TRW Automotive Holdings Corp. (TRW) posted a profit of $225 million or $1.72 per share in the fourth quarter of 2010 compared with $168 million or $1.40 per share in the same quarter of prior year. The profit outstripped the Zacks Consensus Estimate by 49 cents per share. The results excluded special items such as restructuring charges, debt retirement charges, a net gain related to pension obligations and favorable net tax items.

Sales in the quarter escalated 10% to $3.71 billion driven by higher global vehicle production volumes than the prior year quarter, offset partially by the negative impact of currency movements. It has also surpassed the Zacks Consensus Estimate of $3.43 billion.

Operating margin (excluding the above-mentioned items) improved to 8.4% from 7.5% in the fourth quarter of 2009. This was attributable to higher sales, offset partially by unfavorable currency exchange rate movements and a rise in raw material prices.

Earnings before interest, taxes, depreciation and amortization and the above-mentioned special items were $426 million in the quarter compared with $384 million in the prior year.

Annual Results

For full year 2010, TRW depicted a profit of $844 million or $6.57 per share, exceeding the Zacks Consensus Estimate by 55 cents per share. The profit was remarkably higher than $137 million or $1.26 per share reported in 2009.

Sales in the year elevated 24% to $14.38 billion, which was marginally higher than the Zacks Consensus Estimate of $14.12 billion. The increase in sales was attributable to same  volume rise during the year. 

Operating margin significantly rose to 8.4% from 3.6% a year ago. The improvement was led by the higher sales and the positive impact of the company’s restructuring and cost containment actions.

Financial Details

TRW had cash and cash equivalents of $1.08 billion as of December 31, 2010, up from $788 million in the corresponding period a year ago. Long-term debt amounted to $1.82 billion as of the above date. This reflected a long-term debt to capitalization ratio of 47%, a significant decline from 67% a year ago.

In 2010, the company’s net cash flow of $1.05 billion from operating activities more than doubled from $455 million in the prior year. The improvement in cash flow was attributable to higher profit, an increase in deferred taxes and a rise in trade accounts payable during the year. Free cash flow was $758 million compared with $254 million in 2009, implying a $93 million increase in capital expenditures to $294 million.

Outlook

TRW anticipates sales in the range of $14.9 billion−$15.3 billion for full year 2011, including $3.9 billion for the first quarter of the year. The expectations were based on the assumptions of an industry production volumes of 12.7 million units in North America and 18.7 million units in Europe. The company still expects China and the rest of world regions to be the growth drivers in 2011.

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

Peer Comparison

TRW’s competitor, Autoliv Inc. (ALV), performed impressively in the fourth quarter as well. The company showed about threefold increase in profit of $177.5 million or $1.89 per share in the quarter from $61.3 million or $0.68 per share in the same quarter of 2009. The profit far exceeded the Zacks Consensus Estimate by $0.21 per share. The increase in profit was attributable to higher sales (especially in the Rest of the World region) and restructuring measures.

 
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