Aptiv PLC (APTV) 2013 Q3 法說會逐字稿

Good morning. My name is Lisa, and I will be your conference facilitator. At this time, I would like to welcome everyone to Delphi's third-quarter 2013 earnings conference call. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question-and-answer session. (Operator Instructions) I would now like to turn the call over to Jessica Holscott, Delphi's Vice President of Investor Relations. Jessica, you may now begin your conference.

Thank you, Lisa, and thanks for joining Delphi's third-quarter earnings call. To follow along with today's presentation our slides can be found at delphi.com under the Investors section of the website.

Please see slide 2 for a disclosure on forward-looking statements which we will be making on today's call and only reflect Delphi's current view of future financial performance, which may be materially different from our actual performance.

Joining today's call would be Rod O'Neal, Delphi's CEO and President and Kevin Clark, our CFO. As seen on slide 3, Rod O'Neal will begin the call with an overview of our third quarter followed by Kevin Clark will review our financial results in greater detail, discuss our 2013 outlooks, and then after Ron's concluding comments, we will open the line up for Q&A. With that, I'll now turn it over to Rod.

Thank you, Jessica, and good morning everyone and thanks for joining us. Let's move right to the quarter. Please turn to slide 5.

Overall, we had a great quarter although we remain cautious. The European market does seem to be stabilizing.

Our revenues increased double digits. We had record third-quarter earnings and margins and earnings-per-share increased over 15%.

During the quarter, we continued to invest in our future. For example, we expanded our presence out in Silicon Valley.

I will share with you more details later, but we believe our presence in this center of innovation is going to pay some very good long-term dividends. We continued to return a significant amount of cash to shareholders during the quarter, almost $175 million in total, including both dividends and share repurchases bringing the total amount for the year to over $500 million.

For 2013, we are confident that we will deliver 60 to 70 basis points, margin expansion and strong double-digit earnings-per-share growth. And we are committed to delivering shareholder value.

Please move to slide 6. During the third quarter, we had the opportunity to spend some quality time with our customers at the largest automotive show on the planet, the Frankfurt Motor Show. And as many of you know, this show is a remarkable showcase of some of the most innovative automotive products in the world.

During the show, we announced that RACam, Delphi's new cutting edge integrative radar and camera system will be introduced in the Volvo SGA platform in late 2014. In fact, product launches like RACam and others have accelerated growth in our active safety business, and we expect to have $1 billion in revenue from that portfolio in the next several years.

We hosted a number of meetings at the Frankfurt event, and I came away very optimistic that our strength with our customers and the relationships we have built has established a bright future in the marketplace for us. Please move to slide 7.

We are always developing innovative technologies at Delphi and time and time again we are recognized for providing leading-edge solutions to the global automotive market. As you know, the Automotive News PACE Awards is the pinnacle of technology achievements among automotive suppliers. Three Delphi technologies have been named finalist for the 2014 PACE awards, as our engineering and research investments continue to hit the mark.

We were also selected this quarter by Thomson Reuters as one of the top 100 most innovative companies for 2013, and this is the second year in a row we have achieved this recognition. These accomplishments demonstrate the type of innovation for which Delphi has long been recognized. Our team is keenly focused on remaining at the forefront of innovation, and as I mentioned earlier, we recently expanded our presence in Silicon Valley so that we can introduce even more technology solutions to our customers.

There's a long list of companies, as you know, at the top of the game in the connectivity space and we are establishing relationships with them that we believe will lead to significant future revenue. Delphi is one of the few companies that can make the future automotive technologies happen and deliver that technology flawlessly around the world. So we are working with partners in the Valley to really create some magic out there.

Slide 8. I can't talk about innovation and growth potential without touching on the amazing opportunity that Delphi has in China. We recently held our China Investor Day, which gave our Asia-Pacific team an opportunity to share their remarkable growth story.

I was there for the event and also spent a significant amount of time meeting with our local management team and reviewing our strategic plan for the coming years. I'm extremely proud of the team's accomplishments and I continue to be extremely optimistic about Delphi's future in China, which is the largest automotive market in the world.

Last year we doubled our revenues there over the last five year period, and we are going to roughly double revenues again in the next five years. We have two new sites scheduled to open in China next year for wiring and powertrain, and we're going to expand to other sites.

Delphi's established an unmatched competitive position that has translated to remarkable growth and profitability, and it's all because of the strength of our local team. They are simply the very best of the best. Other companies are now scrambling to put in place what Delphi's management team has had for more than two decades. Our presence in China is a key component of our long-term growth trajectory.

Slide 9. We've been awarded nearly $19 billion in new bookings through the third quarter in line with our internal expectations and we are well on our way to meeting our target for the full year. In fact, in October we won roughly an additional $2.5 billion in bookings. We expect to continue to see an acceleration in the pace of bookings during the fourth quarter.

A few of the highlights of our Q3 bookings includes a global platform for Ford for engine wiring, a VW award for infotainment here in North America, and a (inaudible) award for diesel common rail in China. And as you can see we continue to increase the geographic diversification of our business during 2013.

Now, I'll turn the call over to Kevin to cover the numbers. Kevin.

Thanks, Rod. Good morning, everyone. I'll begin by covering our third-quarter results, then we'll discuss full-year guidance.

Consistent with our prior earnings call, today's discussion will split all restructuring costs to provide clear visibility into the underlying operating performance of the business. The reconciliation between GAAP and non-GAAP numbers are included at the back of both the press release and this presentation for your reference.

So let me start on slide 11 with a snapshot of our third-quarter financial performance. As Rod already mentioned, our results were very solid reflecting strength in North America and Asia, cost controls and strong operating performance, which translated into strong margins and earnings growth.

The quarter played out largely as we anticipated. We're seeing signs that the European passenger car market continues to stabilize; however, the commercial vehicle market is more challenge than we had previously expected.

Considering the various puts and takes, we remain cautious about the macro environment, but as we look to the fourth quarter we expect our growth rates and margins to continue to improve. For the quarter, revenue totaled $4 billion; that's up 10%. Adjusting for CapEx, commodities, acquisitions, and divestitures, revenues increased 3%, roughly in line with market served.

EBITDA grew to $566 million and EBITDA margins expanded 90 basis points to 14.1%, both records for the third quarter. Operating income reached $428 million and operating margins expanded to 10.7%. That's a 60 basis point increase, including the additional depreciation and amortization from the MVL acquisition.

Net income totaled $302 million in earnings per share increased over 15% to $0.97. And lastly, cashbook totaled $230 million, allowing us to continue to execute our capital allocation plan.

With that as a backdrop, move to slide 12 and I'll review revenue in more detail. So as I already mentioned, revenue increased over $350 million or 10% over $4 billion.

Price downs of 1.6% and lower commodity pass-throughs, primarily related to copper, presented a combined $69 million or almost a 2 point headwind to year-over-year growth. Outbacks added $46 million to revenues and over 1 point to our underlying growth rate.

Volume growth totaled $171 million adding 5 points to our growth rate. And the MVL acquisition added roughly $200 million of revenue or 6 points of growth.

On a regional basis, European revenues were down 5%, largely in line with our expectations, reflecting continued improvement across each of our segments. North American revenues increased roughly 9%, partially driven by the benefit of the transition to the K2XX platform.

Asia continued to be our fastest-growing region. Revenues increased over 10%. In that region, China revenues increased 12%, primarily driven by strong growth with the multinational OEMs. In South America, revenues decreased 2% reflecting the performance of our customer base in that region, as well as initiatives to improve business mix and drive increased profitability in the region, which continues to show improvement.

Slide 13 reconciles the year-over-year change in EBITDA, which increased $83 million or over 17% to $566 million representing flow-through and higher revenue, cost controls, solid operating performance, and benefits from the MVL acquisition, partially offset by unfavorable product next, price downs, an increased investment in growth engineering and information systems. As I already mentioned, EBITDA margins expanded 90 basis points to 14.1%.

Slide 14 details our segment results. Electrical architecture continued to be our fastest-growing segment with adjusted revenue up over 8% from the prior period. Driven by strong double-digit growth in North America and Asia partially offset by relatively flat revenues in Europe. Segment EBITDA increased $309 million representing 15.8% EBITDA margins; that's up 270 basis points from the prior year, the result of the MVL acquisition, flow-through on revenue growth, and continued strong operating performance.

Revenue in our powertrain segment totaled just over $1 billion; that's down almost 5%, primarily the result of a double-digit decline in European revenues due to continued lower sales of light-duty diesel fuel injection systems. Segment EBITDA declined $27 million to $142 million and EBITDA margin totaled 13.5%, the result of lower volumes; however, after adjusting for favorable warranty expense in the prior period, margins were roughly flat on a year-over-year basis.

In our electronics and safety segment, revenue totaled over $689 million; that's a 6% increase in the prior period largely the result of double-digit growth in Asia and North America, partially offset by a flat revenues in Europe. Segment EBITDA increased to $100 million and EBITDA margins expanded 200 basis points to 14.2% due to flow-through and higher revenues, the benefits from restructuring initiatives, and engineering rebuilds.

Lastly, as expected, thermal revenues declined 1% to $360 million. Segment EBITDA totaled $15 million and EBITDA margins decreased to 4.1%, the result of lower revenues and increased expenses related to unusually high launch activity during the quarter that will continue into the fourth quarter.

Turning to slide 15. Earnings-per-share increased $0.13 or over 15% to $0.97 driven by increased earnings and a lower share count, partially offset by an increase in depreciation and amortization and a higher tax rate, which was 21% for the quarter versus 16% in the prior period.

Moving to slide 16. We ended the quarter with more liquidity and a stronger balance sheet. Debt totaled $2.4 billion and net debt was $1.4 billion; that's roughly 0.6 times LTM EBITDA.

Year-to-date, we've generated roughly $1.1 billion of operating cash flow, primarily the result of increased earnings and lower cash taxes. We used our cash flow to fund $500 million of CapEx and returned over $500 million of cash to shareholders through share repurchases as well as dividends.

Slide 17 details the assumptions underlying our 2013 guidance. Based on customer build schedules and IHS, we are forecasting global production of over 86 million units, which represents about a 2% increase in global production in line with our prior outlook.

We're now forecasting European production of just under 19.4 million units. That's down 2% to 3% versus last year. We continue to see signs that the European passenger car market's stabilizing; however, the commercial vehicle market remains challenging, primarily in Europe. As a result, we remain cautious and expect fourth-quarter production to be flat relative to the same period last year.

Turning to slide 18 to discuss our 2013 full-year guidance. We've narrowed our range to the low-end of our previously issued guidance. Consistent with the outlook we shared in our second-quarter earnings call, beginning in the fourth quarter we expect to see year-over-year revenue growth in Europe and the mix headwinds associated with the industry trend of lower diesel and high-end infotainment system take rates to be largely behind us.

A portion of the revenue growth we expected from the improvement in these trends, and the launch of new programs, will be partially offset by continued softness in the commercial vehicle markets, again principally in Europe. In addition, a few customers have recently reduced their build schedules, one in response to their internal labor issues and the others to balance year-end inventory levels, which will negatively impact our light-duty diesel business in Europe.

At this point in time, we don't have enough visibility to build schedules to estimate the possible impact of these items on our 2014 revenue outlook, but as Rod's already mentioned, we remain confident in our ability to deliver solid revenue growth. In addition, we continued to reduce our cost structure to maximize margin expansion and drive very strong earnings growth.

For the 2013 calendar year, revenues are now expected to be $16.3 billion to $16.4 billion. That's based on our current build schedules representing 5% revenue growth or roughly 1% growth excluding FX and commodities and acquisitions.

We expect EBITDA to be in the range of $2.35 billion to $2.37 billion reflecting 10% EBITDA growth and 14.4% EBITDA margins. We continue to plan for a non-GAAP full-year tax rate of 18%, 17% on a GAAP basis. We expect EPS to be in the range of $4.25 to $4.35 per share, which translates to roughly 12% EPS growth.

We continue to expect cash flow before financing of $1 billion of capital spending of $700 million. Shares outstanding are soon to be $312 million.

With that, I'd now like to turn the call back over to Rod before we go into Q&A.

Turning to slide 20 to wrap up before we go to Q&A. Again, we had another solid quarter with both top- and bottom-line expansion.

January will be here before you know it and we are focused on the opportunities in 2014. So based on vehicle sales trends, which continued to grow, particularly in North America and China, and appeared to have stabilized also in Europe, our current production expectations are for an increase of about 2% to 3% in global production, including European production being flat to up 2%.

However, as you are all well aware, the macros can quickly change and, therefore, we will remain proactive on the costs side by further optimizing our business model so that we can continue to support our long-term margin goals. In this type of macro environment, we would expect solid revenue growth, increased margins and double digit earnings-per-share growth. We will continue to be very disciplined in terms of allocation of capital to ensure we further drive shareholder value.

With that, we'll open it up to calls -- the call for questions.

(Operator Instructions) Brian Johnson, Barclays.

Yes, good morning. Just want to get a sense of the puts and takes within the margins of two segments that seem to diverge from historical patterns.

First on E/EA, very strong margin of 15.8%. That's getting near your long-term guidance of 16%. We saw similar strength at Lear which, if anything, is less exposed to higher-margin connector business.

So, question one is can you comment on the margin trends there and whether there might be upside to the 16%? And, on the other hand, powertrain came in lighter than we were looking for. Is this a question of diesel mix in Europe, CB builds in Europe where I thought there was a prebuild going on and what does this mean for the powertrain margins going forward?

As it relates to E&S performance, and we've talked about it previously, strong operating performance benefits from the restructuring initiative as well as, quite frankly, timing of engineering rebuilds. So that is a business that, at the end of the day, you can see some variability quarter-to-quarter based on receipt of those engineering rebuilds.

As it relates to E/EA, again, continued strong operating performance. We talked about the MVL integration and the synergies associated with it being a bit ahead of schedule. Other benefits associated with this increased mix of connectors, so that's been the primary driver there.

As it relates to the powertrain business, as we talked about previously, that's a business that has relatively high decremental margins, especially on the diesel side of the business. We did see year-over-year reduction in revenue and a corresponding decremental margin rate that's in line with what we normally expect or talk about.

In addition to that, when you look at it on a year-over-year basis, as you recall our Q3 call last year, in that period we had warranty, benefits associated with warranty expense, of roughly $20 million or $25 million that we talked about. So if you adjust for that on a year-over-year basis, margins are actually relatively flat in that powertrain business, partially benefiting from some of the restructuring in cost reduction initiatives that we've been pushing through this calendar year.

Okay. And going into fourth quarter any major directions and margins in each of the segments you're implying?

We would expect to see improvements in margins across roughly every one of our segments; with the exception of the thermal business, we'd expect those margins to be flat to up slightly.

Okay. Thanks.

Rod Lache, Deutsche Bank.

Your fourth-quarter guidance on the top line is 6.7% and 9.3% top-line growth. We're coming up with roughly 3.5% to 6% organic. Is that about right for the fourth quarter?

Yes. For our fourth quarter we would say roughly 6% organic growth, Rod.

6% at the high end of your -- or is that the, you know --

6% at the midpoint.

At the midpoint. Okay.

So 8% reported, roughly 6% organic.

Okay. So originally it was, you were expecting, basically, to achieve production growth plus 5%. It looks like maybe now closer to production growth plus 4%. Is the difference basically the commercial vehicle drag?

The difference is really two things. A part of it is the commercial vehicle drag, the other part relates to the pulled orders or pulled build schedules in the light-duty diesel business that I referenced. It was actually a mix of both.

All right. What are the implications for that as we look out to next year? I think Rodney, on the last call, had mentioned something about some push out of backlog. The original backlog number you had was a little bit over $1 billion, but is there some take away that you'd want to pass along vis-a-vis the outlook for 2014?

Rod, we'll come back and do 2014 in late January, but we remain very positive and optimistic in terms of the year-over-year performance that we think we'll see in our powertrain business. And so as we deal with some of the temporary adjustments that the customers have made in the Q4 -- in Q3 -- we don't see that as sticky and we see us beginning to move northward.

I don't want to get into the details yet. We'll come back later. But directionally we see 2014 as a very positive year for us.

If I could just augment that. So if you look at the impact in Q4, we estimate it to be roughly $75 million, impact related to both the change in heavy-duty diesel and the softness in commercial vehicle as well as the customer-specific matters in light-duty diesel. It's tough to say now, just given our visibility to build schedules, if or how much that impact could be into 2014.

Okay. Could you just remind us what percentage of powertrain is the Europe diesel business? Obviously, it's quite large. And any change to -- you had been saying that you expected that business to get to something like $7 billion and 17% margin by 2016. Is there any reason to sort of reassess that?

No. We are confident that it is a very strong business and a very high growth sector, and we're confident that it will be on a trend to grow significantly above market.

I don't think we know at this point in time whether it's exactly going to be $7 billion out into 2016 or some amount slightly different than that.

But as you know and as we talked about, one of our key strategies that we have well underway and are executing currently is the rotation into Asia, specifically China. And that diversification of the diesel business regionally and customer base wise we think will pay huge dividends once it's totally in place.

Okay. And Europe accounts for what percentage of powertrain today?

Europe accounts for roughly half of the powertrain business.

It's about half.

A little over half.

All right. Thank you.

John Murphy, Bank of America.

First question on the CapEx dropping from $750 million to $700 million in the guidance. Does that have to do with sort of the slippage you're talking about or is there some more efficiency that you're getting on the CapEx side? Just trying to understand what the driver of that decline is.

One of the things we do, and as I talked about many times as we spent time with the investment group, is we're very focused on making sure that we don't put capital in the ground ahead of the marketplace volumes. And so what you see is our normal, just being very disciplined and just dialing back some of the things as we react to what's happening out there.

So I think it's just a model at work, the team being focused on making sure that we are always ahead of the curve from a margin perspective as well as from a return on net assets. And so I wouldn't take much away from it other than the fact that we're just running the Company the way it should be ran.

Okay. That's helpful.

Then if we look at slide 9, you're talking about the backlog growth being roughly on pace with what you're looking at. It sounds like in October you had a bunch of good wins there to get to it looks like $21.1 billion.

As we look at this slide at the end of this year or sometime in January, do you think that those new business bookings will actually be higher than they were in 2012 or roughly equal? Just trying to understand if you might be winning at a slightly slower pace than the last two years were actually little bit faster.

First of all, actually we're winning at a higher rate. This year was a little unusual if you go back and compare year-over-year.

Starting back in the first quarter, if you recall, it's almost a reversal in terms of the opportunities that the customers had on the table. They were a lot lighter in the first two quarters and now they're picking up pace.

When we look at what's on the table for Q4, we would expect us to have a very similar quarter like we had in Q2, which would put us at near or above what we did last year. But our win rate is actually better.

Okay. That's great. And then, just a last --

The only issue is is will the customer actually finish the transaction with us in the quarter or will it slip into 2014. But, again, it would be only a timing issue and nothing to do with the amount of wins.

Okay. That's incredibly helpful. And then just a last question on page 12, the price downs in the quarter are down 1.6%. That's another really good performance for you guys. Are you seeing any shift here in automaker's willingness to pay for your technology and be less aggressive on price downs or is this sort of just more of the same and just good performance from your side? I'm just trying to gauge the pricing environment with your customers right now. It's pretty good.

It is good. It's just more of the same of having something that you can price on the marketplace and, above all, being able to defend what you have. And so there's no customer out there that has become benevolent in terms of not asking for pricing, though.

The market is what it is and it's been that way forever, and I don't see it changing. I think what we have at work is a model that actually executes as it should, and we have technology that's in places where we are able to protect our margin. So nothing new there, just more of the same.

Great. Thank you very much.

Ravi Shanker, Morgan Stanley.

Rod, if I can just follow up on the backlog question. Can you share your target for 2013?

It's more or less what we did last year. It's hard to be specific, but directionally what you will see is what we did last year.

And just given that your bookings have increased every year since 2009 at a very healthy clip, the fact that you are going to be kind of flat versus last year is more normally of the macro than anything to do with the fundamentals of the business?

Yes. When you do the math, our win rate is actually higher. Again, it's just opportunities, and it ebbs and flows in terms of how the opportunities come to market. And with the macro, some of the customers have been slow to decide exactly what they are going to do when and where. But no, there is no concern there on our part, and we think we're going to have a heck of a year in this area in this environment, and we're looking forward to 2014.

Got it. And just lastly, your European assumption of 3%, down 3%, is probably a touch more conservative than some industry providers -- IHS, etc. Do you feel like there is room for, if IHS is right and it's down probably 1%, that you guys can do better with your guidance, or does that get you to the high end of your guidance range?

Based on what we see from our customers, what we receive in terms of build schedules and the conversations that we have day-to-day, we're highly confident in our estimate for European production relative to any outside source. That's how I would answer it.

Understood. Thank you very much.

Itay Michaeli, Citigroup.

Just wanted to maybe drill down a bit into the broad levers you may have next year on margins to offset your typical annual price downs coming up. I was hoping maybe could share or at least quantify what some of the launch costs issues in thermal maybe running this year to, hopefully, may not be as severe next year, as well as any restructuring savings you have and your ability to continue to drive efficiencies in the business just to offset price downs broadly next year.

As Rod's talked about in the past, our business model and how we try to manage the business includes what we'd call basic blocking and tackling initiatives that are really driven to offset labor and other economics, as well as price downs, with productivity initiatives that come from manufacturing productivity, material productivity and then productivity in engineering, SG&A, so on and so forth. So those are really all baseline blocking and tackling.

In addition to that, augmenting that, you're aware that we implemented a restructuring plan late last year that we've been continuing to work on this year that's going to deliver that and MVL synergies will deliver roughly $80 million in benefits. We'd say we'd be at the higher end of that range, quite frankly, this year given what we've done from an MVL standpoint.

As we look into 2014 from a run-rate standpoint, we previously said we were talking about incremental benefits of roughly $120 million that relate to both restructuring again and MVL synergies. Based on where we are from a timing, from a restructuring standpoint, there are a couple of programs that will lag into early 2014 that's probably a little bit closer to $100 million that it is to $120 million.

So those would be the types of items, the restructuring initiatives, the MVL synergies. We're evaluating further opportunities to rotate our cost structure from Western Europe to Eastern Europe and North Africa. That would require more restructuring spend and that's something we'd update you guys on at the next earnings call.

That's very helpful. Then just lastly, any updated thoughts on the tax rate going forward or sort of 17%, 18% still sort of a good way to think about the next couple of years?

No new news there. We're still comfortable with roughly 17%, 18%.

Perfect. Thanks so much, guys.

David Lim, Wells Fargo.

Couple of questions. On the decline in Europe, when we look at it from an organic basis, can you sort of parse out the effects between light vehicle and commercial vehicle effect being what we've been hearing was Q3 production was a little better than anticipated. So just wanted to see how that sort of affected your performance.

Yes, when you look at our European revenues on a year-over-year basis in the third quarter, we were down 5% versus our estimate of market being down 1% and that's for both passenger car as well as commercial vehicle. I would say 3 to 4 points of that relates, at least in our business, to the light-duty diesel and passenger car with a balance relating to commercial vehicle and our heavy-duty diesel business.

Then to follow up on that comment, Kevin, I just want to get an idea on diesel mix. Are you seeing a secular shift where gas engines are gaining more footage in Europe or is this just a blip for a quarter and then an inflection point might happen over the next two quarters? How should we think about that?

I said in my opening comments, what we've seen over the last number of quarters, four to six quarters, is diesel take rates declining relative to vehicle production, which if you go back in history and look at it, the market's slow. OEs tend to de-content vehicles. Our current view is that is effectively stabilized and we won't see take rates going against us beginning in Q4 of this year.

Great. And I think that's it. Thank you very much.

Ryan Brinkman, JPMorgan.

You talked about some of the factors causing your European revenue to underperform the change in light-vehicle production during the quarter, particularly a lot on diesel mix and commercial vehicle end markets. I'm curious how some of the other drivers that you called out last quarter might be tracking, like infotainment take rates or aftermarket demand, two things that are hard for us to understand from the outside.

Aftermarket demand, that was a business that year-over-year we've seen declining in Q3 that's basically flat on a year-over-year basis. As it relates to infotainment take rates, that's something that effectively was a negative impact on, slightly negative impact, on Q3 as we look at our forecast for Q4 and our customer orders it stabilized. So it will not be a headwind.

There were a couple sort of standout year-over-year contribution margin performances by segment this quarter. It seems thermal had almost 80% decremental margins. E&S was a very strong 40% incremental and you talked about that a little bit citing engineering reimbursements.

I'm curious if there was anything maybe similar at the thermal division but negatively impacting it? Why should the decrementals track as they did? Is it a South American inflation issue? Maybe just kind of walk us through what's happening at thermal and remind us of the plan to turn that division around. Thanks.

Yes, on thermal, we are actually pretty confident in the management team there as they bring on the new business with the launches as we see fourth quarter being somewhat flat and then from there we will expect to move north. So there's some launch issues that the team has to do a better job on, and we expect them to and we think the new management team will do an excellent job on that. So we are all over it, and that's basically what the thermal issue is, just some of the launch issues.

Okay. Great, thanks, Rod, (inaudible).

Joe Spak, RBC Capital Markets.

Kevin, on the cash flow, if I look at the full-year guidance and I look at the cash flow before financing that you've done year-to-date, it looks like you're saying about $4.25 for the fourth quarter and then if you back out the CapEx guidance as well the cash flow from operations of over $600, which seems quite impressive. Is that working capital driven or can you just give us some of the drivers to the fourth-quarter cash performance?

Yes, it is primarily working capital timing. I would say given some cutoffs in the third-quarter investment and working capital was higher than what we would typically expect or forecast in a more normalized period. As a result of that you see a rebound in Q4 and a significant improvement in working capital use.

Okay. Great. And then, Rodney, in drivetrain longer-term you guys have talked about GDi growth. Can you just give us an update on some of the progress there in terms of wins or bookings and how do you think you are positioned in terms of winning with the right customers? Can you give us a better sense of where some of that growth is coming from in the outer years?

Yes, we are well-positioned. The technology has been well received in the marketplace. The bookings have been pretty incredible, particularly from a geographical spread.

As you know, we started out here in North America and we are now installing capacity and capability, both technical and processing wise, in Asia-Pacific, especially China, as well as in Europe. We've been pretty bullish on the growth aspects of it, and it has been a solid, solid win in the marketplace, technically as well as commercially. So we feel very good about it.

So if some of that diesel penetration softness, I know you said it stabilized, but if it doesn't sort of return, is there an offset from gas, or from GDi, of picking up?

Yes, there is. But the other thing, going back to diesel, one of things we're going to do is not turn our back on Europe but begin to be more diversified geographically. And that's why you see us moving very aggressively into Asia-Pacific and especially China.

A tremendous amount of opportunity there, and while not turning our back on Europe, we're just going to outgrow Europe and Asia and that's going to help the diesel top and bottom line. And then, obviously, GDi is going to be another diversification because of the product. So we feel the strategy is well in place to continue to drive northward in terms of margin in topline and powertrain, and we're pretty excited about the possibilities of what this asset can do for Delphi.

Okay. And just one point of clarification, when you were giving some of the margin color by segment for the fourth quarter and you said improvement all around and maybe flat in thermal, is that on a year-over-year basis or sequentially?

That is actually both.

Okay. Thanks a lot.

Matt Stover, Guggenheim.

I was wondering if you could scope the size of the engineering recovery in E&S and then I have a follow-up question for thermal.

Matt, that's not something that we disclose on a quarterly basis for a variety of reasons.

It's something we'll have to deal with next year because you presumably won't have a similarly sized recovery in the quarter of next year.

I'm not sure that that's actually true just given timing. And that's something that, quite frankly, we are as a company focused on increasing engineering rebuilds to the extent it's something that we can certainly do. So it's certainly an area of focus in terms of reducing costs or to fund growth investment.

The second question on thermal, Rodney, I understand that year-over-year decline in the margin there is associated with revenue leverage in the business and the launch issues, but stepping back when you look at that business, sort of globally the business itself has some structural issues that affect the margin structure of a number of players in that business. I'm wondering if you could kind of describe to us what it is that will contribute to that business earning sort of a more Delphi-like margin and how we should think about there being a realistic timeframe for the accomplishment of that goal?

That's a great question. Let me frame up with you where I see the business where it should probably operate. It should be in double-digit margins from an EBITDA perspective. The 10% to 12% range; we're thinking more 12% than 10%, but in that range.

It will never be 15% but it has tremendous leverage from an asset perspective because it doesn't use the same type of engineering resources nor capital. So the return on investor capital is, the leverage is huge, once we hit full stride. And what's going to get us back to where we need to be, one is, the new team has to execute better, there's one.

But above all the bookings that we've had, with some very powerful customers that historically Delphi has not been in a portfolio, both in Europe as well as some of the Asian customers here in North America, when you look at the rate of year-over-year revenue that we expect to have out through the 2016 time period, it will have one of the highest growth rates in all of Delphi. So, that's got to get executed and that's where the new team is all over what needs to be done to get the ball moving forward. So that's how we're going to get there, that's what we need to do, and the end game is going to be in the 10% to 12% EBITDA margin range.

Thanks very much. Appreciate that.

Colin Langan, UBS.

Can you clarify the comment earlier that the MVL synergies and restructuring savings were running around $100 million and then seems to be pushing into the $120 million really more next year. Is that a run rate were exiting for this year?

Yes. Right. So, Colin, what we said is is when you look at MVL synergies and restructuring savings and we do roughly $60 million to $80 million in 2013, and then from a run rate standpoint we generate roughly $200 million in 2014, so that would be an incremental $120 million. What I said is there are a couple of programs in Europe that are running a little bit behind schedule given work counsel approvals and that $120 million, if you were to ask us now, where we would strike the line we'd say it's probably closer to $100 million of incremental savings looking into 2014.

Okay.

Does that answer your question?

Yes. It definitely helped. And then the actual savings this year is $60 million to $80 million?

The actual savings this year is much closer to $80 million.

Okay. Obviously, the diesel mix in commercial vehicle in Europe has some big issues. Any color on the market? How is diesel look year-over-year as a percent of the European market and from your perspective but where in Q3 and the next quarter, commercially, Europe will look.

I think if you look at the mix of diesel penetration on the overall European basis it's down about a point. I think it went from 53% to 52%, don't hold me to that, but I think I'm pretty accurate.

A point or two.

It's a point or two, it might be two points. And I guess it's to be expected in terms of, because the lower end of the portfolio, the fleet in Europe has been deeply impacted with the recession that's occurred there and diesel was a big player in the lower end vehicles. And as some of the vehicles have been de-contented, that was one of the natural spots that they cost out.

So I don't think there's anything surprising about it other than the fact that some of the customers made some adjustments that we didn't see when we talk to you guys back in the third quarter that became very, very evident as we looked into the second half of the year as time moved on. So nothing that we see is permanent and we expect things to return. Now that Europe has stabilized we don't see it further deteriorating.

On the commercial vehicle side, is that trending down sequentially from Q3 to Q4?

Sequentially?

Hang on a second.

Yes, on a sequential basis, Colin, it's roughly, on a global basis, it's up a couple of points in Europe but based on our numbers it's largely flat.

Okay. Thank you very much.

Up slightly. Up very slightly.

On commercial?

Yes.

Okay. Thank you very much.

All right, let me wrap up. Again, Delphi had a very solid quarter. We are focused on bringing value to the shareholders as always.

We will continue to deliver innovative technologies to our customers. I continue to be very optimistic about Delphi's future.

I want to thank you all for taking the time to join us today. Please stay safe.

This concluded Delphi's third-quarter 2013 earnings release conference call. Thank you for joining. You may now disconnect.