TRW Tops Estimates

TRW Automotive Holdings Corp. (TRW - Analyst Report) revealed an increase in profit to $238 million or $1.84 per share in the fourth quarter of 2011 from $225 million or $1.72 per share in the same quarter of the prior year (all excluding special items). The profit exceeded the Zacks Consensus Estimate by 29 cents per share.

Sales in the quarter escalated 7% to $4.0 billion, driven by higher vehicle production volumes, mainly in North America, and increasing demand for TRW’s active and passive safety products compared to the prior-year quarter.

Excluding special items, operating income in the quarter dipped marginally to $307 million from $310 million in the prior-year period. The decline in profit was attributable to a negative impact from higher raw material prices, higher legal fees and planned increases in costs to support future growth, partially offset by increased profit from the higher level of sales between the two quarters.

Earnings before interest, taxes, depreciation and amortization before special items (adjusted EBITDA) declined slightly to $413 million in the quarter compared with $426 million in the prior-year quarter.

Annual Results

For full year 2011, TRW depicted a profit of $971 million or $7.42 per share compared with $844 million or $6.57 per share in 2010 (all excluding special items). Sales went up 13% to $16.24 billion driven by higher level of global vehicle production volumes, strong demand for TRW’s innovative technologies and the positive impact of currency movements between the two periods.

Excluding special items, operating income increased slightly to $1.28 billion in 2011 from $1.21 billion in the prior year. The improvement in profit was driven primarily by the positive impact of the higher level of sales between the two periods, partially offset by inflationary pressures, including higher raw material prices and planned increases in costs to support future growth. Adjusted EBITDA was flat at $1.73 billion compared with $1.67 billion in the prior year.

Financial Details

TRW had cash and cash equivalents of $1.24 billion as of December 31, 2011, up from $1.08 billion in the corresponding period a year ago. Total debt amounted to $1.53 billion as of December 31, 2011, down from $1.85 billion as of December 31, 2010. Consequently, the debt to capitalization ratio declined to 34% as of December 31, 2011 from 47% as of December 31, 2010.

For full year 2011, net cash flow provided by operating activities totaled $1.12 billion, compared with $1.05 billion in the prior year. Capital expenditures were $571 million versus $294 million in 2010. Consequently, free cash flow decreased to $549 million from $758 million in 2010.

Outlook

TRW anticipates sales in the range of $16.0 billion to $16.4 billion for full year 2012, including $4.1 billion for the first quarter of the year. The expectations were based on the assumptions for industry production volumes of 13.9 million units in North America and 18.4 million units in Europe. The company continues to expect China and the rest of world regions to be the growth drivers in 2012.

Our Take

TRW Automotive is a leading manufacturer of advanced technology products and services for the automotive markets. Despite the impressive results and promising outlook, we are concerned about high customer concentration and rising raw material prices. As a result, the company retains a Zacks #3 Rank on its stock, which translates to a “Hold” rating for the short term (1 to 3 months).

TRW’s competitor, Autoliv Inc. (ALV - Analyst Report) saw an 11% fall in profits to $158.5 million or $1.70 per share in the fourth quarter of 2011 from $177.5 million or $1.89 per share in the same quarter of 2010. The decline in profits was mainly attributable to increase in raw material costs and higher research, development & engineering expenses. However, the profit was higher than the Zacks Consensus Estimate of $1.67 per share.