Why Is Delphi Technologies (DLPH) Down 24.1% Since Last Earnings Report?

A month has gone by since the last earnings report for Delphi Technologies (DLPH). Shares have lost about 24.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Delphi Technologies due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Delphi Technologies Q1 Earnings Beat, Revenues Lag

Delphi Technologies first-quarter 2019 adjusted earnings per share of 67 cents beat the consensus mark by 12 cents but declined 48.5% on a year-over-year basis on unfavorable product mix, lower volume and unfavorable currency exchange movements, which were partially offset by improvements in operational performance.

Revenues in Detail

Revenues of $1.15 billion missed the consensus estimate by $12 million and decreased 11.2% year over year on a reported basis and 6% on an adjusted basis (adjustments were made for currency exchange).
The top line was hurt by lower sales in China and lower passenger car diesel revenues in Europe. This was, however, partially offset by solid double-digit growth in Power Electronics and Commercial Vehicle Systems, which grew approximately 10% each in the reported quarter.

Segment-wise, Powertrain Systems revenues of $1.02 billion decreased 11.5% year over year on a reported basis and 7% on an adjusted basis. In the reported quarter, lower revenues in passenger car diesel, softness in GDI and ongoing transitions within the company’s customer mix in China partially offset growth in power electronics and commercial vehicle.

Revenues for Delphi Technologies Aftermarket of $193 million declined 11.1% year over year on a reported basis and 6% on an adjusted basis. Segmental revenues were impacted by the timing of certain customer programs, which shifted into the second quarter.

Region-wise, revenue growth was 8% in South America and 3% in Europe. Revenues from Asia Pacific and North America declined 25% and 5%, respectively.

Operating Results

Adjusted operating income of $87 million decreased 45.3% from the prior-year quarter. Adjusted operating income margin decreased 470 basis points from the prior-year quarter to 7.6%.

Segment-wise, adjusted operating income of Powertrain Systems and Delphi Technologies Aftermarket came in at $76 million (down 46.5% y/y) and $11 million (down 35.3% y/y), respectively.

Balance Sheet and Cash Flow

Delphi Technologies exited first-quarter 2019 with cash and cash equivalents of $217 million compared with $359 million at the end of the prior quarter. Long-term debt was $1.48 billion compared with $1.49 billion at the end of the prior quarter. The company generated $21 million of cash from operating activities in the quarter. Capital expenditures totaled $131 million. The company repurchased shares worth $15 million in the reported quarter.

2019 Guidance

For 2019, Delphi Technologies reaffirmed its guidance for revenues, adjusted earnings, adjusted operating income margin and cash flow from operations. The company expects revenues in the range of $4.65-$4.75 billion. Adjusted earnings are expected in the range of $3.00-$3.20 per share. Adjusted operating income margin is expected to be around 9%. Cash flow from operations is expected in the range of $320-$350 million. Capital expenditure is projected to be in the range of $310-$330 million. Adjusted effective tax rate is expected to be around 18%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Delphi Technologies has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Delphi Technologies has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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