Echlin Q4 & FY '96
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Echlin Q4 & FY '96
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(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
Echlin Inc <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECH)") else Response.Write("(NYSE: ECH)") end if %> BACKGROUND Echlin makes replacement (or "aftermarket") engine and brake system auto parts and is most closely affiliated with the NAPA brand name. Because they focus on after-market parts, their business tends to benefit from economic downturns when people delay new car purchases. The company was founded in 1924. Since 1965, they have acquired more than 90 companies. FINANCIAL HIGHLIGHTS Echlin Inc.
(Amounts in thousands except amounts per share)
Quarter Ended FY 1996 Ended
August 31 August 31
1996 1995 1996 1995
Net sales $836,041 $724,055 $3,128,728 $2,717,866
Net income $ 41,623 $ 45,869 $ 142,210 $ 154,422
Avg. shares outstanding 61,966 59,594 61,919 59,476
Earnings per share $ 0.68 $ 0.77 $ 2.30 $ 2.60
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Consensus EPS ests. $ 0.72 $ 2.32
Amt. +/- estimates $ (0.04) $ (0.02)
MANAGEMENT REMARKS Eichlin reported Q4 and FY 1996 earnings this morning. 1996 was a pretty up and down year. Their sales were up 15% and their gross margin was up 4.4% in absolute dollar terms, although margins were down approximately 2-2.5%. Operating income was down about 3.5% from last year. The main reason for that is a sluggish aftermarket in the US and Canada. Unit volume was flat year over year. Pricing represented about 2% of the sales improvement year over year, although Eichlin's aftermarket businesses were above 2% for the year. Acquisitions added about 11% to their growth. The large portion of their year-over-year sales improvement came from acquisitions. New product translation added another 2% or so. From a geographical standpoint, their US aftermarket was very soft. Their foreign businesses, particularly Europe, showed continued strength and very positive signs. Pricing has been in excess of the 2.3% range and unit volume has been positive overseas. The heavy duty, Class A vehicle business is about a 50/50 split between original equipment and aftermarket. They have seen a very significant decline, particularly in North America, in the original equipment builds, both for tractors and trailers -- down in excess of 25%. They have had to bring back the utilization of their factories to the level of customer demand. The result of that is an inability to absorb many of the fixed costs associated with a manufacturing operation. So that has had a continuing drag on Eichlin's performance in 1996. That said, FY 1996 still represented Eichlin's 2nd highest earnings per share and dollar profits in the company's history. Q4 was somewhat of a mixed bag. It started out very sluggish in the aftermarket in the US with strong negative unit volume. Fortunately at the end of the quarter Eichlin saw some strong order input. This is a picture they have seen quarter after quarter. They believe that their customers have been keeping their inventories very low and in some cases have been continually reducing inventories which puts negative pressure on Eichlin's unit volume and it is costly to take back inventory from the customer. For the quarter, sales grew 15.5%. 9% of that was attributable to the acquisitions they have made during the year, 2% was due to pricing, 3% in unit volume, and the rest in new products and translation. Although their foreign businesses were stronger in Q4, the strength of the US dollar had a negative impact on net income from overseas in excess of 1%. Gross margin in Q4 in absolute dollars was up 3.5% versus 1995. Operating income declined 11% year over year in Q4. Margins were weaker than last year and weaker than Eichlin anticipated at 6.1%. This, again, reflects the unabsorbed fixed costs with the adjustment of their business. OUTLOOK FOR 1997 They are taking a very conservative approach to the year because they have just ended a year that was very difficult to forecast. They had months of very strong unit volume followed by months of very strong negative unit volume growth. They are taking the track that they will be able to show a 15% growth in bottom-line profit for 1997. This will bring them close to the $2.65 to $2.70 range for the year. Some of their customers have been performing substantially better than their numbers would reflect. Their NAPA business continues strong both in the ignition electrical business and their brake business. Some of their key retail customers such as Pep Boys look good. And some of the other national account business continues to roll out nicely. Their traditional aftermarket business has been weaker during the year and that is the part they are looking at very conservatively going forward in this next fiscal year. They believe their European and international businesses will continue to show positive year-over-year growth although they have no forecast on what the impact of the US dollar translation will be. They expect steady, although modest, improvement in the independent aftermarket. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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