Stable Vehicle Production Levels Benefit Auto Suppliers

NEW YORK (AP) - The second quarter's relatively stable North American vehicle production levels could lead quarterly results at most of the auto suppliers to meet or beat Wall Street predictions, analysts said.

 

The U.S.-based auto suppliers begin reporting their earnings for the recent quarter this week, with Johnson Controls Inc. slated to lead off the pack on Wednesday.

 

''North American production is down year over year, but we think suppliers with exposure to GM (i.e. most) saw benefits from the launch of T-900 pickups and what we suspect has been some inventory build into this summer's contract talks,'' Robert Barry of Goldman Sachs wrote in a recent note to investors.

 

Barry added that raw materials prices have been manageable, so some incremental progress at the companies in the midst of restructuring should be apparent.

 

Johnson Controls hit a 52-week high Monday. Deutsche Bank's Rod Lache reiterated his ''Buy'' rating for its shares, saying that although they are up 44 percent so far this year, the company's earnings announcement could drive them even higher.

 

Meanwhile, Wachovia's Richard M. Kwas increased his estimates for BorgWarner Inc., which reports on July 26, and Magna International Inc., predicting that both will beat consensus estimates.

 

Kwas said that BorgWarner's strong backlog through 2009, lower reliance on the Detroit-based automakers for sales and health finances, should allow it to produce above-average earnings growth.

 

''The company's product portfolio is well positioned to benefit from growing worldwide demand for increased fuel efficiency and lower emissions, in our opinion,'' Kwas wrote in a note to investors. ''We think the company's backlog is poised to accelerate.''

 

Kwas said that higher production levels should also push American Axle & Manufacturing Holdings Inc. to post ''healthy'' results when it reports on July 27.

 

But Kwas added that the Detroit-based supplier's inventories are high, which could cause problems for the company during the second half of the year.

 

Meanwhile, Lear Corp. reports its results on July 23. Shareholders of the Southfield, Mich.-based auto supplier on Monday rejected a $2.9 billion buyout offer from a firm led by billionaire investor Carl Icahn.

 

Elsewhere in the sector, Tenneco Inc. releases its results on July 24, while ArvinMeritor Inc. reports its fiscal third-quarter results on July 30. TRW Automotive Holdings Corp. and Visteon Corp. both report on Aug. 1.