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Delphi CEO and President Rodney OrsquoNeal retires March 1 after working for Delphi since it split from General Motors in 1999
<p><strong>Delphi CEO and President Rodney O&rsquo;Neal retires March 1 after working for Delphi since it split from General Motors in 1999. </strong></p>

Delphi Turns in Solid 2014 As O’Neal Exits

Delphi earned $1.5 billion last year, and the 2015 forecast is upbeat, pegged to the launch of new gasoline direct-injection and light-duty diesel programs and a projected doubling of active-safety revenues.

It appears President and CEO Rodney O’Neal will leave Delphi on a high note as the supplier excites the investor community with reports 2014 earnings of $4.48 per share, up 15% from 2013, and an optimistic outlook for the rest of the year.

O’Neal, 61, has been with Delphi since it split from General Motors in 1999. He retires March 1 after leading the supplier through severe contraction and then a 4-year bankruptcy that ended in 2009. Since then, O’Neal has led Delphi through steady growth and profitability, although the company’s North American footprint remains a shadow of its former self.

Delphi reports $17 billion in revenues for 2014, up 3% from 2013, and adjusted net income of $1.5 billion, up from $1.3 billion. “Our outlook is more optimistic this year than it was last year,” says Chief Financial Officer Kevin Clark.

Strength in the automotive markets of Asia and North America overpowered difficulties in South America and Europe.

During an analyst conference call, when asked if a 5% growth in new-vehicle registrations in Europe in the month of January is a sign of recovery, Clark seems hesitant.

“There’s a possibility that you see a stronger Europe,” says Clark, 52, who replaces O’Neal as president and CEO. “But with what’s going on in Eastern Europe right now, I would probably handicap that as a low probability.”

His outlook is even more dour for South America, a market he describes as very weak. “We expect it to continue to be very weak,” Clark says. “At some point, it needs to hit bottom and improve. But based on what we’re looking at today, we don’t see that happening.”

In North America, growth in light-truck sales has bolstered Delphi’s bottom line because the supplier has higher content in pickups, SUVs and CUVs.

Powertrain Charting Solid Growth

The industry sold 8.7 million light trucks in 2014, outpacing passenger cars by about 1 million units. The last time cars lagged trucks by a wider margin was in 2004, when the difference was 1.9 million vehicles, according to WardsAuto data.

Among specific product segments, Delphi says its Powertrain Systems division already outpaces the industry in terms of revenue by 5%, and by year’s end that growth rate should reach 10%.

Much of that expansion will stem from the launch of new gasoline direct-injection programs, the addition of light-duty diesel fuel-injector contracts and the continued ramp-up of light-duty diesel programs with Volkswagen, Clark says.

In 2014, the Powertrain Systems division posted sales of $4.5 billion, making it Delphi’s second-largest unit, behind Electrical/Electronic Architecture.

“Powertrain is a business that, when you look at content per vehicle growth (and) given the demand for fuel economy and CO2 emissions (reduction), should have higher growth,” Clark says.

In the second half, Clark says the EEA division will “see strong ramp-up” of active-safety programs for automakers. “Our outlook for the year is roughly 50% year-over-year growth in the active-safety business,” he says. “We’re seeing tremendous acceleration there, as well as roll-on of some infotainment programs with VW and Chrysler.”

Clark says active safety generates about $160 million in revenue annually, but he projects that business will double “in a short amount of time.” Vision and sensing system algorithms account for much of the growth.

Delphi won a powertrain contract for an engine controller with Toyota in the fourth quarter, which O’Neal describes as encouraging.

Toyota remains the supplier’s largest Japanese customer, and most of the business is focused in North America. Of $17 billion in annual revenues for Delphi, Japanese OEMs represent less than $700 million.

“It’s quite small when you consider the amount of cars they build,” says O’Neal, adding that keiretsu suppliers partially owned by Japanese automakers, such as Denso, have limited Delphi’s opportunities.

“That said, there’s been more technical discussion (with Japanese OEMs) in the past year and a half. I wouldn’t call it super traction, but I would call it encouraging,” he says. “There’s nothing in our forecast that would predict a radical change where we would begin to book more. But I would say the environment is better for us than it’s ever been.”

Infotainment Bookings of $2 Billion

The Electronics and Safety division will see a significant rise in revenues during the third quarter, much of it pegged to infotainment programs. “Over the last three years, we have booked north of $2 billion in infotainment bookings, and that will begin to roll on,” Clark says. “That will be a significant contributor of revenue growth as well as margin expansion.”

Thermal Systems remains Delphi’s smallest unit, generating $1.6 billion in 2014 revenues. But the division also produced the company’s largest growth in adjusted operating income, up 43% from 2013.

Reports surfaced last fall that Delphi was preparing to sell part of the operation, which includes heating, ventilation and air-conditioning systems.

Clark declined to comment on whether the division is for sale but says the unit remains important to Delphi. “We have seen very solid revenue growth during calendar-year 2014 and will continue to see it in 2015,” he says. “We’re focused on continuing to improve it.”

Throughout 2014, Delphi faced a “$500 million headwind” due to currency exchange as the dollar strengthened and the euro weakened. Roughly 40% of Delphi’s revenues are pegged to the euro.

Delphi has transitioned from a company that relied almost exclusively on General Motors in the late 1990s, with a heavy focus on North America, to one that draws only 17% of its revenue from GM. North America represents 30% of global revenues.

Asked about the state of the automotive supply chain, O’Neal says business models have changed dramatically and companies are better-run, drawing confidence from the investment community.

“I think the partnerships with OEs are better than ever. It’s an industry that has learned some hard lessons,” he says. “I think the North American supply community has done one hell of a job.”

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