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S&P Raises TRW to Investment Grade

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On Friday, TRW Automotive Holdings Corp.’s credit rating was upped to ‘BBB-’ from ‘BB+’ by Standard & Poor’s (S&P) Ratings Services. Thus, the rating agency has increased the credit rating of the company to investment-grade status from below investment grade, or junk status.

The S&P assigned a stable outlook for the auto parts maker. The agency also increased the business risk profile of TRW to satisfactory from fair.

The revision in TRW’s rating is based on solid performance by the company in the second quarter of 2013, strong cash flow and expectation of better performance in the future.

TRW had cash and cash equivalents of $1.2 billion as of Jun 28, 2013, almost in-line with Dec 31, 2012. Total debt increased to $1.9 billion as of Jun 28, 2013, compared with $1.5 billion as of Dec 31, 2012.

In the first six months of the year, net cash flow from operating activities increased 4.5% to $93 million from $89 million in the same period of 2012. Capital expenditures also increased to $271 million in the period from $200 million in the 2012-period. Consequently, usage of free cash flow rose to $178 million from $111 million in the comparable period last year.  

TRW’s second quarter earnings increased 17.4% to $2.02 per share from $1.72 (all excluding special items) a year ago and exceeded the Zacks Consensus Estimate of $1.70. Net earnings (excluding special items) went up 14.0% to $252 million from $221 million in the second quarter of 2012.

Revenues in the quarter grew 6.5% to $4.5 billion driven by strong demand for TRW’s innovative technologies and higher vehicle production volumes in North America and China. Revenues were higher than the Zacks Consensus Estimate of $4.4 billion.

For full year 2013, TRW anticipates production of 16.1 million units in North America and 18.6 million units in Europe. Based on these production levels, the company’s first half performance and expectations for foreign currency exchange rates, revenues for the year are expected in the range of $16.8 billion to $17.0 billion, with $4.1 billion expected in the third quarter.

TRW Automotive is a leading manufacturer of advanced technology products and services for the automotive markets. Headquartered in Mich., U.S., the company operates in 25 countries through its subsidiaries. These operations primarily involve the design, manufacture and sale of active and passive safety related products.

Currently, TRW retains a Zacks Rank #2 (Buy).The company’s major customers include Ford Motor Co. (F - Free Report) , General Motors Co. (GM - Free Report) and Volkswagen AG (VLKAY - Free Report) . They account for nearly 50% of its revenues.

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