EARNINGS PREVIEW: European Auto Suppliers Earnings Seen Weak

European automotive suppliers are feeling the full force of the worst crisis to hit the automobile industry in 70 years, as car makers slash production to prevent inventories building up.

The slump in vehicle sales was most acute in the last quarter of 2008, and parts suppliers have been forced to halt production temporarily for weeks at a time. Incompressible fixed costs mean that profitability has been sharply eroded.

The outlook is bleak for 2009, with vast overcapacity in the industry and European automobile production expected to drop between 15% and 20% from 2008 levels.

   COMPANIES TO WATCH: 
   Autoliv Inc. (ALV) -- Jan. 29 (4Q) 

MARKET EXPECTATIONS: Analyst consensus is for a fourth-quarter net loss of $17 million compared to net profit of $94 million in the same period a year ago. Revenue is expected to take a heavy hit with demand for Autoliv's seat belts and airbags falling sharply. The weak dollar is an aggravating factor that could push revenue down 4% to 5%. Earnings will also suffer from an anticipated $45 million charge related to its restructuring program.

MAIN FOCUS: Analysts will be looking to the Swedish company for new cost-saving measures and guidance on 2009 production levels.

   Faurecia SA (12114.FR) -- Feb. 10 (4Q) 

MARKET EXPECTATIONS: Revenue is estimated to have dropped by more than 10% in the last quarter of 2008 due to production cuts at parent company Peugeot-Citroen and other car makers. Faurecia's production of seats and cockpit modules is likely to have fallen by at least 25% in the period.

MAIN FOCUS: For the full year, with free cash flow turning negative, analysts expect the company to be loss-making at both the net and operating level, and don't anticipate a return to profitability before 2011. As with other suppliers, the focus will be on comments on restructuring and future production levels.

   Cie Generale des Etablissements Michelin (12126.FR) -- Feb. 13 (FY) 

MARKET EXPECTATIONS: Like other automotive suppliers, Michelin has been hurt by falling tire sale volumes to car manufacturers, although sales of replacement tires - accounting for more than half total tire sales - have been affected to a lesser degree. Rising raw material prices have also eroded earnings. Analyst consensus is for full-year net profit of EUR504 million compared to EUR774 million in 2007.

MAIN FOCUS: Michelin expects to reap the full benefit of last year's falling raw material prices starting in March or April and analysts will be looking for an update. They are also looking for signals that the company is beating its cost-saving target.

   Valeo SA (13033.FR) -- Feb. 13 (4Q) 

MARKET EXPECTATIONS: With revenue expected to have plunged 25% year-on-year in the last quarter, Valeo is estimated to have incurred an operating loss in the period. In a profit warning in mid-December, Valeo said it expects a full-year operating margin of about 2.6% for all of 2008 compared to an initial projection of around 3.6%, and announced plans to slash some 5,000 jobs worldwide.

MAIN FOCUS: Analysts will be looking for estimates of restructuring costs in 2009, as well as for broader indications of weakening profitability and cash generation.

   Continental AG (CON.XE) -- Feb. 19 (4Q) 

MARKET EXPECTATIONS: Continental's earnings are expected to be hurt by significant production cutbacks at global automakers as well as an impairment charge of around EUR1 billion related to the company's acquisition of Siemens AG's (SI) VDO automotive electronics unit in 2007. The Hannover-based company's outlook for 2009 is expected to be dire as the timeframe for recovery of auto markets remains uncertain.

MAIN FOCUS: Details on a possible capital hike are expected to be in spotlight, along with plans for future cooperation with Schaeffler Group and a combination of the two companies automotive operations. Talks about possible state aid for Schaeffler and Continental are set to grab investors' attention.

 
   -By David Pearson, Dow Jones Newswires; [phone], [e-mail] 
   (Christoph Rauwald and Ola Kinnander contributed to this report.) 
 

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