, Autoliv Inc. (ALV - Analyst Report) recorded a profit of $138.4 million or $1.48 per share in the third quarter of 2011, missing the Zacks Consensus Estimate by a penny. The profit declined from $140.1 million or $1.51 per share in the third quarter of 2010.

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