Auto Suppliers See Glimmer Of Hope

March 26, 2002
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Light vehicle sales that came in better than expected during the first two months of the year have brightened prospects for automotive suppliers, prompting industry analysts to raise earnings expectations for 2002.

Generous incentives from automakers that are luring consumers into showrooms are driving much of the increased expectations. Incentives are credited with pushing North American sales of cars and light trucks to robust levels in January and February and generating improved automotive production, sales and earnings forecasts for the year.

“We’d like to see some of that brightened outlook in our pocketbook,” said Kevin Brown, chief financial officer for Holland-based Donnelly Corp., which recorded a net loss twice in 2001.

“We look forward to a year where we don’t have to be in a recovery mode after a quarter,” Brown said.

Donnelly, a supplier of windows, door handles, mirrors and electronic features to the auto industry, was initially expecting to earn $1 to $1.25 per share for 2002. Brokerage analysts surveyed by Thomson Financial/First Call now expect the company’s per-share earnings to reach $1.50 this year. Many industry analysts and observers have upped their outlooks for the industry, which going into the year was generally expecting production levels to fall sharply to 15.5 million vehicles, from the 17.3 million vehicles built in 2001.

An analyst for brokerage firm Robert W. Baird & Co. is now forecasting North American production levels to reach 16.4 million units, an upgrade from the earlier prediction of 15.7 million units, Dow Jones News Services reported.

Ward’s Automotive expects strong sales to continue in March, resulting in the third-best start for any year on record. Ward’s recently raised its North American production forecast to 16.56 million vehicles for 2002.

“Things are really turning around. You’re starting to see a glimmer of hope,” said Mike Wall, an auto analyst with IRN Inc. in Grand Rapids.

Driving the improved outlook are the strong sales recorded so far early in 2002 and the expectations that General Motors, Ford and DaimlerChrysler will continue offering incentives to generate sales, Wall said.

“You can’t underestimate the incentives from a Big Three perspective,” Wall said.

With the better than expected sales and higher production outlooks comes raised financial expectations for publicly held auto suppliers, many of whom saw steep earnings declines in 2001.

Donnelly, which posted 2001 earnings of just 25 cents per share, should have no problem hitting the new consensus estimate of analysts, as long as auto sales and production levels remain healthy, Brown said.

“That’s certainly achievable. At those volumes, they (earnings) should absolutely be there,” Brown said of the new $1.50 EPS expectation for Donnelly. The company earlier based its $1 to $1.25 EPS outlook on a North American production level of 15 million cars and light trucks.

Elsewhere, Zeeland-based Gentex Corp’s. per-share earnings estimates rose from 95 cents to 97 cents, according to Thomson Financial/First Call. The company posted 2001 net income of 86 cents per share.

Johnson Controls Inc., which bases its automotive unit in Plymouth but has significant operations in Holland, is expected to post EPS of $5.89, according to Thomson Financial/First Call.

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