Vitesco Earnings: Dinged by Industry Headwinds but Maintains Full-Year Guidance

Narrow-moat-rated Vitesco Technologies VTSC reported first-quarter earnings per share before special items of EUR 0.29, well below the EUR 0.71 FactSet consensus EPS but EUR 0.38 higher than last year’s EUR 0.09 loss per share. Thanks to less sporadic customer production from the chip crunch and the launch of new business, partially offset by noncore business wind-downs, consolidated revenue increased 3% to EUR 2.31 billion from EUR 2.26 billion last year, about even with consensus. Excluding favorable currency, organic revenue edged 1% higher versus a 6% increase in global light-vehicle production. Core organic revenue, excluding wind-down businesses, increased 8%, outperforming the market as the first quarter last year was hit harder by the chip crunch.

First-quarter adjusted EBIT was EUR 37.1 million for 1.6% margin compared with EUR 45.2 million for 2.0% margin a year ago. Margin was negatively affected by customer call-offs, higher energy costs, other inflationary cost pressures, and increased spending for future electrification programs, partially offset by cost recovery from customers. The result beat consensus by EUR 2.4 million or 7%. Due to lower adjusted EBIT partially offset by higher capital spending and negative working capital, free cash flow was negative EUR 41 million, down from EUR 48 million last year.

Management maintained its 2023 guidance for revenue of EUR 9.2 billion-EUR 9.7 billion, adjusted EBIT margin of 2.9%-3.4%, and free cash flow of around EUR 50 million. Due to uncertainties from industry headwinds, we model 2023 with EUR 9.45 billion in revenue, roughly the midpoint of management guidance, but margin at 2.9%, the low end of management guidance. The 4-star-rated shares of Vitesco trade at an attractive 42% discount to our unchanged EUR 110 fair value estimate.