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CompanyName:DelphiAutomotivePLCCompanyTicker:DLPHSector:ConsumerGoodsIndustry:Automotive
EventDescription:Q12016EarningsCallMarketCapasofEventDate:20.46BPriceasofEventDate:70.09
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DELPHIAUTOMOTIVEPLC(DLPH)EarningsReport:Q12016ConferenceCallTranscriptThefollowingDELPHIAUTOMOTIVEPLCconferencecalltookplaceonMay4,2016,09:00AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
ElenaRosman;DelphiAutomotive;InvestorRelationsKevinClark;DelphiAutomotive;President&CEOJoeMassaro;DelphiAutomotive;CFO
OtherPart icipants
RodLache;DeutscheBank;AnalystJohnMurphy;BoAMerrillLynch;AnalystBrianJohnson;BarclaysCapital;AnalystItayMichaeli;Citigroup;AnalystPatrickArchambault;GoldmanSachs;AnalystRyanBrinkman;JPMorgan;AnalystDavidLeiker;RobertW.Baird&Company,Inc.;AnalystColinLangan;UBS;AnalystAdamJonas;MorganStanley;AnalystJacobHughes;RBCCapitalMarkets;AnalystDavidLim;WellsFargoSecurities,LLC;AnalystEmmanuelRosner;CLSA;AnalystMattStover;SusquehannaFinancialGroup;AnalystChrisMcNally;EvercoreISI;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
Atthistime,IwouldliketowelcomeeveryonetoDelphiQ12016earningsconferencecall.
(OperatorInstructions)
IwouldnowliketoturnthecallovertoElenaRosman,Delphi'sVicePresidentofInvestorRelations.Elena,youmaybeginyourconference.
ElenaRosman (InvestorRelations):
Thankyou,Operator.Goodmorning.ThankyouforjoiningDelphi'sfirstquarter2016earningsconferencecall.
Tofollowalongwithtoday'spresentation,ourslidescanbefoundatdelphi.comundertheInvestorssectionofthewebsite.
Consistentwithpriorcalls,today'sreviewofouractualandforecastedfinancialsexcludesrestructuringandotherspecialitemsandwilladdressthecontinuingoperationsofDelphi.
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CompanyName:DelphiAutomotivePLCCompanyTicker:DLPHSector:ConsumerGoodsIndustry:Automotive
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ThereconciliationbetweenGAAPandnon-GAAPmeasuresisincludedinthebackofthepresentationandthepressrelease.Pleaseseeslide2foradisclosureonforward-lookingstatements,whichdoreflectDelphi'scurrentviewofthefuturefinancialperformance,whichmaybemateriallydifferentfromouractualperformance.
JoiningustodaywillbeKevinClark,Delphi'sPresidentandCEO;andJoeMassaro,CFOandSeniorVicePresident.
Asseenonslide3,Kevinwillprovideanoperationsupdate,aswellasanoverviewofthequarter.AndthenJoewillcoverthefinancialresultsandthe2016outlookinmoredetail.Withthat,IwouldliketoturnthecallovertoKevinClark.
KevinClark(President&CEO):
Thanks,Elena.Goodmorning,everyone.Thankyouforjoiningus.
BeforeJoegetsintoourfinancialresults,IwouldliketoprovidesomecoloronwhatwasagreatquarterforDelphi.Solet'sbeginwiththehighlightsonslide5.
Insummary,wehadanotherverysolidquarter,meetingourcommitmentsanddeliveringstrongrevenueandearningsgrowth.Adjustedrevenuegrowthwas6%,drivenbymarketshareandcontentgainsacrosstheportfolio.Operatingincomeincreasedto$509million.
Marginsexpanded20basispointsto12.6%;andearningspershareincreased12%to$1.36.Andlastly,wereturnedapproximately$450millionofcashtoshareholders.
Weremainveryconfidentinour2016guidance,asoriginallycommunicatedbackinJanuary.Thereisnothingweseetodaythatchangesourviewoftheunderlyingmacroenvironment,withsomethingsstronger,offsettingshortfallselsewhere.
I'lltouchonthemacrosingreaterdetailonthenextslide.Theramp-upofnewprogramlauncheswillcontinuetodriveacceleratedrevenuegrowthandastrongfocusonleveragingourrobustbusinessmodelwillenableustoflexourcoststructuretomeetthechallengesofvirtuallyanyenvironment.
Inaddition,wemadeanumberofimportantannouncementsduringourrecentInvestorUpdateMeetinginLondon.Weunveileda48-voltvehiclesolution,whichimprovesengineperformance,whileloweringCO2emissionsbymorethan10%.I'llcoverthisinmoredetaillater.
I'll--wealsoannouncedtheIRSSection7874issueisbehindusandthatwe'veprevailedinourappeal,contendingthatDelphishouldbetreatedasaUKtaxentityundertheUStaxcode.
Weannouncedanew$1.5billionsharerepurchaseprogram.Coupledwiththerecentdividendincrease,thisunderscoresconfidenceinourmedium-andlong-termoutlook,whichisdrivenbythesafe,green,andconnectedmegatrendsthatarecreatingnewrevenueopportunitiesforDelphi.
Continuedmaterialandmanufacturingperformance,whichisfundingincrementalgrowthinvestmentsanddrivingmarginexpansion,whichwilltranslateintocashflowgeneration,providingadditionalleverstodriveshareholdervalue.
Duringthequarter,wealsoacquiredPuredepth,Inc.,theleadingproviderofmulti-layer3-Ddisplaytechnology.OurcollaborationwithPuredepthwasondisplayattheConsumerElectronicsShowinaconceptMustang,whichhasdrivensignificantcustomerinterest.
Slide6isanupdateonourviewofthemacroenvironment,which,asIjustmentioned,continuestoremainbalancedrelativetotheassumptionsunderlyingour2016guidance.I'llhitafewofthehighlights.
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Startingwithpositivesontheleft,regulatorytrendsandconsumerdemandscontinuetoinfluencefueleconomy,emissions,andvehiclesafetystandards,drivingcontentpervehiclegrowth.Andwecontinuetoexpectsteadygrowthinglobalvehicleproduction,drivenbycontinuedgrowthinChina,NorthAmerica,andWesternEurope.
Movingtothemiddleofthechart,consistentwithourinitialplanningassumptions,weexpectcommoditiesandpricingtoremainrelativelyneutralforthebalanceoftheyear.Whilewe'recurrentlyseeingaslightlystrongerEuro,thisisbeingmorethanoffsetbytheweakenedChineseRMB,withChinabeingameaningfulpartofourbusiness.
Movingtothechallengesontheright,we'veseenfurtherdeclinesinvehicleproductioninbothSouthAmericaandEasternEurope,andincreasedweaknessintheglobalcommercialvehiclemarket,nowexpectedtobedownlowsingledigits,drivenbydouble-digitdeclineintheNorthAmericanoff-highwaymarket.
Lastly,workingcloselywithoursuppliersandOEMcustomerstomitigateanynear-termsupplydisruptionsduetotherecentearthquakesinJapan,whichwillaffectthesecondquarter,butwillbemadeupduringthebalanceoftheyear.
Joewillprovidemorecontextonthisalittlebitlater.Giventhevariousputsandtakes,ouroveralloutlookremainsinlinewithourpriorguidance.
MoreonChinaonslide7.IjustreturnedfromtheBeijingAutoShow,whereImetwithseveralofourtopcustomers.WeheardarelativelyconsistentviewoftheChinamarket,bothglobalandlocalOEMsremainveryconfidentChinawillcontinuetodriveincreasedglobalvehicleproduction,estimating2016growthinthe4%to6%range,resultingfromcontinuedstrongdemandforSUVsandcrossovers.
There'salsoincreasingdialogueregardingnewenergyvehiclesandelectrificationinthismarket,whichgivenourproductportfolio,providesfurtherrevenueopportunities.
Delphiremainswell-positionedinthismarketandexpectstogrow10to12pointsabovevehicleproductionin2016,benefitingfrommarketsharegainsandthetrendtowardhighercontentvehicles.
GrowthintheChinamarketsreflectedinournewbusinessbookingsonslide8,whichtotaledapproximately$7billionduringthefirstquarter.Wehadanumberofimportantcustomerbookings,aswellasseveralconquestwins,includingamajorelectricalarchitecturalwinwithFCAontheRamtruckinNorthAmerica;powertrainwinswithChang'AninChina;andFordinNorthAmerica;andkeyinfotainmentwinswithVolkswageninNorthAmerica,aswellaswithSGMinChina.
Therightsideofthechartreflectsthebalancedgeographicmixofourbookings,whichwilldrivestrongrevenuegrowthoverthenextfewyears.Theincreasedgeographicandcustomerdiversityensuresthatwe'renotdependentonanyoneregion,segmentorcustomerforgrowth.
Now,givenourportfolioofsafe,greenandconnectedtechnologysolutions,andourtrackrecordofflawlessexecution,we'reincreasinglybecomingastrategicpartnerofchoiceforanumberofourcustomers,whichisreflectedinourrecordbookingsoverthelastfewyears.
Turningtoslide9,thesearejustafewexamplesoflaunchprogramsdrivingrevenuegrowththispastquarter.OurElectricalArchitecturesegmentisbenefitingfromincreasedcontentontheBMWX5withanonboardchargerforplug-inhybridpowertrains.
AlsowithBMW,ourPowertraindivisionlaunchedseveralcomponentsonthenewActiveTourer.AndtheElectronicsandSafetydivisionislaunchingmultipleprograms,includingshort-rangeradarintheKiaCadenza;aninfotainmentcontentontheLincolnMKX;BuickExcelle;andDodgeRamtruck.
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Movingtoslide10,aswehighlightedatourInvestorDayandwasreinforcedinBeijinglastweek,customerinterestinelectrificationisgainingmomentum.OurcustomersincreasinglyseetheneedforelectrificationofthepowertraintoclosetheregulatorygapsonCO2emissionsandfueleconomy.And48-volthybridsareanaffordable,nocompromisesolution.
AnoptimizedElectricalArchitectureSystemsisnecessaryfortheelectrificationoftoday'svehicles,whichistheveryfoundationforourvolt,48-voltsolution.
Customerresponsehasbeenstrongforourtotalsystemssolution,whichrepresentsapproximatelyfourtimesthecontentopportunitycomparedtoatraditionalinternalcombustionengineforDelphi.Now,inadditiontothetwoglobalcustomerprogramswe'vealreadybeenawarded,wereceivedstronginterestfromseveralautomakerstoexplorecollaboratingonthisveryinterestingtechnology.
Turningtoslide11,Delphicontinuestoberecognizedforitstechnologyleadershipbybothcustomersandindustryexperts.Delphiisproudtoreceivethefirst-everGeneralMotorsInnovationAwardforourV2Xmodule,whichwillbeintroducedontheallnewCadillacCT6.Wearethefirsttomarketwiththisbreakthroughtechnology.
Wealsowonour18thAutomotiveNewsPaceAward,afteronceagain,leadingtheindustrywiththreenominations.TheDualRoleHubisacustomUSBapplicationthatenablesAppleCarplay,allowingtheradioandaniPhonetoberecognizedsimultaneouslyasahostdevice.It'stheonlysolutiononthemarketwiththisversatilefunctionality.
Leadingininnovationisthefoundationofourstrategyforgrowth.Andtheseindustryawardsareastrongvalidationthatwe'resolvingourcustomers'mostchallengingproblemswithindustry-leadingtechnologies.
Movingtoslide12,beforeIhandthingsovertoJoe,Iwanttounderscoreourcommitmenttodrivingconsistent,sustainable,andimportantly,profitablegrowth.SinceourIPO,we'vecompletedseveraltransactionsthatenhancedourtechnologyportfolioandbetterpositionedusforthefuture.
OurAdvancedTechnologiesarealignedtothemegatrendsofsafe,greenandconnected,positioningusforacceleratedrevenuegrowth.
Ourleancoststructureandglobalfootprintallowsustofurtherleveragebothourscaleandregionalcapabilitiestodriverevenuegrowthandmarginexpansion.
Andlastly,wewillcontinuetoexecuteaverybalancedandverydisciplinedcapitalaccretion--allocationstrategytodriveincreasedshareholderreturns.Ourtrackrecordconveysourexecutioncapabilitiesandweareveryconfidentwewilldelivercontinuedoutperformanceforyearstocome.
InowwanttoturnthecallovertoJoe.
JoeMassaro (CFO):
Great.Thanks,Kevin.Goodmorning,everyone.
Iwillstartbycoveringourfirstquarterperformanceandthendiscussoursecondquarterandfull-year2016guidance.Let'sstartonslide14,withasnapshotofourfirstquarterfinancialperformance.AsKevinmentioned,wewerepleasedwithourresults,whichreflectedbothstrongrevenueandearningsgrowth.
Revenuewasup7%,or6%adjustedforcurrency,commodity,acquisitionsanddivestitures.Ouroperatingmarginsexpanded20basispoints.Earningspersharegrew12%,largelytheresultofincreasednetincome,andinthequarter,wepurchased5.6millionsharestotalling$370million.Theadjustedtax
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ratewas18%forthequarter.
Slide15providesgreaterdetailofrevenueforthequarter.Startingontheleft,youcanseewehadstrongsalesgrowth,includingtheimpactofM&A,primarilyHellermannTyton,whichhadorganicgrowthof13%inthefirstquarter.Foreignexchangeandcommoditieswereaslightlybiggerheadwind,primarilydrivenbydollarstrengtheningagainsttheChineseRMBandthepriceofcopper.
Movingtotheright,NorthAmerica,EuropeandAsiasawstronggrowthinboth--onbothareported,aswellasanadjustedbasis.Asyoucansee,theSouthAmericanmarketremainsveryweakandwearenotplanningonanear-termrecovery.
Accordingly,wehavetakensignificantstepsinthepastyeartoreduceourSouthAmericanfootprintandcoststructure,includingexitingourbusinessinArgentinaandreducingthenumberofBrazilianmanufacturingfacilitiesfromninetofour.AndwhileweremainabletoserveourglobalcustomersinSouthAmerica,wehavesignificantlyreducedtheimpactofthemarketdownturnonDelphi.
Turningtooperatingincome,slide16walkstheyear-over-yearchangeforthefirstquarter.Ouroperatingresultswereconsistentwithourexpectations.Strongflow-throughfromvolumegrowthcontributedtomarginexpansioninthequarter,helpingtooffsettheimpactsoflaunchandgrowth-relatedactivitiesonournetperformance.
TheimpactoftheChinavolumerampandtheaddedcosttosupportnewprogramlaunchesinE&SandEEAtotaledapproximately$35millioninthequarter.TheChinainefficienciesdiscussedpreviouslyrepresentedapproximately$5millioninQ1andwillnothaveanimpactgoingforward.Theremaininglaunchcostswillfurthermoderateoverthecourseoftheyearandcontinuedtobefactoredintoourfullyearof2016guidance.
Slide17takesusthroughtheperformancebysegment.ElectricalArchitecturehadadjustedgrowthof5%andHellermannTytoncontributedapproximately$200millionofrevenueinthequarter.EEAmarginsexpanded70basispointsyearoveryear.
Powertrainalsodelivered5%organicgrowth,drivenbygassystems,partiallyoffsetbylowercommercialvehiclevolumesandpowertraincontinuestodeliverstrongmargins,despitenearly40basispointsofFXheadwinds,primarilydrivenbytheChineseRMB.
Electronics&Safetyorganicgrowthacceleratedto13%onnewprogramlaunches,particularlyinactivesafetyandinfotainmentprogramsinEuropeandChina;partiallyoffsetbylowermechatronic,whichrepresenteda3%negativeimpactonE&Sgrowthinthequarter.Activesafetyandinfotainmentcontinuetoseestronggrowthofapproximately70%and10%,respectively.
OurE&Smarginsof10.3%wereasexpectedandreflectthelaunch-relatedactivitiesIjustdiscussed.Asitrelatestotheremainderof2016,weexpectcontinuedstronggrowthfromnewlaunchesandformarginstoexpandoverthecourseoftheyear,aswerampproductionvolumesandimproveperformance.
Turningnowtoslide18,wesawtotalEPSgrowthof$0.15,or12%forthequarter,including$0.11fromincreasedearnings.Sharerepurchasescontributed$0.07,morethanoffsettingtheimpactofahighertaxrate.Asyouknow,thetaxratecanvaryfromquartertoquarter.However,thereisnochangetoour17%full-yearestimate.
Now,turningtotheoutlookonpage19,asKevinmentioned,giventheputsandtakes,therearenochangestothe2016guidance.Revenuewasdrivenbyacceleratingorganicgrowththroughouttheyear,andthefull-yeareffectoftheHellermannTytonacquisition.
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Weexpecttoexpandmarginsbyroughly50basispointsand2016EPSisexpectedtobeintherangeof$5.80to$6.10,reflectingyear-over-yeargrowthof14%.
Second-quarterrevenuewasforecastintherangeof$4.125billionto$4.225billion.ThisincludestheimpactofthesupplydisruptionsfromtheJapaneseearthquakes,estimatedtobe$75millionofrevenueand$20millionofoperatingincomeatthemidpointofourguidance.
Whilewecontinuetomonitorandassessthepotentialimpact,conversationswithourcustomersindicatethatanynear-termproductiondisruptionswillbemadeupoverthebalanceoftheyear.WeexpectsecondquarterEPSintherangeof$1.50to$1.60,up16%atthemidpoint,whichincludestheimpactfromtheearthquakesupplydisruptions.
Ourstrongbalancesheetandcapitalallocationstrategy,outlinedonslide20,remainsanimportantlevertoenhanceshareholdervalue.Ontheleft,weexpectcashflowfromoperationstogrowapproximately$2billion,upalmost20%from2015.
Andthedeploymentprioritiesontherightareconsistentwithourstrategy,maintainingastrongbalancesheetandinvestmentgraderating.Weareinvestinginourbusinessthroughincreasedcapitalexpenditures,supportingnewprogramlaunches,informationsystemsthatincreaseefficiencyandproductivity,andongoingfootprintrotationtobest-costcountries.
Wearecommittedtopayingacompetitivedividendandtotheextentwehaveexcesscash,wehaveatrackrecordofreturningittoshareholdersviasharerepurchases,asevidencedbythe$370millionofrepurchaseswedidinthefirstquarter.
Aswesitheretoday,wedonotexpectrepurchasestocontinuewiththefirstquarterpace.However,weintendtobeopportunisticwhileremainingcommittedtoexecutingabalancedanddisciplinedcapitalallocationframework.
Now,beforeIhandthingsbacktoKevin,turningtoslide21,wearefocusedonexecutingvalue-enhancingportfoliomodifications.Assuchinthequarter,wecompletedthefinalstepinthedivestitureoftheThermalbusinesswiththesaleofourstakeofaChinesejointventure.
AndwehaveacquiredPuredepth,theleadingproviderofpatented3-Dmulti-layerdisplaytechnology.Youcanexpectustocontinuetopursueinvestmentsthatenhanceourexistingtechnologyportfolio,strengthenourcompetitiveposition,anddriveincreasedvalueforourshareholders.
I'llnowturnitovertoKevinforsomeclosingremarksbeforeweopenupthecalltoquestions.
KevinClark(President&CEO):
Thanks,Joe.
Now,summarizingonslide21,wedeliveredanotherstrongquarter,executingontherelevantadvancedtechnologiesthatenableustooutgrowthemarketsweserve.Webelievewe'rewellpositionedtodeliveronourcommitmentsin2016--highsingle-digitorganicgrowth,roughly50basispointsofmarginexpansion,solidmid-teensEPSgrowth,and$1.2billionoffreecashflow.
Wecontinuetooptimizeourcoststructure,increasetheflexibilityofourworkforce,andexecuteflawlessly.We'reinvestinginprofitablegrowthwhereweseeopportunities.Weremaindisciplinedinourallocationofcapital,investinginbothorganicandinorganicgrowth,andreturningexcesscashtoshareholdersthroughsharerepurchasesanddividends.
Throughallofthis,wecontinuetodemonstrateourabilitytodeliveronourcommitments,evenagainst
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thebackdropofadynamicenvironment.
Sowiththat,we'llnowopenupthelineforquestions.
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions)
RodLachefromDeutscheBank.
RodLache (Analyst-DeutscheBank):
Goodmorning,everybody.
KevinClark(President&CEO):
Goodmorning,Rod.
RodLache (Analyst-DeutscheBank):
Hadacouplequestions.Oneisonthepricing,itlookslikeitcameinat2.1%thisquarter.Iknowyou'veconsistentlyguidedto2%,butit'sbeenrunninglower,upuntilrecently,andwaswonderingifthisisjustgrowingElectronics&Softwareandhowyouarelookingatoffsettingthat.
Andthenalso,noticedthattheFX/commodityimpactontheEBITbridgewaspositive.Lookedlikeitwasnegativeonthetopline.IsthatsomehowrelatedtotransactionaleffectswiththeEuroappreciatingversustheEEcurrencies,oristhatsomethingelse?
KevinClark(President&CEO):
Sowhydon'tIstartonthepricingandthenyoucanaugmentit,Joe,andthentalkaboutFXandcommodities.SoRod,withrespecttoguidanceonpricing,weremain--ourguidanceintherangeis1.5%to2%pricing.Ithinkthisquarterwasslightlyhigherthanthat.GivenourmuchfastergrowthinE&Soverthenext12months,growthisroughlydoubleouroverallcorporategrowth.
Andaswe'vetalkedaboutinthepast,E&Stendstohavepricedown2%to3%versusabalanceofourportfoliothatislessthan2%andtherapidgrowthinthatsegmentiswhat'sdrivingtheoverallincreaseinpricedownsonayear-over-yearbasis.Otherthanthat,nothinghaschangedfromabusinessmodelstandpoint.Joe,doyouwantto--
JoeMassaro (CFO):
Sure.Rod,ontheFXcommodities,wedid--aswementionedacoupleoftimesduringthepreparedremarks,theRMBdidimpactusnegativelyduringthequarter,frombotharevenueandOIperspective.Apartfromthat,everythingelsewasfairlybalancedout.Wealsodidseeabouta$40millionheadwindfromcopper,decreasedcopperpricinginthequarter.
Butaswe'vetalkedaboutbefore,thathasaverylowOIflow-through,giventhefactthatwemostlyhavepass-throughstocustomersandhavetheresthedgedout.Sorevenue,slightlybiggerimpact.OI,withtheexceptionoftheCNY,everythingelsebalancesout.
RodLache (Analyst-DeutscheBank):
Okay,butitdidlooklikecommoditiesandFX,ifI'mreadingyourchartcorrectly,waslikea$6million
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positive,eventhoughitwasanegativeonthetopline.Sosomethingmusthave--isthatatimingissue?
JoeMassaro (CFO):
No.It's--you'vegota--I'msorry.WhenIsaybalance,youdohaveabouta$6millionpositive,abouta$4millionnetfromFX,everythingoffsettingtheRMB.Andthenabout$2millionflow-throughforcommodity.
KevinClark(President&CEO):
Thatwouldallbetransactional-related.
JoeMassaro (CFO):
Transactional-typestuff.Andthenlagonthecopper.
RodLache (Analyst-DeutscheBank):
Okay.Thatmakessense.Andjustlastly,canyoujustcommentonhowweshouldbethinkingabouttheeffectoflaunchcostsoverthecourseofthisyear,asobviously,yourorganicgrowthstartstoaccelerate?AndtherewasanuptickinD&Athisquarter.Isthatsomethingthatweshouldassumeasarunrategoingforward?
KevinClark(President&CEO):
Withrespecttolaunchinthegeneraltrend,andI'llletJoetalkaboutthespecifics,aswetalkedaboutonourfourthquarterearningscall,wecertainlysawtheeffectofChinaacceleratedlaunchinQ4.China'sbehindusinQ1.IthinkJoereferencedinhiscommentsthateffectivelyitwasa$5millionheadwindinQ1goingtozero.L
aunchcostsinE&SandEEA,whichdeclinedfromQ4toQ1,andthenwillcontinuetodecreaseinQ2andeffectivelygoawayinthebackhalfoftheyear.Joe,doyouwantto?
JoeMassaro (CFO):
Yes.Imentionedwe'reabout$30millioninlaunchcostsacrossE&SandEEAinQ1.Another$5millionforChina.The$5milliondoesgoaway.Thisisthelastquarterwe'llhavethoseinefficiencies,Rod.ThenIthinkyoustarttosee--youwillseeitcomedownroughly$20millioninQ3--I'msorry,inQ2.Andthenbelowthat,inQ3,andbasicallyworkingourwayoutofitbytheendoftheyear.
RodLache (Analyst-DeutscheBank):
Okay.AndtheD&A?
JoeMassaro (CFO):
D&A,Idothinkyoushouldthinkaboutthatasarunrate,aswe'veputmorecapitalintosupportlaunches.
RodLache (Analyst-DeutscheBank):
Great.Okay.Thankyou.
Operator :
JohnMurphyfromBankofAmerica.
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JohnMurphy(Analyst-BoAMerrillLynch):
Goodmorning,guys.
KevinClark(President&CEO):
Goodmorning.
JohnMurphy(Analyst-BoAMerrillLynch):
Joe,justonefollow-up.Yousaid$20millionontheopincomelineinthesecondquarterfortheJapanesehit;isthatcorrect?Andthatprobablywouldjustequatetoabout$0.05inthequarter.Isthataboutright?
JoeMassaro (CFO):
Yes,that's$20millionatthemidpoint,about$0.06ofEPS.
JohnMurphy(Analyst-BoAMerrillLynch):
Okay,great.Thenjustasecondquestion.TherewasrelativestrengthinEurope,up9%.I'mjustcuriousifyou'reseeinganythinggoingonwiththerewithmixortakeratesonsomeofyourproduct.Also,inconjunctionwiththat,youhighlightedtheideathatyouhadfurthercostrotation,alow-costsourcing.I'mjustcuriouswhat'sgoingontherevenuelineorinmix,andthenalsoonthecostsideandthepotentialgoingforward?
KevinClark(President&CEO):
SoI'llstartit.Listen,inWesternEurope,we'reseeingthebenefitsofastrongermarket.Iwouldsaythat'spartiallyoffsetbyweakeninginRussia.Withrespecttothestronggrowth,Iwouldreallytieittomarketimprovement,aswellasjusttimingoflaunchingnewprograms,John.Idon'tthinkit'sanythingparticularto--oruniquetocontentgainsoranythinglikethat.
Withrespecttofootprint,andJoeshouldcommentonthis,wecontinuetoaggressivelyattackourcoststructure.Abigpieceoftherestructuringthatwe'vebeendoingoverthelastfewyearsandwe'llcontinuetodoisfocusedonrotatingfootprintoutofWesternEurope,intoEasternEurope.Joe?
JoeMassaro (CFO):
Ithink,John,aswe'vebeenabletodoovertheyears,you'veseenusmaybeinitiallymovetheEEAorsomeoftheE&SplantstoEasternEurope.We'renowatthepointwherewecanmovesomeofthePowertrainfacilities,whichhavemuchmorecomplicatedmanufacturingprocesses,butwe'venowbuiltabaseofPowertraincapabilitiesinEasternEuropeandwe'restartingtomovethoseproductionactivitieseastaswell.Sothat'sacontinuedprocess,andagain,Ithinkinlinewithouroverallbestcostcountryrotationplan,aswellasourmarginoutlookforthecomingyears.
JohnMurphy(Analyst-BoAMerrillLynch):
Soaswethinkaboutthat,though,what'stheopportunity?BecauseImean,itseemedlikealotofthathadbeenexecutedalready,butjustsoundslikeagoodpieceofnews.Areyouhalfwaydoneorthree-quartersofthewaydone?Andthenaswethinkaboutthe$7perhourlaborcosts,Imean,isthis--couldthispotentiallyhaveapositiveimpactonthatgoingforward?
JoeMassaro (CFO):
Ithinkitwillcertainlyhelpusmaintainourcurrentlabordollars.Asyouthinkaboutjustglobally,there's
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obviouslyupsanddownsinlaboreconomicsandinpart,we'redoingthistosortofmaintainourposition.IwouldsayasyouthinkaboutPowertrain,theyarereallyinthefirstthirdofthisrotationisthewayIwouldthinkaboutit.
JohnMurphy(Analyst-BoAMerrillLynch):
Okay.
KevinClark(President&CEO):
Imean,John,ifIcan--solisten.Everythingwedohasa--likethishasaverypositivereturn.Soit'stwothings.It'sone,toJoe'spoint,it'saboutstrategicallypositioningourfootprintoverthelong-termsothatwemaintaintheindustry'smostcompetitivecoststructure.
Andit'sallaboutdrivingincreasedreturn.Sonet-net,yes,there'sanincrementalprofitimprovementimpact,youknow,thatwillflowthroughournumbersintheoutyears.Sotherecertainlyisabenefitontopofmaintainingourcoststructureandactuallyimprovingit.
JohnMurphy(Analyst-BoAMerrillLynch):
Okay,that'shelpful.Andthenlastly,itjustseemslikethere'ssomeincrementalwinsgoingonhereininfotainment.I'mjustcurious,areyougainingmarketsharethere?Andcuriousifyouare.Isthatjustpurelybecauseofcontent,oristhatalsoyourabilitytobackwardintegrate--ortointegrate,notbackward,butintegrateintotheelectricalarchitectureofthevehicle?
KevinClark(President&CEO):
Yes,listen.I--wedon'treallysellthatasapackage.Ithink,youknow,underpinningeverythingwedofromavehicleelectrification,systemintegrationstandpoint,Ithinkwewouldtellyouwe'reatacompetitiveadvantagegivenourelectricalarchitecturecapabilities,becauseforitalltohappenflawlessly,theelectricalarchitectureisanimportantcomponentonthere.
Sointernally,,wecertainlypartnerandworktogether,butintermsofhowwegotothecustomer,youknow,customerstendtobuyspecificproducts.Youknow,ourbookingsinE&Shavebeencloseto$2billionperyeareachyearoverthelastfouryears;wewouldexpectto--actuallyover$2billion.Wewouldexpecttobookroughly$2billionagainthisyear,whichisroughly2timesourcurrentrunratefromarevenuestandpoint.
Infotainment'sgoingtobeourfastestgrowing,oroneofourfastestgrowingsegments,growingroughly20%overthenextfewyears.That'sfasterthantheoverallmarket.Ithinkwe'rebenefitingfromwherewesitinmedium-andhigh-endsystems,whereyouseecontentgrowth.Andthenwe'reprobablyalsogainingsomeshareincertainmarkets.
JohnMurphy(Analyst-BoAMerrillLynch):
That'sincrediblyhelpful.Thankyou.
Operator :
BrianJohnsonfromBarclays.
BrianJohnson (Analyst-BarclaysCapital):
Yes,goodmorning.IwanttotalkalittlebitonPureDepth,especiallyinthecontextofcockpitelectronicsandinfotainment.Maybeacoupleofthings.Whereareyourightnowintermsofcockpitelectronicsor
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whatwewouldcalldashboards?Second,howdoyouseethatplayingoutinthenextthreetofiveyearsalongacoupledimensions,youknow,first,thetransitionfromgaugesanddialstoflatscreens,orIguessforyou,3-Dflatscreens?
Andthenkindofwhendoyouexpectthatinflection?Andsecond,towhatextentwillthisbepurchasedbyOEMsasamodulealongwiththecenterstackinfotainmentorisitstillaseparatepurchase?Andthenfinally,anydetailsonPureDepthintermsoftransactionamounts,ifyoucoulddiscloseit?
KevinClark(President&CEO):
Yes.Joe,cantalkaboutthetransactionamount.Whydon'tIstartwithwhereweare.Clearly,Ithink,Brian,asyouknow,thecockpit'smovingtodigitalandwhatPureDepthgivesusiseffectivelyenhancedgraphicsand3-Dcapabilities.IcantellyouattheConsumerElectronicsShow,andIknowyouvisitedourbooth,the3-DgraphicsontheclusterwehadgotmoreattentionfromourcustomersthananyothertechnologyweshowedatCES,includingourautomateddrivecapabilities.
Soitisaveryinterestingtechnologythatwe'reintegratingintoourclusterbusiness.Youknow,wherewesittoday,wesellclusters,wesellscenterstacks,asyouknow,withinfotainmentsystems.You'regoingtoseemoredisplay;you'regoingtoseemoreglassincars.We'reconvincedofthat.You'regoingtoseethathappenoverthenexttwo,three,four,fiveyears.
Fromourperspective,it'simportantthatwe'rewellsituatedandwebelieveweareandwethinkthat'sreflectedinourstronginfotainmentwins.Theclusterbusinessisabusinessthatis,forus,notreallargetoday,butisgrowingrapidlyandwethinkPureDepthtechnologyissomethingthatwillhelpusadvanceourgrowth.Joe,doyouwantto--
JoeMassaro (CFO):
Sure,Brian.Fromatransactionperspective,justacoupleofthings.Relativelysmallfromavalueperspective,about$50millionwepaidfortheacquisitionofPureDepth.We'veworkedcloselywithPureDepth,atCESShowoverthelastcoupleofyears,soweknowthemwell.
Integrationwasfairlyeasy.We'vebasicallycompletedit.Thisisn'tadealthatwillhavealong-runonintegration.Soit'snowtuckedinandthedevelopmenteffortsareunderway,astheyarenowfully-ownedcompanyversusjustadevelopmentpartner.Soitwasprettymuchtakencareofinthequarter.
BrianJohnson (Analyst-BarclaysCapital):
Okay.Andjustfollowingupacoupleofthings,youmentionedit'snotreallargeforyou.CanyougiveusasenseofeitheryourshareoftheglobalinstrumentclustermarketorwhatshareofE&Sinstrumentclustersis?
KevinClark(President&CEO):
It'ssmall.It'ssmall.
BrianJohnson (Analyst-BarclaysCapital):
AndIguesssecond,theonequestion,becauseIknowIhadalotofthem,iskindofwhoarethebuyersatyourOEMsforinstrumentclustersversusinfotainment,andasthey--asinstrumentclustersgodigital,howisthatshifting?
KevinClark(President&CEO):
Ithinkyou're--youknow,today,itvariesabitbycustomer.Somecustomers,theyareseparatebuying
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groupsandengineeringgroups,buttheyareincreasinglybecomingmoreintegratedwiththeinfotainmentfunction.
BrianJohnson (Analyst-BarclaysCapital):
Okay.
KevinClark(President&CEO):
Sothatisthetrendanditwillcontinue.Okay?
BrianJohnson (Analyst-BarclaysCapital):
Thankyou.
Operator :
ItayMichaelifromCiti.
ItayMichaeli(Analyst-Citigroup):
Great,thanks.Goodmorning,everyone.Maybejustaquestionontheorganicgrowthinthesecondhalfoftheyear,givensomeofthemovingpartsaroundJapanandthebacklog.CanyoumaybehelpusthinkaboutQ3andQ4andalsomaybewhattheroughbacklogsplitisbetweenthefirsthalfandsecondhalfthisyear?
JoeMassaro (CFO):
Sure,Itay.It'sJoe.Obviously,firstquarter,wesaw6%organicgrowth.Secondquarter,we'rerightaround8%,justalittleunder8%.Japan'sworthabout2pointsofthat,sowebasically,that's--thatnegative'salreadyincludedinthe8%.Soweseethatmovingtothebackhalfoftheyear.
Rightnow,weseeQ3andQ4between12%and10%,respectively.That--thosenumbersgetalittlecloudyobviouslythoughjustonayear-over-yearcompbasis,justgivensomeoftheactivitiesonChinalastyear.Butrightnow,we'relookingat12%growthand10%growth,Q3,Q4.
KevinClark(President&CEO):
Andonarelativebasis,ifyouremember,China,veryweakQ3,verystrongQ4.Andobviously,thoserevenuegrowthnumbersincludesomesnapbackrelatedtoJapan.
JoeMassaro (CFO):
We'recurrentlyassuming,forlackofabetterbarometeratthispoint,justwepickuphalfinQ3,halfinQ4.Soit'sabout1pointineachofthetwoquarters,Itay.
ItayMichaeli(Analyst-Citigroup):
That'sveryhelpful.Andthenmaybejustonthesharebuybacks,andIknow,Joe,youmentionedthatthefirstquarterratedoes--shouldn'tbemodeledcontinuouslythroughouttheyear.Butmaybeadditionalhelpintermsofhowtomodelthattherestoftheyear?Shouldweassumemaybethatsameratio,freecashflowinthenextfewquarters,oristheresomeotherguidelinetothinkabout?
JoeMassaro (CFO):
Yes,Iwould--it'scertainlynottheQ3activity.We--Ithink--I'msorry,theQ1activity.WewereobviouslyfairlyaggressiveinQ1.Sawthedislocationinthemarketplace.Aswesaid,wewillbeopportunistic,as
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thosethingshappen.Ithinkformodelingperspective,Itay,tobehonest,thatwouldbearound$50millionto$75millionperquarter.
Ithinkwe'regoingto-we'vegot--we'regoingtobe,obviously,continuingdownthepathofourcapitalallocationstrategy,butwe'llbemindfulofM&Aopportunitiesand,youknow,thestock'sobviouslycomeupoffthelowsthatwesawintheFebruarytimeframe.Sowewouldbethinkingobviouslyisprobablytheright--fromamodelingperspective,realizingwewillobviouslyreservetherighttobeopportunisticaswellgoingforward.
ItayMichaeli(Analyst-Citigroup):
Great.Lastly,quickly,maybeforKevin,justwiththeconquestwinsyou'vebeenabletohaveand$7billionofQ1bookings,any--Iknowit'sstillearlyintheyear,butanyinitialthoughtsofwheremaybebookingscantrackthisyearrelativetoprioryears?
KevinClark(President&CEO):
Yes,Iwould,Itay,Iwouldexpectbookingstoberoughlyatthelevelsthatwedidlastyear,$26billion,orabitmore.Thatcanbeaffectedbytimingofawards,soIwarnyouonthat.Butgivenourcurrentlineofsightandgiventhenumberofopportunitiesandtheestimatedtimingofthoseopportunities,weshouldbeatroughly$26billionormore.
ItayMichaeli(Analyst-Citigroup):
That'sveryhelpful.Thanks,everyone.
KevinClark(President&CEO):
Thankyou.
Operator :
PatrickArchambaultfromGoldmanSachs.
KevinClark(President&CEO):
Goodmorning,Patrick.
PatrickArchambault (Analyst-GoldmanSachs):
Goodmorning,guys.
JoeMassaro (CFO):
Hi,Patrick.
PatrickArchambault (Analyst-GoldmanSachs):
Justonequickfollow-upontheJapanissue.Imean,canyoujustdimensionthatalittlebitforus?Iknowtherewasanothercompanythat--also,aninfotainment,thathadanimpactaswell.And,youknow,what'sthevisibility?Imean,howbroad-basedhasthisimpactbeenonyoursupplychain?
Aresomeofthesefacilitiesnowbeginningto,youknow,kindofturnaroundandstartproduce--like,isthereanyvisibilityastowhentheymightcomebackonline?What'syourconfidenceonwhenthatcomesback?
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KevinClark(President&CEO):
Listen,Ithinkthere'sareasonableamountofvisibility,butIwouldsaythesituation'sevolving.Patrick,Ithinkasanindustry,fromasupplychainstandpoint,wedoaverygoodjobof--andthisisacrosstheboard.ThisisasupplybaseaswellastheOEs,workingtogethertoidentifywhereissuesareandidentifyingeitheralternativesourcestomanufactureorsubstituteproductsthattheOEsapprove,tomitigatetheoverallimpactofthesetypesofsituations.
Soweallhaveavestedinterestinensuringthere'sasmuchvisibilityaspossibleandthatwe'reworkingtogethertoresolvetheproblemtoensurethatourOEshavetheproducttobuildthecar.Joe,maybeyoucouldcommentmoreonthenumbers?
JoeMassaro (CFO):
Sure.Ithinkfrom,again,aswelookatthenumbers,that'salotofdialoguewiththesuppliers.Wehavetwosuppliers,one'salittlebitmoresignificantthantheotherthat'simpactedhere.Obviously,wetalktothecustomersaswell.Iwouldsaytoputitinperspective,ifyoucanthinkbacktothetsunami,thereyouhadphysicaldamagetomanufacturingfacilitiesandthattendedtobeoveralongerperiodoftime.
Whatwe'vebeentoldsofarandwhatwe'reseeing,thisismoreacaseofdamagetoin-processinventorythanthefacilitiesthemselves.Sothatgivesussomeconfidencethatthedelayswillbebothshorter-terminnatureandrecoveryshouldbequicker.Atthemidpoint,we'veestimated$75millionofrevenue.Thatincludesbothdirectandit'sabout50/50,bothdirectimpact,aswellasindirect.
Sodirectwouldbewherewedon'thavesupplyandcan'tshiptoacustomer.IndirectandGMisagoodexampleofthat,wouldbeacasewhereacustomerhastoldustheyareimpactedbyanothersupplierandwon'tbeproducing,sotherefore,we'renotgoingtoshiptothemeither.
Atthehighend,itcouldbe$100millionofrevenueandcloseto$30millionofOI.That'sreflectedinthelowendofourguidance.SohighendofJapaneserisk,lowendofourguidance.Atthehighendofourguidancerange,it'sabout$50millionofrevenueand$10millionofOI.
PatrickArchambault (Analyst-GoldmanSachs):
Gotit.
KevinClark(President&CEO):
Patrick,wehave--sowehaveateamofsupplychainandmanufacturingpeoplewhohavebeeninJapannowforweeks,workingwiththesupplybasethere,aswellaswithourcustomers,tryingtodevelopandthenultimately,implementsolutionstoanyoftheseproblems.Soit's--veryproactive.
PatrickArchambault (Analyst-GoldmanSachs):
Gotit.No,appreciateallthedetailsonthat.Veryhelpful.Justonesecondquestion,Imean,we'vetouchedonitalittlebitinthiscallsofar,butcanyoujustremindus,Imean,obviouslytheCAGRthatyou'veoutlinedintheinfotainmentbusiness,backattheanalystdayof20%,youknow,it'sdoubleyourindustryforecastof10%,double--prettyclosetodoubleoursaswell.
Socanyoujustremindme,clearly,there'sbeenalotofcontentopportunitythereandsomesharegains,butspecifically,youknow,whereareyouwinningbusinessfromothersthat'sallowingyoutoseesomuchrelativegrowth,ifyouwill?
KevinClark(President&CEO):
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Well,whenyoulookatgrowthininfotainment,itreally,forus,it'sacrosstheboardbyregion.It'sprobablyfastestgrowing,asyoucanimagineinChina,offofasmallernumber.WhenyouthinkabouttheChinamarket,youknow,forusthat's--forplayerslikeourselves,Iwouldcharacterizeitastheperfectopportunity.
It'ssolidvehicleproductiongrowth,aswellaswhenyoulookatmixofvehicles,theytendtobehigher-endSUVs,crossoversorsedanswithsignificantcontent.Andgiventhefactthattheyaresignificantcontentandwe'rewinningbusinessinregions,inareaslikethat,we'rebenefitingfromthatstronger,muchstrongermix.Butwe'realso,youknow,we'vewonandwe'relaunchingbigwinswithsomeoftheEuropeanOEs,bothwhatIwouldcallthemassmarketaswellasluxury,aswellashereintheUS.
PatrickArchambault (Analyst-GoldmanSachs):
Terrific.Appreciatethecolor,guys.Thanksalot.
Operator :
RyanBrinkmanfromJPMorgan.
RyanBrinkman (Analyst-JPMorgan):
Hi.Thanksfortakingmyquestion.
KevinClark(President&CEO):
Hi,Ryan.
RyanBrinkman (Analyst-JPMorgan):
Hi.MaybeonemoreonPureDepth.JustfrommyquickGooglingherethismorning,itseemsliketherewasastrongnon-autosmarketfocuspriortotheacquisition,primarilyinthesortofgamingandmobileindustry.SoI'msurethemotivationobviouslyistoenhanceyourtechnologycapabilitiesanddriveinformationsystems.
ButlikewithHellermannTyton,areyouhappytocontinuewiththenon-automotivebusinessaswell?Thenwhatisyourgeneralphilosophytowardnon-autobusinessesthatmaysortofperipherallycomealongasyoumake,Iguess,increasinglytechnology-typeacquisitions?
KevinClark(President&CEO):
No,I--andlisten,that'sagreatquestion.Theoriginaltechnologystartedinthegamingindustry,andinfact,we'renotheretoannouncewe'reheadingintogaming.Therealityisthathasbeenatechnologythattheyde-focusedandisrunningoffandthesolefocusisintheautomotivespace.Butthatiswheretheirrootsactuallybegan,Ryan.Soit'saverygoodquestion.
RyanBrinkman (Analyst-JPMorgan):
Okay,gotit.Thanks.Andthenjustlastone,IthoughttocheckinwithanotherquarterpastVolkswagenemissionsissue,ifyou'reseeinganycorollaryuptickandinterestin48-voltproducts,becausetherehavebeensomearticlesrecentlydiscussinghowwhereasEuropewasmaybebehindJapanandtheUSintermsofelectrificationthatmaybenowthere'sgoingtobeabiginflection.
Soperhapsremind,whatisembeddedinthelong-termguidancefromtheAnalystDayrelativetoelectrificationinEuropeandI'mcuriousifitalreadyincorporatesabigincreaseorwhethertheremightbemoreupsidebaseduponyourlatestconversations?
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KevinClark(President&CEO):
Well,listen.Ouroutlookforelectrificationisit'skindofhigh.It's--whatisit,roughly25%in2025,acouplepointsofEP--20%--sorry.20%in2025.About2pointsofthatmixispureEVs.Thebalanceishybridand48-volt.Andourestimateis48-voltisroughlyhalf,socallit9or10points.Ithinkthatreflects,youknow,fairlyrapidgrowthonthehybridand48-voltside.
IfyoulookatIHSandbasedonconversationswithcustomers,thatmixofEVandhybridsoutin2025hasactuallyincreasedoverthelastsixmonths.And,listen,I'djustsaythereismaybeanopportunitythatacceleratesfurther.Clearly,there'smoredialogueandmoreinterestfromourcustomersastheyfocusonsolutionstoreducingCO2emissionsandincreasingfueleconomy.
Andthingslike48-voltwhereyoucangetasignificantbenefitatafractionofthecost,it'sagreatvalueproposition.It'saterrificvalueproposition.Sowe'rehavingincreasingdialogue.Andit'sreallyacrosstheglobe.It'snotjustinEuropeandinNorthAmerica.
There'sactuallyacouplecustomersinChinathatwe'reworkingwithnowon48-voltsystemsolutions.Andwhatpositionsusreally,reallywellisyouthinkaboutitbeinginthePowertrainbusiness,intheElectronics&Safety,andthenimportantly,inthatElectricalArchitecturebusiness,weactuallyhavesolutionstoeverysingleaspectyouneedtoprovideacompletesystemsolutiontotheOE.
RyanBrinkman (Analyst-JPMorgan):
(multiplespeakers)Okay,great.Thanksalot.
Operator :
DavidLeikerfromBaird.
KevinClark(President&CEO):
Hi,David.
DavidLeiker (Analyst-RobertW.Baird&Company,Inc.):
Goodmorning.
JoeMassaro (CFO):
Goodmorning,David.
DavidLeiker (Analyst-RobertW.Baird&Company,Inc.):
Askindoffollow-upalittlebitonthediscussionthatRyanwasjustgoingthrough,youknow,inChina,aroundtheAutoShowandyouwalkthefloorthere,itseemslikemuchmoreinterestinelectrificationthanhereintheUS.Iwasjustwonderingifwecouldtalkaboutthenewenergyvehicles,astheyarecallingthemandbringingthemtomarketandmaybeyouansweredpartofthis.ButalittlebitmorefocusspecificallyintermsoftheopportunityinChinawhereDelphiispositionedrelativetocompetitionthereandtheproductsandtechnologiescapabilitiesthatyouhavethatyoucanbringtomarketthere?
KevinClark(President&CEO):
Sure.Sowhenyouthinkaboutit,letmestartwith,asyouknow,David,youwerejustthere.We'vebeenintheChinamarketforcloseto25yearsservingtheChinamarket.Whenyoulookatourcapabilities,everywherefromengineering,designdevelopmenttomanufacturing,Iwouldsaythereisn'tasupplierouttherethathasthesamecapabilities.Andwe'relocalizedinvirtuallyallofourproductlines.
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Ithinkofour33productlines,we're30or31arelocalized.Sowehaveafullportfoliothatwecanprovidetoourcustomerbaseinregion.Andwecanmeettheirneedsfromadesignstandpoint,aswellasacoststandpoint.Ithinkthatstartswithelectricalarchitecture.Ithinkit'saugmentedwithinverters--converters,youknow,batterypacks,thingslikethat,thatwecanbringtobear.
Andthoseproductsthatwedon'tmanufacturetoday,likeelectricmotors,therearepartnersthatwe'reusingstrategicallytosellthewholesystemsolution.Whenyoulookatthemarket,ifthereisamarketthatisrightforelectrification,whereitshouldbeeasiertoimplement,it'stheChinamarket.Basedondiscussionswithboththeglobals,aswellasthelocalOEs,everyoneisconvincedthatthegovernmentisfocusedonenforcingregulationsandreducingCO2emissionsandaddressingthepollutionproblem.
Soenforcementisthere.Theinfrastructureinvestmentiseasytomake.Andfromagrowthstandpoint,it'sprobably--itprobablyisoneofthebiggestopportunities.We'llseehowquicklyitcomestofruitionthoughatthispointintime.
DavidLeiker (Analyst-RobertW.Baird&Company,Inc.):
Okay,great.That'sperfect.Thanks.ThenjustanotheritemhereontheADASself-drivingcars,autonomousvehicles,justwanttogetaperspectiveofwhereyoustandtodayonyourcapabilitiestoessentiallyprovideaturnkeysolutiontoanautomakerwhomightbefoundlackingabitintheinvestmentorbehindthepackofsomeoftheleadersinthisspace?Areyouatthepointthatyoucanofferaturnkeysolutiontoanautomakerwhowantstoplaycatch-up?
KevinClark(President&CEO):
Yes,wecancertainlyofferaturnkeysolutionfromatechnologystandpoint.Andwearehavingdialogueswithvariouspartieswithrespecttothat.Ithinkthechallengeforbothcustomers,aswellasfolkslikeourselves,arekindoftwofold.Nearterm,it'scost,andit'showyousellcommercially,youknow,commerciallyeffectivesolution.
Andthensecond,it'stheregulatory/legalenvironmentandhowyoucrossthosevariousbridges.Imean,aswesaidinthepast,thebiggestchallengetogettofullyautomatedisnotgoingtobethetechnologyorthecosts.It'sreallygoingtoberegulationandlegalliability.Ithinktheimportantthing,fromourperspective,iswesit--welookatautomateddrivingas,quitefrankly,thefarendofthespectrumonactivesafety.
WhatexcitesusmostisgettingtoLevel2automateddriving,whichisfullycommercializabletoday.Youcangetto80%oftheactivesafetybenefits.Soreallyatafractionofthecost,andthatisreallywhywe'reseeingthetremendousdemandforactivesafetysolutions.
AsJoementionedinhiscomments,ouractivesafetyrevenuesgrew70%inthequarter.Weexpect,fromacompoundedgrowthratestandpoint,overthenextfewyearstogrowatroughly50%.It'sthatsortofcostbenefitanalysisthat'sdrivingthatgrowth.
DavidLeiker (Analyst-RobertW.Baird&Company,Inc.):
Great.Thankyouverymuch.
KevinClark(President&CEO):
Thankyou.
Operator :
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ColinLanganfromUBS.
ColinLangan (Analyst-UBS):
Great.Thanksfortakingmyquestion.
KevinClark(President&CEO):
Hi,Colin.
ColinLangan (Analyst-UBS):
AnycoloronthecadenceofPowertrainmarginsaswelookout?Youmentionedinthecommentarythere'sa40basispointhitfromFX.Shouldthatcontinuethroughtheyear,orshouldweseethesemarginsstarttorecover?
JoeMassaro (CFO):
Colin,it'sJoe.Ithinkthe--justtotouchonthat,oneofthethingsweareseeinginPowertrain,andittiesinwiththeRMBdiscussion.That--PowertraindoeshavesometransactionalFXdisclosureasitrelatestoRMB.Andthat'sbasicallydrivenbythefactthatourChinesePowertrainbusinessdoesimportfortheheavydutydieselbusiness,someofitsproductsfromourEuropeanandUKplants.
SothereissometransactionalFXthatimpactsthatbusiness.That'sreallywhat'sdrivingthat40basispoints.That'sgoingtobeveryRMB-dependent.Iwouldsayapartfromthat,weareseeingthemarginprogressioninPowertrainthatwewouldexpecttojustgiveinthevolumeincreasesandourtypicallevelsofexpectedperformance.Soit'sgoingtobeRMB-dependentandit'sveryspecifictothatheavydutybusinessinChina.
KevinClark(President&CEO):
Andcurrentoutlookfortheyearisroughly25basispointsofmarginexpansion.
JoeMassaro (CFO):
InPowertrain.
ColinLangan (Analyst-UBS):
Okay.AndcanyouremindusyourcommercialtruckexposureoverallandhowmuchofitisinPowertrain?Iimaginetheyaremoreofanoutsideexposuretocommercial.
JoeMassaro (CFO):
Yes,ourtotalcommercialvehicleisabout10%ofourfull-yearvolumeandabouttwo-thirdsofthatroughlyisinPowertrain.
ColinLangan (Analyst-UBS):
Gotit.AndjustonE&S,Imean,youmentionedinthecommentarythere's$30millioninlaunchcostsbetweenIguessE&SandEEA.Evenifit'sjusthalfE&S,that'saprettybigmarginhitforthatsegment.Sodoesthatgive--shouldwebemodelinginprettysignificantmarginupsideinthesecondhalfoftheyearasthat$30millionshrinksdownintheE&Ssegment?Becausethatcouldbealmost200basispointsof--ifyoulookathalfofitthisquarter.
JoeMassaro (CFO):
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No,itisasignificantpieceofthequarter.Iagreewiththat.IthinkouroverallguidanceforE&Sremainsunchanged,is25basispointsgrowthonafull-yearbasis.Andourguidancefromthebeginningoftheyearhasincorporatedtheselaunchcosts,asI'vetalkedabout.
Weknewtheselauncheswerehappening.They're--theydon't--theyarenotasurprise,ifyouwill.Sowefactoredthatintoourfull-yearmarginguidance.Sothat--usingthat25basispointsexpansiononafull-yearbasisiswhatIwouldsuggest.
ColinLangan (Analyst-UBS):
Gotit.Andjustonelastquestion.OntheimpactfromJapan,isthereanyparticularsegmentthat'smoreimpacted,orisitacrossallthreeor(multiplespeakers)--
JoeMassaro (CFO):
Youknow,allthreeseeit.Iwouldsaythe--ifyouthinkaboutthe$75millionofrevenue,roughly$40million,$45millionofitisinEEA.That'snot--it'snotnecessarilyspecifictoEEAproducts,butEEAbeingsuchalargebusinesspicksupwhatI'llcallsomeoftheimpactfromourotherDelphibusinesses,particularlyE&S,losingdirectsupply.
Butitwasalsoimpactedbysomeoftheindirectandparticularly,theGMpull-aheadoftheplant,beforeplantshutdownfromJulytoJuneisimpactfultoEEA.SoEEAisthelargest,althoughittendstosuffermorefromindirectthandirect,isthewayIwouldthinkaboutit.
ColinLangan (Analyst-UBS):
Okay.Allright.Thankyouverymuch.
Operator :
AdamJonasfromMorganStanley.
AdamJonas (Analyst-MorganStanley):
Hi,everybody.
KevinClark(President&CEO):
Hi,Adam.
AdamJonas (Analyst-MorganStanley):
Hi.Good,howareyouguysdoing?
KevinClark(President&CEO):
Good,good.
AdamJonas (Analyst-MorganStanley):
Kevin,aquestionhere,kindofhighlevel.We'rehearingalotofautoexecutives,andIthinkyourselfincluded,sayingthingsliketheautomobileshouldchangemoreinthenextfiveyearsthaninthelast50years.Ithinkyou--kindoflikefromahighlevelagreewiththatsentiment,right?
KevinClark(President&CEO):
Yes,Idon'tknowifit'sexactlyfive,but--
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AdamJonas (Analyst-MorganStanley):
Right.
KevinClark(President&CEO):
Plus,Ithinkingeneralwe'regoingtoseealotofchange.
AdamJonas (Analyst-MorganStanley):
Ifwejusttakethatostensiblyatfacevalue,could--onecouldarguethatcouldmeanthatinfiveorsevenorwhateverthatnumberofyears,certainlywithinengineeringcycle,thatcarsontheroad,allcarsontheroadaregoingtofeelliketheyare50yearsold.Now,doyousee--justcuriouswhereyou--Iknowyoudon'thaveacrystalball,butcuriousifyourteamatahighlevel,fromaproductioncapacityanddemandplanningstandpoint,thinkaboutthepossibilityofthissupercycleofacceleratorplacementdemandaskindofbuyinganewcarisseenasalife-savingdecision.
Andasmoredatacomesoutaboutthedangersofhumandrivingunassistedrelativetothe--youknow,towhat'savailableonthemarketandthegreatproductsyouprovide,whethertherecouldbeamovementandevenkindofaneffortinWashingtoneventosay,listen,we'vegottogetthesedeathtrapsofftheroadandaccelerate.Justcuriousatahighlevel--Iknowit'snotquasi-lobbying-typequestion,butdoesthatgetanyairplaywithyou?
KevinClark(President&CEO):
Listen,Iunderstandyourpoint.Ithinkyou'regoingtoseeatremendousamountofchange,moredigitization,moreelectrification,andquitefrankly,safervehicles.AndIwouldarguefirst,Adam,wedon'tneedtogetallthewaytofullyautomatedtomakethathappen,right?
AdamJonas (Analyst-MorganStanley):
Ofcourse.Right.
KevinClark(President&CEO):
WecangettoLevel2.Unfortunately,governmentsdon'tmoveasquicklyasmarketsdoandoftentimes,ascitizensandconsumerswantthemto.Butit'scertainlysomethinginternally,we'remakingsurethatwehavethecapabilities.It'swhyweboughtcompanieslikeOttomatika;it'swhyweinvestedincompanieslikePureDepth.
It'swhywehavethe40engineersinSiliconValley.It'swhyI'mheadedtoIsraelnextweektomeetwithtechnologypartnersthere.Soit'scertainlysomethingthatweneedtobereadyfor.AndIthinkthechallengeforplayerslikeuswhohavecommitmentstofolkslikeyouandinvestorsishowdowestrikethebalanceaboutmakingsurewe'reperfectlypositionedforthefuture?Andatthesametime,ensuringthatwe'redeliveringseveralfinancialreturnsbetweennowandthen?
Andthosearethetrade-offsthatweconstantlythinkabout,butobviously,there'smoreandmorefocusonsoftware,onsystemsintegration,onelectrification,andthere'sfarmoreinvestmentinthatarea.Whenyoulookatadvancedengineeringforusasapercentofourtotalengineering,I--youknow,Ithinkwe'reup10%or20%andabigpieceofthatisinvestmentsoftware.
AdamJonas (Analyst-MorganStanley):
Well,andthenmaybeasafollow-upthen,invest--notjustinvestmentinsoftware,butmaybeinvestmentinhumanbeings.Canyoukindofgiveareal-timeupdateofkindofwhereyou'reshort?Weobviously
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knowthatthecompetitionfortalentisbrutalanditgoes--youoverlapway,waybeyondtraditionalautoindustryintermsoftryingtogetthebestpeopleintheorganization.
You'recompetingwithallsortsofothertechfirmsandsoftwarefirms.Butwhereareyoukindof--whereisthattalentbattle?Isitgettingworse?Kindofwheredoyouneedpeoplemost,eitherbydisciplineorgeography?(multiplespeakers)Thanks.
KevinClark(President&CEO):
Listen,whenyouthinkaboutitfromthemostrapidgrowthfromanengineeringstandpointisclearlyonsoftwareandsystems.Theyare25%--thoseengineersare25%ofourengineeringworkforcetodate.Ithinkweexpected--JoetalkedaboutitinourInvestorDay,closetodoublingthatnumberoverthenextfiveyears.Thatdoesn'tmeanyouneedtodoitinSiliconValley.
YoucandoitinplaceslikeBangalore,wherewe'relocated;inplaceslikeShanghai.We'relookingatotherlocationstoactuallyrecruitandputthosepeople.Andquitefrankly,whereitmakessense,wepartnerwithoutsideserviceprovidersandleveragetheircapabilities.Butthat'sbeenourbiggestfocus.Tobehonest,wehaven'thadachallengeingettingthosepeople.It'snotbeenaconstraint.
It'snotgettingourway--gotteninthewayofourproductdevelopmentorrevenuegrowth.Ithinkpartofthatisbecauseoftherealinterestingthingswe'redoingfromanautomateddrivestandpoint,fromaninfotainmentstandpoint,fromasystemsintegrationstandpoint.Ithinkwe'vebenefitedfromthat.And,youknow,it'sclearlysomethingwe'revery,veryfocusedon.
AdamJonas (Analyst-MorganStanley):
Great.Thanks,Kevin.Thanksteam.
Operator :
JoeSpakfromRBCCapital.
KevinClark(President&CEO):
Hi,Joe.Howareyou?
JacobHughes (Analyst-RBCCapitalMarkets):
Hi.ThisisJacobHughesonforJoe.Howareyoudoing?
KevinClark(President&CEO):
Hi,Jacob.
JacobHughes (Analyst-RBCCapitalMarkets):
Hi.Justhadacoupleofquickfollow-ups.Oncommodities,whenyouguysaresayingnothingneutralyearoveryear.Wastheresomesortoftightwintertailwindlastyear?Justtrying--howtothinkaboutthat?
KevinClark(President&CEO):
No,Ithink--well,it'sjustthat,Jacob,commoditiesforusisreallyadiscussionaroundcopper,particularlynowthatwe'vedivestedofthermal.Sowe've--copperpricingcontinuestomovedown.Wehaveforabout80%ofourpass-throughsagreementswithourcustomers,sowe'reneutraltoprice,butitdoesimpacttherevenueline.Wepass-throughstheexactprice.
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Soyouseeitcomedownonrevenue,butthere'sreallynoOIimpact.Sothat'sallwe'retalkingabouthere.Soascopperpricescomedown,wedohavelessrevenue,butit'sreallyno--there'snoimpactonOI,veryminimalimpactonOI.WhatthereisonOI,it'sreallyjustmoreofatimingthananythingelse.
JacobHughes (Analyst-RBCCapitalMarkets):
Okay.Andsecondly,obviously,gotsomegoodnewsontaxthatyougaveattheAnalystDay.DidyouguysevaluateanyofthisearningsstrippingcomponentwiththeIRSruling?Doesthatimpactyourtaxsituationatall,ordoesthatnotmatter?
JoeMassaro (CFO):
No,thatdoesnotmatter.Noneoftherulesthatcameoutoverthelastcoupleofweeks,whichwerefairlytargeted,Ithink,atacquisitionsthatwereeitherinprocessorbeingcontemplated,noneofthatimpactsusatthispoint.
JacobHughes (Analyst-RBCCapitalMarkets):
Okay.Allright.Thankyou.
Operator :
DavidLimfromWellsFargoSecurities.
DavidLim(Analyst-WellsFargoSecurities,LLC):
Hi,goodmorning,Kevin,Joeandteam.
KevinClark(President&CEO):
Hi,David.
DavidLim(Analyst-WellsFargoSecurities,LLC):
Hi.Thanksforallthegreatcolor.Justtwoquestions.Onthereconfigurablecluster,areyouseeingOEMstryingtodo,like,apackagedeal,ifyouwill,withinfotainment?Joe,Ithinkyoumentionedone-thirdoftherotationtobest-costcountrieswithPowertrainhasbeencompleted.Isthereaparticulartimelineonwhenthatwillbefullycompleted?
JoeMassaro (CFO):
Sure.Wantmegofirstandthenyoucan--?Sure.Sowe'vekickedoff--whenIsaycompleted,it'sinprocess.Overthenexttwoyears,we'llseearotationofacouplesignificantWesternEuropeanPowertrainplantseastandsomemoreconsolidation.Soit'sreallyforus,a2016,2017,maybealittlebitinto2018event,soit'srelativelyshort,asitgoesfroma--Europeanrestructuringperspective,arelativelyshorttimelineaswegetthoseplantsmoved.
KevinClark(President&CEO):
AndthenDavid,I'lltalkabout--Ithinktoday,therearecustomersthataretalkingabouttheintegrationofbetweenclusterandinfotainment.Therearenotanythatwe'reworkingwiththatarebuyingthetwotogetherasapackage.It'sheadedinthatdirection.Ultimately,Ithinkwe'llget,youknow,we'llgetthere,butwe'renotthereatthispointintime.
DavidLim(Analyst-WellsFargoSecurities,LLC):
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Great.Thankyousomuch.
Operator :
EmmanuelRosnerfromCLSA.
KevinClark(President&CEO):
Hi,Emmanuel.
EmmanuelRosner (Analyst-CLSA):
Hi,goodmorning.Justacoupleofremainingquickonesforme.Onactivesafety,youweretalkingaboutrevenuesup70%andobviously,sinceit'sasmallbase,Iunderstandthere'ssomelumpinessthere.
Areyouseeing,ingeneral,somesortofaccelerationintermsofwhenyoudiscusswiththeautomakersasaresultoftheircommitmenttomakeautomaticemergencybrakingstandard?Isthat--areyouseeingmaybeahigherpaceofadoptionthanyouwereseeingsixmonthsago?
KevinClark(President&CEO):
Yes.Listen,I'dtellyou,IthinktheadoptionofAEBcreatessometailwind.Idon'tthinkit'sthebiggestdriver.Ithink,inreality,whenyoulookatit,we'vebeentalkingaboutitforprobablythelast12,24months.Itisaconsumer-drivendemanditem.
Andasaresult,OEsaremakingsurethattheyhavethatcapabilityintheirproduct.Andthat'swhat'sreallydrivingthedemandandcontinuestodrivedemand.I'dtellyou,itcontinuestoacceleratebutIthinkit'swhatourOEsneedtosellthecars.
EmmanuelRosner (Analyst-CLSA):
Okay.Andthenonyourguidanceslide,youhavethisinterestingcommentarythatyou'remonitoring,obviously,afewfactors,includingglobalproduction,FX,commercialvehicle,Japanimpact.Alotofthesefactorsseemdownsiderisk,like,andIknowyouwereveryclearthatyouwereseeingingeneraltheriskprettybalancedhere.Whatissortofliketheupsideriskthatyou're--that'sresurfacingthatgiveyouoverall--thecomfortinyourfull-yearview?
JoeMassaro (CFO):
Ithinkthat'sagoodwaytothinkaboutit.Thematically,weseeQ1asbeingverybalanced.Weseethatcontinuingthroughtheyear.Sowe'repotentialstrengthinChinaandEuropeanmarkets,Kevinmentionedthat.
Atthispoint,beingsomewhatoffsetbyBrazilandthecommercialvehiclespace,particularlyCVinNorthAmerica,butagain,balance.IthinkthechartonSlide19,hopefully,iscommunicatingafairlybalanced,afairlybalancedlookatthispoint.Andagain,wherewe'recomfortablewithwhereweareonfull-yearoutlook.
KevinClark(President&CEO):
Emmanuel,Iwouldtellyou,ifIweretotakeastepbackandlookatthings,ifyoulookatthefirstquarter,asanexample,andyouadjustforFX,we'reattheverytopendofourrevenuerange.We'reatthetopendofourOIrange.Andwe'recertainlyatthetopendofourEPSrange.
AndIthinkifyoudothesamesortoflookatourQ2guidanceandadjustitfortheJapanearthquakeissue,you'reinasimilarsituation.Solisten,wefeelgoodaboutwherethemarketis.ThepointonJoe's
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slide,wewatcheverything,right?Andwemakesurethatwecanreacttoeverything.
Andfortunately,wehaveacoststructurethatisveryflexible,thatwecanmoveveryquicklyon.WecontrolallofourjointventuresinChina,sowemakethetactical,aswellasstrategicdecisionstorampuporrampdown.Sowe'reincontrol.Andbecausewe'reincontrol,wemonitorandreacttoeverythingthat'soutthereandwanttobeinfrontofthingsversusbehindthem.
EmmanuelRosner (Analyst-CLSA):
That'sgreattohear.Thenjustonelasthousekeeping,ifImay.Inthe--whenyoufirstinitiatedtheguidanceattheDetroitAutoShow,Ithinktheunderlyingsharebuybackwas$400millionfortheyear.You'vedoneobviously$370millionasofQ1.What'sembeddedinthecurrentguidance?
JoeMassaro (CFO):
Yes,IansweredthatquestionearlierforItay,Ibelieve.SoIwould,atthispoint,ifyou'rethinkingaboutoutgoingquarters,Q2,Q3,Q4,Iwouldberanging$50millionto$75millionperquarter.
EmmanuelRosner (Analyst-CLSA):
Perfect.Thankyou.
Operator :
OurnextquestioncomesfromthelineofMattStoverfromSIG.
KevinClark(President&CEO):
Hi,Matt,howareyoudoing?
MattStover (Analyst-SusquehannaFinancialGroup):
Hi,thanks.I'mverywell.Hopeyouguysarewell.Twoquestions,ifIlookattheEEA,themarginscontinuetobereally,reallystrongthere.Iknowthecoppereffectkicksin.Youprobablygetsomesynergy.Ifyoucouldwalkthroughthewalkyeartoyear,thatwouldbehelpful.
JoeMassaro (CFO):
Sure.Soforthefull-yearEAwalk,justtobeclear,Matt?
MattStover (Analyst-SusquehannaFinancialGroup):
No,justthequarter.
JoeMassaro (CFO):
Justthequarter?
MattStover (Analyst-SusquehannaFinancialGroup):
Yes.
JoeMassaro (CFO):
Sure.Holdononesecondhere.
MattStover (Analyst-SusquehannaFinancialGroup):
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Andthenifyou'relookingforsomething,anotherquestion,justabiggerpictureonbacklog.It'salwayshardformetomakesenseofthebookingsnumber.AndifIlookat--Itendtolookatitonarollingfour-quarterbasisandIknowthisstuffcanbelumpy.
Butifyoulookattherollingfour-quarterintothefirstperiod,itlookslikeyou'veseenanoticeabledecline.I'mjustwonderingiftherewasactivitythatwouldnormallyhavebeentakingplaceinthefirstquarterthatperhapsshiftedorhowweshouldthinkaboutthat?
KevinClark(President&CEO):
No,that'sagreatquestion.Whydon'tIstartwiththat,instead?Lastyearinour$10millionbookingforthefirstquarter,wehada$3billionwinwithalargeglobalOE,soIwouldsaythatwouldhaveskewed--thatwouldhavesignificantlyskewedbookingsinthefirstquarteroflastyear.
MattStover (Analyst-SusquehannaFinancialGroup):
Okay.
JoeMassaro (CFO):
SoMatt,ifyouwalkthroughtheEEAwalk,Q12015toQ12016,youknow,strongmaterialperformance,callitabout$30million,strongSG&A,justagain,justyear-over-yearperformanceofabout$10million,somewhatoffsetbythelaunchoftheengineeringcoststhatwe'retalkingabout.
Sothinkaboutthatasthat'sabout$50millionofupsideandabout$10million,$15millionofthat'scomingoutinengineeringandlaunchcoststuff.
KevinClark(President&CEO):
Matt,asyoulookatit,IthinkouroutlookfortheyearisEEAwill--marginexpansionwillberoughly75basispoints,right,onayear-over-yearbasis,whichissolidrevenuegrowth.We'llhaveverysolidmarginexpansion.AndIthinkitreally--wecangothroughallthedetails,butitreallycomesdowntoexecution.
It'sthebenefitofvolumeflow-through.Theyareanorganizationthatoperatesvery,verywell.Totheextentyouputvolumethroughthemachine,thatmachinetendstoconvertitintoearnings.Andwe'reseeingthebenefitfromthat.
MattStover (Analyst-SusquehannaFinancialGroup):
Thankyouverymuch.Appreciateit.
KevinClark(President&CEO):
Sure.
Operator :
OurfinalquestioncomesfromthelineofChrisMcNallyfromEvercore.
KevinClark(President&CEO):
Hi,Chris.
ChrisMcNally(Analyst-EvercoreISI):
Thanks,guys.Justaquickfollow-onontheorganicincrementalmargin.InQ1,thewayyouguysreported,it'sroughly30%.It'sbeentrackinginthat30%sortofrangeforthelastcoupleofquarters.Youhadsome
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headwindsinChina.Canweassumethat,thatnumbermayhavesomeupsideaswegetintothesecondhalfoftheyear,particularlyasthehigherR&DfromthenewprogramsinQ1sortofsubsides?
KevinClark(President&CEO):
IthinkJoecanbespecific.Ithinkastheyearrollsoutandtheexception,basedonourassumptionfortheJapanearthquake,isreallyQ2.Butifyounormalizeforthat,wewouldexpecttocontinuetosee--Ithinkonasequentialbasis,youactuallydo,year-over-yearmarginexpansionquartertoquarter.Andit'saresultoftheroll-throughorflow-throughoftheitemsJoehadtalkedaboutearlier.Joe?
JoeMassaro (CFO):
You'reright.Thedrop-throughonthesalesgrowthisinlinewithhistoricaltrends.Thatdoesbouncearoundalittlebit,butit'swherewewouldhaveexpectedittobe.Marginprogressionthroughtheyear,headingtoour50basispointsexpansionyearoveryearwillaccelerateaswegettothebackhalfoftheyear.
SoIthinkandthat'seffectivelythesamethingswe'retalkingabout.Thevolumepicksup.Performancegetsbetter.Inpart,weperformbetterinthebackhalfoftheyear,asourinitiativesstarttopickuponafullrunratebasis.AndwealsogetoutofthelaunchcoststhatwehavebeentalkingaboutinQ3andQ4.
ChrisMcNally(Analyst-EvercoreISI):
Perfect.Sothelaunchcosts,basicallythereissomeinQ2still,butthenessentially,theyfalloffinQ3andQ4?
JoeMassaro (CFO):
Effectively.Theyfalloff.There'ssomestillinQ3andthentheyfalloffinQ4.Butit's--theyaredown.TheycutthemselvesinhalfbyQ3andbasicallygoneinQ4.
KevinClark(President&CEO):
Soremember,Joereferencedinthispresentationroughly$35millionoflaunchandChinacostsinQ1,decliningto$20millioninQ2,andthenfallingofffromthereinQ3andQ4.
ChrisMcNally(Analyst-EvercoreISI):
Perfect.Thankssomuch,guys.
KevinClark(President&CEO):
Thankyou.
Operator :
ThatconcludestheDelphiQ12016earningsconferencecall.
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