Delphi Posts Profit But Warns on Third Quarter

Automotive parts supplier Delphi Corp. (DPH) on Friday posted higher second-quarter earnings, but warned it would report a net loss in the third quarter due to production cuts by major automakers.

The Troy, Mich., company said it now expects a third-quarter net loss of $10 million to $40 million, including $20 million of restructuring charges. The company estimated revenue at $6.4 billion to $6.8 billion, compared with Wall Street expectations of $6.7 billion.

Wall Street analysts had forecast a third-quarter profit, excluding the charge.

Delphi Chief Financial Officer Alan Dawes noted that some automakers have cut production by 5 to 7 percent in the third quarter in order to trim high inventories of unsold vehicles. General Motors Corp. (GM), Delphi's largest customer, has set its production at nearly 4 percent lower.

After GM and Ford Motor Co. (F) reported a surprising double-digit drop in June U.S. vehicle sales, some analysts said the automakers might have to cut production further to reduce inventories of unsold vehicles. June's weak U.S. vehicle sales, which fell to the lowest rate in nearly six years, have already forced the car companies to first try cutting inventories with higher sales incentives.

Delphi's second-quarter net profit rose to $131 million, or 23 cents per share, from $88 million, or 16 cents per share, a year earlier, boosted by stronger sales to customers other than former parent GM.

Analysts had been expecting third-quarter profit of between 3 cents and 17 cents per share, with an average forecast for a profit of 7 cents per share, excluding the charge, according to Reuters Estimates.

Delphi said on Friday that excluding the charge, it expected to report third-quarter results ranging from a per-share loss of 4 cents to a profit of 2 cents.

Despite the weakness in the third quarter, Delphi said it is on track to meet its 2004 forecast for net income of between $400 million to $500 million.

The company's second-quarter results included a tax gain of $12 million and an after-tax restructuring charge of $37 million, part of the costs of Delphi's plan to cut its worldwide work force.

Excluding those one-time items, Delphi's profit for the second quarter totaled $156 million, or 28 cents per share, in line with Wall Street and the company's estimates.

Second-quarter revenue rose 6 percent to $7.5 billion, in line with analysts' estimates, up from $7.1 billion in the year-ago quarter.

Delphi said it expects to exceed its target of 5,000 job cuts by year end by an additional 500 to 1,000 through attrition. An additional cost of $15 million from the job cuts will be compensated by the $12 million tax gain, Delphi said.

Last fall, the company said it expected charges of $807 million for the job restructuring over 15 months, and $70 million before taxes remains to be taken.

Delphi shares closed at $9.71 on the New York Stock Exchange (search) on Thursday.