Global automotive and industrial supplier Schaeffler announced its quarterly results for the first three months of 2019 today. The Schaeffler Group generated approximately 3.6 billion euros in revenue in the first quarter of 2019. At constant currency, revenue increased by 0.4 percent from the relevant prior year period. While revenue declined slightly at constant currency in both Automotive divisions – Automotive OEM by 1.7 percent and Automotive Aftermarket by 1.1 percent – these declines were slightly more than offset by growth in Industrial division revenue of 6.9 percent at constant currency. The Schaeffler Group’s constant currency revenue growth was highest in the Americas region, which reported an 11.9 percent increase, while revenue continued to decline in the Greater China region, dropping by 8.0 percent. The decrease in the Europe region was 1.5 percent. In the Asia/Pacific region, the constant currency growth rate amounted to 2.8 percent.
On the basis of this performance, the Schaeffler Group generated earnings before financial result and income taxes (EBIT) of 230 million euros (prior year: 391 million euros) during the first three months. EBIT was adversely affected by 42 million euros in special items. These included 55 million euros in restructuring expenses related to the efficiency program RACE in the Automotive OEM division. The refund of a penalty of 13 million euros paid in 2015 in the Industrial division in connection with antitrust proceedings in Korea had an offsetting effect on EBIT. This brought EBIT before special items to 272 million euros (prior year: 391 million euros), representing an EBIT margin before special items of 7.5 percent (prior year: 11.1 percent). The decline in EBIT before special items is primarily attributable to the lower gross margin and the increase in selling and administrative expenses.
Free cash flow before cash in- and outflows for M&A activities fell short of the prior year quarter due to reduced earnings quality and strategic capital expenditures. It amounted to minus 235 million euros (prior year: minus 69 million euros). In light of this, the capex ratio was 10.3 percent of revenue (prior year: 8.6 percent). Based on this performance, net income totaled 137 million euros (prior year: 238 million euros), representing earnings per share of 0.21 euros (prior year: 0.36 euros) for the first quarter of 2019.
Automotive OEM outperforms market despite lower revenue
Automotive OEM division revenue increased slightly from the prior year level to approximately 2,286 million euros (prior year: 2,280 million euros) during the reporting period; at constant currency, however, it declined by 1.7 percent. In a persistently challenging environment, the Automotive OEM division significantly outperformed global automobile production – which fell by 6.7 percent over the same period – by approximately 5 percent. Of the four Automotive OEM business divisions, the E-Mobility and Chassis Systems business divisions contributed constant currency growth rates of 33.9 percent and 3.6 percent, respectively. Growth on the same basis declined by 3.4 percent and 6.0 percent, respectively, in the Engine Systems and Transmission Systems business divisions. At 12.4 percent, the constant currency growth rate was particularly high in the Americas region, followed by 2.4 percent in the Asia/Pacific region. In the Greater China region, revenue declined significantly by 14.5 percent at constant currency, partly due to the weakness in the total market and customers’ temporary reluctance to buy; factors contributing to the 3.3 percent decline in Europe included the persistent repercussions of the new emissions testing methodology WLTP.
Based on this performance, the Automotive OEM division generated EBIT before special items of 113 million euros (prior year: 218 million euros). The division’s EBIT margin before special items for the first three months amounted to 5.0 percent (prior year: 9.6 percent). The deterioration was mainly driven by the gross margin declining by 3.1 percentage points to 21.1 percent (prior year: 24.2 percent), primarily due to the adverse impact of volumes on fixed costs, especially in China, and a less profitable revenue mix. In addition, the division could not yet increase production efficiency sufficiently to offset the adverse impact of pricing, personnel, and materials costs.
The Schaeffler Group continues to expect its Automotive OEM division to generate revenue growth of 1 to 3 percent at constant currency and an EBIT margin of between 6 and 7 percent before special items for the full year 2019.
Automotive Aftermarket revenue down slightly
The Automotive Aftermarket division reported a slight drop in first quarter revenue of 1.1 percent at constant currency to 441 million euros (prior year: 447 million euros) in a challenging environment. The decrease is mainly attributable to lower revenue in the Europe region. The decline in revenue there was mainly based on lower revenue with a few major customers, driven in part by increasing consolidation in the Western European vehicle aftermarket, and amounted to 4.2 percent at constant currency. The decline was not fully offset by the significant revenue increase of 14.1 percent in the Americas region. This increase resulted primarily from higher requirements in the Independent Aftermarket (IAM) in South America. The impact of the Greater China and Asia/Pacific regions on the Automotive Aftermarket division’s revenue trend was insignificant.
These developments resulted in EBIT before special items of 64 million euros (prior year: 81 million euros), representing an EBIT margin before special items of 14.4 percent (prior year: 18.1 percent). The decrease is primarily attributable to the reduction in gross margin by 1.9 percentage points to 33.7 percent (prior year: 35.6 percent) and higher selling and administrative expenses.
The group expects the Automotive Aftermarket division to generate revenue growth of 1 to 3 percent at constant currency and an EBIT margin before special items of 15 to 16 percent for the full year 2019.
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SOURCE: Schaeffler