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[ECHLIN LOGO]
Contact:
Paul Ryder
Vice President
Investor Relations
ECHLIN'S EARNINGS UP 11%;
RAPID REPOSITIONING OVERCOMES WEAK AFTERMARKET
BRANFORD, Conn., March 26, 1998--Echlin Inc. (NYSE:ECH), the
global motor vehicle parts manufacturer, today reported second-quarter basic
earnings of 42 cents per share, up 11% from the previous year's 38 cents per
share. It is the company's first year-over-year increase in quarterly
earnings since 1995. Echlin Chairman, President and Chief Executive Officer
Larry McCurdy announced the favorable results.
"The substantial, strategic repositioning plan which Echlin
initiated last fall continues to strengthen operations at a rapid pace,
improve the bottom line and build value for our shareholders," Mr. McCurdy
explained. "We expect momentum will accelerate as our associates accomplish
the many action plans we established six months ago. We are encouraged,
especially in light of a generally weak sales environment."
Comparable Sales Flat
Second quarter net sales totaled $835.7 million, down 1% from
last year's $842.2 million. The drop was primarily due to the loss of revenue
from five businesses the company divested as part of its repositioning
strategy. Excluding acquisitions and divestments, comparable sales were
essentially flat with the prior year. Price increases of 1.7% and a 3.0% gain
from new products, offset a unit volume decline 2.5% and the negative impact
of changes in translation rates of 2.0%.
"Our heavy-duty brake and original equipment business units
reported good sales increases," Mr. McCurdy said. "However, industry-wide
softness hurt our North American aftermarket business, while the ongoing
strength of the British pound, vis-a-vis other European currencies, reduced
demand for our products there."
Net Income Increased 14%
Net income in the second quarter amounted to $26.9 million, 14%
better than the $23.6 million Echlin reported the prior year. This year's
results included $1 million pre-tax, or 1 cent per share, of costs associated
with the unsolicited takeover proposal initiated by SPX Corporation.
Margins were down from the previous quarter because the second
quarter is historically Echlin's weakest quarter. This is due to fewer
shipping and production days, and higher returned goods from customers at
calendar year-end. However, year-over-year, Echlin's gross profit-to-sales
ratio improved a full percentage point, while its operating profit and net
profit margins gained 0.7 and 0.4 percentage points, respectively.
Cost of goods sold fell 2% vs. last year, while selling,
general and administrative expenses rose 1%. The increase in expenses was
largely the result of higher research and development activities related
primarily to new products for our Echlin Automotive group, which manufactures
and sells fluid handling systems to vehicle manufacturers.
Repositioning Actions Ahead of Plan
Echlin's strategic repositioning plan called for the divestment
of underperforming and non-core businesses. This year, to date, the company
has sold three businesses representing combined annual sales of $150 million.
Echlin also announced last month the signing of an agreement to sell its
Midland-Grau heavy-duty brake business to the Haldex Group of Sweden. The
sale of Midland-Grau, with annual sales of $330 million, should be
completed next month.
Another important part of the company's repositioning plan is
the rationalization of 14 facilities, and a related workforce reduction of
1,200 employees. So far, four rationalizations are complete, eight are in
progress, and planning is underway on the remaining two. More than one-third
of the employment level adjustments have been achieved.
The financial impact of all repositioning actions has been
favorable. Earnings included 7 cents per share from these actions during the
second quarter, and 15 cents per share during the first half of fiscal 1998.
Latest Acquisition Being Assimilated
In January, Echlin announced it completed the purchase of
General Automotive Speciality Company (GAS), a $50 million (sales)
manufacturer of a broad line of motor vehicle switches and locks. The company
is quickly folding GAS's operations into its North American Engine Systems
Group, closing one facility and moving distribution to other operations.
Echlin has identified many near-term synergies which should result from
combining the resources of the two businesses.
Fast Progress Made On EVA[Registered] Implementation
Echlin's EVA (economic value added) steering committee has
established three teams to oversee associate training and communication; to
establish an EVA-based incentive compensation program; and to incorporate EVA
into financial planning. Since adopting the EVA approach last October, the
company has trained all key managers throughout its organization. In total,
460 managers and staff will be trained by July, and roll-out is on target for
full implementation by September 1, 1998. In fact, Echlin managers are
already using EVA methods in capital spending and acquisition analyses.
Joel Stern, a partner of Stern Stewart & Company and co-founder
of the EVA concept, recently commented, "Echlin is making significant progress
with EVA -- implementation is among the fastest we've seen for a company of
their size and complexity."
Cash Flow Improved
There were no significant changes in Echlin's balance sheet
items since the end of the first quarter. Inventories increased $25 million
due in large part to the GAS acquisition, plus some normal seasonal buildup.
More than half of the $40 million increase in total debt was also attributable
to the GAS acquisition.
For the first six months of fiscal 1998, cash flow from
operations increased $74 million compared to the first half last year.
156th Consecutive Dividend Declared
Echlin's board of directors has declared a cash dividend of
22.5 cents per share, payable April 18, 1998 to shareholders of record on
April 8, 1998. This represents the 156th consecutive quarterly dividend
Echlin has paid since 1959 when it became a publicly traded company. After
taking into effect six stock splits and 32 payout increases, the company's
dividend has grown at an average compounded rate of 12% annually over the last
39 years.
Echlin's Future is Bright
"We continually seek ways to increase sales through greater
global penetration, new products and acquisitions. Of equal importance, we are
aggressively reducing costs to improve profits and maximize shareholder value,"
Mr. McCurdy stated. "Any recovery in our aftermarket business should fall
quickly to our bottom line."
"In addition to the value-building benefits of our
repositioning actions, we're working on a 'shared services' approach to
eliminate unnecessary administrative expenses. We're converting to BaaN
software to integrate our operating systems. And, we've achieved positive
results from our previously announced, worldwide sourcing initiative for
materials and services," Mr. McCurdy continued.
"With all these efforts, and extraordinary employee dedication,
there is no doubt in my mind that the company's future is bright," Mr. McCurdy
emphasized.
Caution Given on Forward-Looking Statements
Certain statements included in this news release are
"forward-looking" within the meaning of the Private Securities Litigation
Reform Act of 1995 (the "Act"), and are made in good faith by Echlin pursuant
to the Act's "safe harbor" provisions. Such forward-looking statements are not
guarantees of future performance, and may involve known and unknown risks,
uncertainties and other factors that could cause actual results to differ
materially from those expressed or implied. Risks and uncertainties include,
without limitation, global and regional economic conditions, business
conditions in the overall automotive industry, and the cost and timing of the
company's repositioning-plan implementation. They also include other factors
discussed herein and those detailed from time to time in the company's filings
with the Securities and Exchange Commission.
Comparative Results
The following are results for the second quarter and first half
of fiscal year 1998 and 1997:
Three Months Ended February 28,
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1998 1997
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Net Sales $835,712,000 $842,219,000
Net Income $26,943,000 $23,601,000
Average shares outstanding:
Basic 63,244,000 62,409,000
Diluted 63,803,000 63,209,000
Earnings per share:
Basic $0.42 $0.38
Diluted $0.42 $0.37
Six Months Ended February 28,
-------------------------------
1998 1997
---------- ----------
Net Sales $1,725,185,000 $1,693,127,000
Net Income $59,510,000 $61,718,000(1)
Average shares outstanding:
Basic 63,194,000 62,377,000
Diluted 63,670,000 63,225,000
Earnings per share:
Basic $0.94 $0.99
Diluted $0.93 $0.98
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(1) Includes a gain from the sale of Sensor Engineering of
$4,563,000, or $0.07 per share.
