Skip navigation
Newswire

UPDATE 3-ArvinMeritor cuts profit outlook, shares dive

(Adds closing share prices)

By Susan Kelly

CHICAGO, Sept 30 (Reuters) - Auto parts maker ArvinMeritor Inc. cut its earnings outlook on Tuesday, citing higher costs for new product launches, steel supply problems and other expenses, sending its shares tumbling 12 percent.

But the parts supplier, which is waging a hostile $2.2 billion takeover battle for larger rival Dana Corp. , said it remains as dedicated to pursuing the merger as it was when it first proposed it.

"We are just as determined now as we were in June," ArvinMeritor Chairman and Chief Executive Larry Yost told a meeting of Wall Street analysts in New York that was broadcast over the Internet. "We are committed to getting the job done. It's a smart deal for us."

Analysts said ArvinMeritor's reduced estimate range for its fourth-quarter earnings per share, which the company slashed by 7 cents to 9 cents, and its initial forecasts for first-quarter and full-year 2004 were disappointing.

"All of these numbers are well below expectations," David Leiker, an analyst with Robert W. Baird & Co., wrote in a research note. He maintained his "neutral" rating on the stock.

Analysts have cited a host of concerns, including uncertain financing, that could threaten ArvinMeritor's ambitious plan to create the third-largest U.S. auto parts supplier. The $15-a-share offer to shareholders was extended to Oct. 2.

Last week the chairman and chief executive of Toledo, Ohio-based Dana, Joseph Magliochetti, died following a brief illness, further clouding the outlook for a deal to get done.

Still, ArvinMeritor's Yost said the proposed merger would accelerate the combined company's revenue growth and profitability over the long term as complementary businesses are joined to produce a complete line of undercarriage products, such as axles for both cars and trucks.

Both companies are major suppliers of components to global automobile makers, which are in the midst of a cut-throat price war and have indicated a desire to work with fewer suppliers.

"Our conclusion is the supply industry needs to consolidate. That's one of the principal reasons we are going after Dana. To be a more complete supplier to the OEM (original equipment manufacturer)," Yost said.

Yost also expressed confidence that antitrust, financing and debt-load issues raised by analysts would not derail the cash offer and stressed his prediction that the company's debt would be investment grade within three years.

ArvinMeritor, based in Troy, Michigan, has said it plans to finance the deal through bank loans, a revolving credit line and a high-yield bond issue.

ArvinMeritor shares closed down $2.46, or 12.1 percent, at $17.81 on the New York Stock Exchange. Dana ended at $15.43, down 9 cents, also on the NYSE.

ArvinMeritor said it expects earnings for its fourth quarter ending Sept. 30 of 48 cents to 51 cents a share, before the effects of an accounting rule change. The outlook includes a gain of $13 million, or 19 cents a share, from an asset sale, and $5 million, or 7 cents, in restructuring expenses.

Its previous forecast was 43 cents to 48 cents excluding the one-time items. ArvinMeritor posted net earnings of 61 cents a share in last year's fourth quarter.

It forecast first-quarter 2004 earnings of 25 cents to 30 cents a share on sales of $2 billion. For fiscal 2004, it forecast earnings at $2.20 to $2.40 a share.

The company also gave a 2004 outlook for light vehicle production of 15.8 million in North America and 16.2 million in Western Europe. (With additional reporting by Karen Padley)