By Susan Kelly
CHICAGO, April 22 (Reuters) - Investors are looking beyond slower U.S. vehicle production in the second quarter and buying shares of auto parts makers, betting an economic recovery will set the stage for a rebound in auto sales, analysts said on Tuesday.
With the second week of earnings season well under way, most auto parts suppliers have reported solid first-quarter results that met expectations while slashing second-quarter profit forecasts to reflect planned production cutbacks at General Motors Corp. and Ford Motor Co.
Many have also left their full-year earnings outlooks intact, raising hopes of a recovery in vehicle sales and production in the second half of the year.
The Standard and Poor's auto parts index Tuesday hit a two-month high, up about 18 percent from a March trough that followed the cutback announcements, in a show of renewed investor confidence in the sector.
Investors in the group have been heartened by generally strong first-quarter profits and are hoping a U.S. economic recovery will prompt automakers to ramp up production again in the third and fourth quarters, said Charles Brady, analyst at Credit Lyonnais Securities.
"They are looking through the turbulence of the second quarter," Brady said.
However, Ron Tadross, analyst with Banc of America Securities, cautioned that auto sales, in his view, remain in a downtrend.
Supplier stocks may be rising in reaction to rumors that April auto sales will be stronger than expected when reported next month, he said.
"I think it's a trade and not a reason to be buying the stocks," Tadross said.
On Tuesday, four U.S. auto parts makers posted better first-quarter results even as vehicle production began to downshift in March.
"We did see the second half of March weaken pretty meaningfully," said David Leiker, analyst with Robert W. Baird & Co.
SOLID FIRST QUARTER
BorgWarner Inc. Tuesday reported a strong quarterly profit, versus a year-ago net loss, helped by new business and solid demand for its products in Europe. Its shares rose $2.35, or about 4.2 percent, to $57.77 in afternoon trading on the New York Stock Exchange.
BorgWarner, which makes turbochargers, transmissions and all-wheel drive systems, said it earned $44.2 million, or $1.65 a share, in the first quarter, reversing a year-ago loss of $237.5 million, or $8.90 a share, that included a write-down for a goodwill accounting change. Sales rose 22 percent.
Excluding items, the company earned $31.5 million, or $1.18 a share, a year ago.
BorgWarner last week cut its second-quarter profit forecast to $1.45 to $1.55 a share but reiterated its full-year outlook of $6.20 to $6.35 a share, suggesting the company expects a second-half pickup.
Shares of Tenneco Automotive Inc. and exhaust systems, rose 24 cents, or about 7.9 percent, to $3.29 after the maker of shock absorbers and exhaust systems reported a quarterly profit, compared with a year-earlier loss, citing higher revenue and improved operating efficiencies.
Bankrupt supplier Federal-Mogul Corp. , which makes Champion spark plugs, Moog chassis, Fel-Pro gaskets and Wagner brake and lighting products, reported a narrower loss vs. a year ago on sales and productivity gains.
Tower Automotive Inc. swung to a quarterly profit from a year-ago loss, but its shares fell 6 cents, or 2 percent, to $2.95 after it warned of softer production volumes in some of its vehicle platforms.