Wescast Industries Inc. (TSX: WCS. A) today reported 2007 first quarter sales of $104.0 million and net earnings of $3.1 million.
“We continue to undertake the actions necessary to address the significant competitive and economic challenges in the automotive industry, particularly in North America. As evidenced this quarter, we continue to experience year-over-year improvement in Europe resulting from the sales growth being achieved there. Our European operation is now profitable and we anticipate significant future upside opportunity for this business unit as operating performance metrics improve, ” said Ed Frackowiak, Chairman and C. E.O. “We continue to make progress on our expansion into Asia; operations are now underway in a leased facility in China, with the construction of a permanent foundry and machining facility proceeding as planned. “
Highlights
- Consolidated sales were $104.0 million, an increase of 5.2% from the $98.9 million reported in the first quarter of 2006, reflecting the significant increase in the level of sales generated by the Company’s European operations.
- The Company’s European operations reported improved financial results compared to the same quarter last year. Net earnings of $1.2 million were generated in the quarter compared to net earnings of $0.2 million reported in the first quarter of 2006.
- The Company’s planned expansion into Asia is well underway. Construction of an integrated foundry and machining operation in China continued during the quarter. The Asian operation machined and shipped its first prototype castings from a leased facility during the quarter. The foundry operations are expected to begin in the first quarter of 2008 after construction of the integrated facility has been completed. During the quarter, the pre-launch expenditures represented a net loss of $0.6 million and the operation incurred $6.0 million of capital expenditures and equipment deposits.
- The Company reported net earnings of $3.1 million for the quarter compared with net earnings of $3.7 million reported in the same quarter last year.
- The first quarter net earnings per share on a diluted basis were $0.23, compared with net earnings per share of $0.28 reported in the first quarter of 2006.
- The North American automotive industry experienced a 7.7% decline in light vehicle production levels in the first quarter of 2007 compared to the first quarter of 2006. However, the Company’s primary North American customer base, the domestic Big 3, experienced a more significant decline of 12.1% in light vehicle production levels over the same period.
Operations
Consolidated sales
Consolidated sales for the quarter were $104.0 million, a 5.2% increase compared to the previous year’s level of $98.9 million. The consolidated sales are net of inter-segment sales of $2.2 million between the Company’s European and North American business units. The sales analysis which follows is discussed on the basis of gross sales.
Consolidated prototype and tooling sales in the first quarter were $4.9 million, consistent with the $4.7 million recorded in the first quarter of 2006.
North American sales
North American sales, excluding prototype and tooling sales, declined by 6.8% to $73.8 million compared to $79.2 million reported in the same quarter last year. The Company experienced a quarter-over-quarter decline of 5.6% in unit casting sales volume in North America. Machining volumes were up 4.7% compared to the first quarter of 2006.
The casting unit volume and sales decline resulted from:
- The impact of the 12.1% reduction in vehicle production volumes of the domestic Big 3 automakers compared to the first quarter of 2006;
- The impact of market-driven price reductions and changes in product mix compared to the same quarter last year; and,
- A reduction in light truck volume requirements of the domestic Big 3 automakers, due in part to sustained high fuel prices and strong competition from the new domestic automakers.
The factors above were partially offset by increased sales with DaimlerChrysler, reflecting additional content that the Company was awarded mid-way through 2006 for the minivan program. This is a cast only program, as a result the additional volume generates lower sales dollars per part than a program that is both cast and machined.
European sales
Sales generated by the Company’s operation in Europe, excluding prototype and tooling sales, were $27.5 million for the quarter compared to $16.7 million during the same quarter last year. The operation experienced a quarter-over-quarter increase in casting unit sales volume of 26.8%. Total units machined were 65.3% higher than the first quarter of 2006. The significant increase in unit volume resulted from the impact of several new programs that were launched during 2006 and the ramp-up of programs that existed in early 2006. Also contributing to the increased sales level was the impact of a stronger Hungarian forint against the Canadian dollar compared to the first quarter of 2006 and an increase in sales from machined only programs. The cost to acquire the raw castings for certain of these machined only programs is quite high, with the casting cost a direct pass through to the end customer.
Consolidated earnings
The Company reported earnings from continuing operations of $3.1 million for the quarter, compared with earnings of $3.8 million reported in the same quarter last year.
North American earnings
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