Why It's Time To Dump Delphi Technologies (DLPH) Stock Now
Zacks Investment Research | Nov 05, 2019 05:50AM ET
Delphi Technologies PLC (NYSE:DLPH) has been lying low for quite sometime now, thanks to persistent lower sales in China, decline in passenger car diesel revenues in Europe, unfavorable product mix, lower volume and adverse currency exchange movements.
Operation in the global automotive component supply industry is further weighing on the company’s performance, as the industry is subject to stiff competition, rapid technological changes, short product life cycles and cyclical and reduced consumer demand patterns.
Delphi Technologies’ recently released (on Oct 31) third-quarter 2019 earnings report bears evidence to this dismal picture. The company’s adjusted third-quarter earnings of 56 cents per share were in line with the Zacks Consensus Estimate.
However, the bottom line declined 22.2% year over year. Total revenues of $1.03 billion missed the consensus estimate by $13.8 million and decreased 11% year over year on a reported basis and 8% on an adjusted basis (adjustments were made for currency exchange).
Delphi Technologies PLC Price, Consensus and EPS Surprise
Further, the company has lowered its full-year 2019 guidance. It now expects revenues in the range of $4.30-$4.33 billion compared with the previously guided range of $4.43-$4.48 billion. The revised guidance is below the current Zacks Consensus Estimate of $4.43 billion.
Adjusted earnings are now expected in the range of $2.25-$2.35 per share compared with the previously guided range of $2.65-$2.85. The revised guidance is below the current Zacks Consensus Estimate of $2.61.
Adjusted operating income margin is expected to lie between 7% and 7.2% compared with the prior guidance of 8%. Cash flow from operations is anticipated in the range of $235-$250 million compared with the prior guidance of $280-$310 million. Capital expenditure is projected in the range of $350-$360 million compared with the prior guidance of $315-$325 million. Adjusted effective tax rate is expected around 19% compared with the prior guidance of 18%.
This weak show is well reflected in the company’s price performance so far this year. Over this period, shares of Delphi Technologies have declined 5.4% underperforming the 10.6% rise of the industry it belongs to.
As a response to the ongoing industry and macro headwinds, the company has announced a fundamental transformation plan concurrent with the earnings release.Over the next three years, the company plans to reshape and realign its engineering footprint and reduce its overall cost structure by more than $150 million, with a rough target of $50 million aimed for 2020. The company plans to utilize these savings to improve its overall operating margin and continue investing in key technologies to support long-term growth.
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Through this cost reduction plan, the company is also hopeful of improving its free cash flow and return on invested capital. Meanwhile, it is suspending its existing $200 million share repurchase program.
Let’s check out the quarterly numbers in detail.
Revenues in Detail
Segment-wise, Powertrain Systems revenues of $888 million decreased 13% year over year on a reported basis and 10% on an adjusted basis. In the reported quarter, lower revenues in passenger car diesel in Europe and India, OEM decisions to exit certain segments in North America, lower Power Electronics revenues and effect of the General Motors (NYSE:GM) strikepartially offset growth in GDI.
Delphi Technologies Aftermarket revenues of $214 million declined 1% year over year on a reported basis but improved 2% on an adjusted basis. Higher sales to independent aftermarket customers more than offset planned lower OES revenues and market softness in Europe.
Region-wise, adjusted revenues declined 12% in Asia Pacific, 6% in Europe, 7% in North America and 7% in South America.
Operating Results
Adjusted operating income of $71 million decreased 34.3% from the prior-year quarter. The downside came on the back of unfavorable product mix, especially between higher margin passenger car diesel fuel injection systems, and lower margin advanced gasoline direct injection fuel systems.
Adjusted operating income margin of 6.9% declined 240 basis points from the prior-year quarter, reflecting negative impacts of lower volumes, incremental foreign currency headwinds, internal operating issues and strike at General Motors.
Segment-wise, adjusted operating income of Powertrain Systems and Delphi Technologies Aftermarket came in at $49 million (down 47% year over year) and $22 million (up 38% year over year), respectively.
Balance Sheet and Cash Flow
Delphi Technologies exited third-quarter 2019 with cash and cash equivalents of $104 million compared with $162 million at the end of the prior quarter. Long-term debt came in at $1.47 billion compared with $1.48 billion at the end of the prior quarter.
The company generated $59 million of cash from operating activities in the reported quarter. Capital expenditures totaled $88 million.
The company repurchased shares worth $15 million in the reported quarter.
Zacks Rank & Upcoming Releases
Delphi Technologies currently carries a Zacks Rank #5 (Strong Sell).
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Investors interested in the broader Zacks Business Services sector are awaiting third-quarter 2019 earnings of key players like Fiserv (NASDAQ:FISV) , ICF International (NASDAQ:ICFI) and FLEETCOR Technologies (NYSE:FLT) , each scheduled to release results on Nov 6.
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