TRW Automotive Holdings (TRW)

• Article
• Discussion
• Edit
• History
• Bookmark

Bulls: Reasons To Buy Feeling Bullish? Be the first to explain why this would make a good investment Bears: Reasons To Sell Feeling Bearish? Be the first to explain why this would make a poor investment Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

Top Contributors Jonathan Sheets Sean Hinton Related Articles Big Three Auto Woes Autoliv (ALV) Auto Makers Cost of Goods Sold (COGS) Cost of Sales Related Blog Posts » See All Related Posts powered by Wikinvest Wire

Rising prices for raw materials such as steel, which increased almost $100 per ton in 2007,^[4] contributed to a 13% rise in TRW's cost of goods sold (COGS) for the year.^[5] On the other hand, a government mandate that all passenger cars have side airbags by 2012^[6] resulted in a 9% increase in revenues for TRW's Occupant Safety Systems segment. Likewise, the weak U.S. dollar, gave TRW's non-U.S. sales an $856 million boost in 2007.^[7]

[edit] Business Segments

TRW 2007 Revenues by Segment^[8]

[edit] Chassis Systems (54% of 2007 revenue; 34% of 2007 pre-tax earnings)

Chassis Systems manufactures products for steering, braking, suspension and other applications.^[9] This segment's main products include:^[10]

• Steering Gears and Systems (15.7% of revenue)
• Brakes (12.4% of revenue)
• Brake Controls (7.2% of revenue)

[edit] Occupant Safety Systems (32% of 2007 revenue; 56% of 2007 pre-tax earnings)

Occupant Safety Systems produces safety products related to air bags, seat belts, and vehicle security.^[11] This segment's main products include:^[12]

• Airbags (14.8% of revenue)
• Seat Belts (7.5% of revenue)
• Safety Electronics (6.7% of revenue)

[edit] Automotive Components (14% of 2007 revenue; 10% of 2007 pre-tax earnings)

Automotive Components produces components for engines, controls, and fasteners. The company's engine components consist mostly of engine valves.^[13] Automotive Components main products include:^[14]

• Engine Valves (5.1% of revenue)
• Body Controls (4.5% of revenue)
• Engineered Fasteners and Components (3.3% of revenue)

[edit] Business Financials

TRW 2007 Revenues by Geography^[15]

TRW 2007 Revenue, Operating Income, and Net Income^[16][17] ($ in millions)

[edit] Key Trends and Forces

Steel Prices^[18]

[edit] Higher steel prices increased COGS 13% in 2007

Between January 2007 and December 2007, the price of hot rolled steel coil rose from $549 to $630 per metric ton, and the price of hot rolled steel plate rose from $747 to $837 per metric ton.^[19] As a result, TRW's cost of sales rose nearly 13% from 2006 to 2007, and its gross margin fell from 9% to 8%.^[20] Because it is difficult for TRW to pass higher materials costs on to customers as price increases, rises in the cost of raw materials can hurt profitability.^[21]

[edit] All passenger cars sold in the U.S. must have side airbags by 2012

In 2007, the National Highway Traffic Safety Administration announced a new regulation under which all cars sold in the United States must have side airbags by 2012.^[22] As a result, TRW's Occupant Safety Systems revenue jumped over 9% from $4,326 million in 2006 to $4,714 million in 2007.^[23]

EUR-USD Exchange Rates^[24]

[edit] A weak U.S. dollar gave TRW's international revenue an $856 million boost in 2007

Between June 18, 2007 and June 18, 2008 the euro value of one U.S. dollar decreased from 0.75€ to 0.65€.^[25] During the same period of time, the dollar also depreciated in relationship to the Japanese yen,^[26] another of the main currencies for TRW's international sales. As a result of the dollar's depreciation, TRW's international revenue received a boost of $856 million in 2007.^[27] Since TRW reports its revenue in USD but does 70% of its business outside of North America, its revenue is exposed to fluctuations in exchange rates. When the value of the dollar value falls (foreign currencies appreciate), the dollar value of TRW's international revenues increases. On the other hand, when foreign currencies depreciate, the dollar value of TRW's international revenues decreases.

[edit] TRW's three largest customers accounted for 42% of 2007 revenue

TRW is heavily dependent on a few key Auto Makers, as its three largest customers accounted for almost 42% of its 2007 revenue. Volkswagen (VLKAY), Ford Motor Company (F), and General Motors (GM) accounted for 17%, 15%, and 10% of TRW's 2007 revenue, respectively.^[28] If any of these customers were to order fewer of TRW's products, go out of business, or start ordering components from a new supplier, TRW would find itself losing a large percentage of its revenue.^[29] Sluggish conditions in the U.S. auto market are of particular concern to GM and Ford, two of TRW's largest customers.

[edit] Key Competitors

• Autoliv (ALV) manufactures airbags and seat belts that compete directly with TRW's safety products.^[30]
• Takata Corporation (TYO:7312) also sells airbags, seat belts, and related safety components to auto manufacturers.^[31]
• Key Safety Systems, a private company, also competes with TRW's products in the auto safety industry.^[32]
• Delphi Corporation (DPHIQ) competes with both TRW's safety products and its control products from the Automotive Components segment.^[33]
• Visteon (VC) makes electronic safety and security parts.^[34]

TRW and Key Competitors 2007 ($ in millions)^[35][36]

Note: Revenue and Operating Income for Takata Corporation are for the fiscal year ending March 31, 2008. Figures for Takata Corporation were converted from Japanese yen using the average exchange rate from April 1, 2007 to March 31, 2008.

[edit] Market Share

Market Share for TRW and Key Competitors, by 2007 Sales^[37]

Market Share for TRW and Key Competitors^[38]

Note: Others includes small private companies like Key Safety Systems and manufacturers who make their own products in house, such as Toyota Motor (TM).

[edit] References

1. ↑ ALV 2007 Annual Report: Customers, pg 15
2. ↑ TRW 2007 10-K: Business, pg 2
3. ↑ TRW 2007 10-K: Business, pg 9
4. ↑ MEPS STEEL PRODUCT PRICE LEVELS ACROSS 2007 - 2008
5. ↑ TRW 2007 10-K: Results of Operations, pg 29
6. ↑ Edmunds: NHTSA Mandates Side Airbag Protection in All Passenger Cars
7. ↑ TRW 2007 10-K: Results of Operations, pg 30
8. ↑ TRW 2007 10-K: Business, pg 2
9. ↑ TRW 2007 10-K: Business, pg 7
10. ↑ TRW 2007 10-K: Business, pg 3
11. ↑ TRW 2007 10-K: Business, pg 7
12. ↑ TRW 2007 10-K: Business, pg 3
13. ↑ TRW 2007 10-K: Business, pg 8
14. ↑ TRW 2007 10-K: Business, pg 3
15. ↑ TRW 2007 10-K: Business, pg 3
16. ↑ TRW 2007 10-K: Business, pg 2
17. ↑ TRW 2007 10-K: Financial Statements and Supplementary Data, pg 45
18. ↑ MEPS STEEL PRODUCT PRICE LEVELS ACROSS 2007 - 2008
19. ↑ MEPS STEEL PRODUCT PRICE LEVELS ACROSS 2007 - 2008
20. ↑ TRW 2007 10-K: Consolidated Statements of Earnings, pg 29
21. ↑ BWA 2007 10-K: Risk Factors, pg 14
22. ↑ Edmunds: NHTSA Mandates Side Airbag Protection in All Passenger Cars
23. ↑ TRW 2007 10-K: Occupant Safety Systems, pg 35
24. ↑ EUR to USD Exchange Rates
25. ↑ EUR-USD Exchange Rates
26. ↑ USD-JPY Exchange Rates
27. ↑ TRW 2007 10-K: Results of Operations, pg 30
28. ↑ TRW 2007 10-K: Customers, pg 9
29. ↑ TRW 2007 10-K: Customers, pg 9
30. ↑ Google Finance: ALV
31. ↑ Business Week: 7312.T
32. ↑ Google Finance: Key Safety Systems, Inc.
33. ↑ Google Finance: DPHIQ
34. ↑ Google Finance: VC
35. ↑ Monthly Average Graph (American Dollar, Japanese Yen) 2008
36. ↑ Monthly Average Graph (American Dollar, Japanese Yen) 2008
37. ↑ ALV 2007 Annual Report: Customers, pg 15
38. ↑ ALV 2007 Annual Report: Customers, pg 15