Auto-Suppliers Take a Beating

Updated from Thursday, Jan. 28

NEW YORK ( TheStreet) -- Auto-supplier stocks took a beating Thursday after one of their largest customers, Toyota ( TM), decided to suspend sales and production of numerous vehicle models in North America.

On Tuesday, Toyota announced that it is instructing Toyota dealers to temporarily suspend sales of eight models and said it expects to stop producing vehicles on several production lines for the week of February 1.

The announcements came after Toyota said last week that it would recall about 2.3 million vehicles in the U.S. to correct "sticking accelerator pedals." Today, Toyota expanded the recall to China and Europe.

On top of that, Toyota on Wednesday expanded a separate, ongoing recall announced last year by 1.1 million vehicles. These vehicles are the subject of a recall related to gas pedals getting caught in floor mats and were originally estimated to affect 4.3 million vehicles.

Not surprisingly, Toyota gas pedal supplier CTS Corp ( CTS) took the brunt of the beating Thursday, plunging 8.8% to $7.70. CTS is currently working with Toyota on a revised gas pedal design. The company said in its statement that it hasn't been implicated in the previously announced November 2009 recall. That recall involved gas pedals in car models dating back to 2002, and CTS only began supplying Toyota with pedals in 2005. However, adding to the discomfort of CTS is news that Ford's venture with Jiangling Motors in Nanchang City, Jiangxi Province, China, has suspended the production of a light bus vehicle pending the review of a pedal part recently sourced from CTS.

CTS on Wednesday said it expects 2010 earnings of 45 cents to 53 cents on sales of 10% to 15%. Analysts polled by Thomson Reuters have been expecting full-year earnings of 52 cents on sales growth of about 28% to $640 million. The three-month average daily trading volume for CTS is about 161,000; although about 1.7 million shares traded hands today as the share price slid.

Johnson Controls ( JCI) also fell, closing down 2.6% at $28.20 after Toyota announced its decision to halt the production and sales of various North American vehicle models. Both Johnson Controls and BorgWarner ( BWA) generate about 5% of their annual revenue from Toyota, according to Citi Investment Research analyst Itay Michaeli, who was cited by the Associated Press.

Johnson Controls was cut to neutral from buy by UBS on Tuesday, which wrote that estimates have largely caught up with the company's earnings potential. On Wednesday, Johnson Controls announced a regular quarterly cash dividend of 13 cents per common share.

The three-month average daily trading volume for Johnson Controls is about 4.4 million; about 7.2 million shares traded hands today.

BorgWarner ( BWA) lost 2.4% to close at $34.40. The three-month average daily trading volume for BorgWarner is 1.2 million.

Other auto-supplier stocks also ended the trading session in the red. Magna International ( MGA) fell 1.5% to $55, while ArvinMeritor ( ARM) lost 3.5% to settle at $10.10.

Autoliv ( ALV) stock closed the trading session down 1% to $40.90 after announcing on Thursday that it agreed to acquire substantially all of Delphi's Occupant Protection Systems operations in Korea and China. These operations are expected to generate approximately $250 million of annualized sales in 2010, Autoliv said.

One of the stocks in the auto-supplier sector that bucked the trend today was GENTEX ( GNTX). The stock surged 7.6% to end the trading session at $18.80 after Gentex forecast that first-quarter net sales would increase by 80% to 90% compared with the first quarter of 2009. Analysts surveyed by Thomson Reuters forecast a 70% rise in sales to $159.1 million.

Gentex says its current first quarter 2010 forecast is based on CSM's end-of-December forecast for light-vehicle production of a 56% increase to 2.6 million units for North America; a 23% increase to 4.2 million units for Europe, and a 38% increase to 3.1 million units for Japan and Korea. The three-month average daily trading volume for Gentex is about 972,000. The stock volume more than quadrupled that today, trading on a volume of 4.8 million.

-- Reported by Andrea Tse in New York

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