Earning Estimates Lowered On Major Parts Makers But Borg Warner Gets Upgrade

Autoparts Report, Oct 8, 2001

Salomon Smith Barney said declining consumer confidence and the resulting drop in auto sales will hit auto parts makers. The company lowered its earnings outlooks on seven U.S. auto parts suppliers. Auto parts stocks have "historically underperformed the market in months following an economic shock," Salomon analyst Matthew Stover said in a research note.

Stover cut Salomon's earnings estimates for seven auto parts makers for the current fiscal year and the following year. Stover lowered his expectation for Delphi Automotive Systems Corp. to 40 cents per share for 2001 from 65 cents per share, and forecast earnings of 60 cents per share next year, instead of $1.10.

Lear Corp. should earn about $2.40 per share this year, instead of $2.70, and $2.60 per share in 2002, instead of $3. Lear said its 2001 earnings would be hurt by production cuts at Ford Motor Co.

TRW Inc., a diversified manufacturer, will earn about $2.35 for 2001, instead of $2.40, Stover forecast, and $1.85 for 2002, rather than the $2.85 expected earlier.

Salomon also cut its 2001 earnings forecast for BorgWarner Inc. to $3.35 per share from $3.50, and cut its 2002 estimate to $3.50 per share from $4.25.

Dana Corp. was expected to earn 25 cents per share in 2001, compared with an earlier estimate of 70 cents, and 35 cents per share for 2002, instead of $1.40. Toledo-based Dana said it would post a small operating loss in its third quarter because of auto production cutbacks.

Salomon lowered its 2001 earnings view for Tenneco Automotive Inc. to show a loss of 80 cents per share, instead of a loss of 25 cents, and expected the company to post a loss of 70 cents per share in 2002, instead of a profit of 15 cents.

American Axle & Manufacturing Corp.'s 2001 estimate was lowered to $2.15 per share from $2.20 per share, and its 2002 view dropped to $2 per share from $2.65 per share.

Salomon left its earnings estimate for Johnson Controls Inc. steady at $5 per share for 2001 and $5.65 per share for 2002.

Salomon raised its rating on BorgWarner Inc. to "buy" from "outperform," with a target price of $53. "Tightening fuel efficiency and emissions trends globally play to BWA's strengths and should result in above average growth," Stover said. "Solid balance sheet and positive cashflow position BWA as a lower risk investment within its peer group." BorgWarner makes power train products such as four-wheel-drive systems for cars and trucks.