Federal-Mogul Management Discusses Q2 2012 Results - Earnings Call Transcript

Federal-Mogul (FDML)

Q2 2012 Earnings Call

July 26, 2012 10:00 am ET


David Pouliot - Director of Investor Relations

Rainer Jueckstock - Chief Executive Officer, Director and Member of Strategy Board

Michael T. Broderick - Chief Executive Officer of Global Aftermarket Division

Alan J. Haughie - Chief Financial Officer, Senior Vice President and Member of the Strategy Board


Brian Sponheimer - Gabelli & Company, Inc.

David L. Kelley - BB&T Capital Markets, Research Division

Michael Tanzer



I would now like to turn the conference over to your host for today, Mr. David Pouliot. Please proceed.

David Pouliot

Thanks, Francel. Good morning, and thank you for joining Federal-Mogul's Second Quarter 2012 Earnings Conference Call.

Before we begin, I would like to refer you to the company's Safe Harbor statement shown on this page of the presentation and included in our earnings press release filed this morning. Please consider my reference to the statement as notification of the applicability of these Safe Harbor provisions to today's call and the documents referenced during the call.

Please turn to the agenda slide. We will have speakers today that provide an update on our quarterly results and recent developments in the company. After their comments, we will finish with closing remarks and then open up the call for your Q&A.


Rainer Jueckstock

Thank you, David, and good morning to everybody on the phone. Before we go into the second quarter results of Federal-Mogul, I want to introduce Mike Broderick, the CEO of our Aftermarket segment. He finished his first month now with Federal-Mogul, and he's getting familiar with Federal-Mogul, its people, products and structure. Mike, your turn.

Michael T. Broderick

Thank you, Rainer. It's a privilege to be a part of Federal-Mogul, working with our great people and our brands, well, after 16 years in various roles with AutoZone and the past 3 years as the President of CARQUEST. My role as representing the customer has been a good fit so far for the past 5 weeks.

So well, with regards to this conference call, I do look forward in the future of communicating the success of our segmentation of the business and -- which includes our key product lines and of course, driving results.

So with that being said, Rainer?

Rainer Jueckstock

Okay. Thank you, Mike. If you turn to Page 5, we announced in March the segmentation of the company in 2 main segments. We are working harder on this process. We move the process towards product line. We want to keep together what needs to be kept together and to have led on strong segments with good play in the market.

By evaluating all of these options and Federal-Mogul's strength, during this process, we have no doubt that -- about our long-term stability and ability to compete. We have a strong position in both OE and aftermarket on both powertrain and vehicular components, and we have incredible positions in all major global markets in our industry, combined with a disciplined approach to assess and execute our strategy. Federal-Mogul is a great company to invest even though markets are currently somewhat rough to us and our peers.

If you turn the Page 6, you have an overview about our main product lines and the main brands. We have -- you'd see in the aftermarket, we have leading brands in engine gaskets, chassis, wipers, ignition and friction. This is complementary to our position in the OE market, where, with most of our engine components and our friction business, we have the #1 or #2 position in the world. Our brands and our core product are telling a compelling story in all markets, and we are committed to create, based on these assets, further value.

With having said this, on Page 7, we move into an overview about Federal-Mogul in quarter 2 of this year. We had sales of $1.7 billion, that is around 1% growth in constant dollars. So OE sales was $1.1 billion, was up 3% based especially on the strong demand of our OE customers here in the U.S. The U.S. sales, in particular, was up by 9%. The sales in our operations in the BRIC countries, Brazil, Russia, India, China, and similar, were up 7%. Unfortunately, the European markets, sales declined by 4%, but we see our position still strengthening as the market in Europe move to faster downturns in our fields.

So global aftermarket in quarter 2 was impacted, especially in the U.S., with mild winter. The mild winter requires less replacement for our wiper business -- wiper blades and also, for some of our chassis components, and we see, similar to the OE business, a softer market in Europe, but solid growth in the rest of the world.

Federal-Mogul had to report, in quarter 2, a $59 million net loss. This includes $100 million noncash impairment charge, primarily due to our brake friction business intangible assets. EBITDA was $159 million. That is heavily impacted not only by volume in Europe, but also by negative currency.

And especially the weakness of the European market and its currency is hurting today, but the weak euro, in the long run, will potentially help us to boost export out of Europe and definitely our customers in the OE, car manufacturer, truck manufacturer and engine producers in Europe will benefit from the weak euro currency with a solid position for export markets. We are well positioned as a company to participate on this as we have -- with all major OEMs in Europe who are exporting into China and into the U.S. and into other markets, we have a strong position with them.

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