Linamar Corporation
TSX : LNR

Linamar Corporation

August 08, 2006 16:00 ET

Linamar Announces Second Quarter Results

Stable Earnings in a Tough Industry Environment

GUELPH, ONTARIO--(CCNMatthews - Aug. 8, 2006) - Linamar Corporation (TSX:LNR) ("Linamar" or "the company"), a global supplier who designs, develops and manufactures precision machined components, modules and systems for engine, transmission/driveline and industrial applications primarily for the North American, European and Asia Pacific automotive marketplace, today announced its financial results for the second quarter ended June 30, 2006.

(CDN dollars in thousands except per share figures)



Three Months Ended Six Months Ended
June 30 June 30
2006 2005 2006 2005
------------------------------------------------------------------------
$ $ $ $

Sales 607,091 578,805 1,190,439 1,108,279
Gross Margin 79,438 77,661 155,391 141,023
Operating Earnings(1) 49,171 51,746 94,793 91,314
Earnings from Continuing
Operations 32,268 29,757 58,306 52,162
Net Earnings 32,268 29,757 58,106 52,162
------------------------------------------------------------------------
Diluted Earnings per Share
from Continuing Operations 0.45 0.42 0.81 0.73
Diluted Earnings per Share 0.45 0.42 0.81 0.73
------------------------------------------------------------------------

(1) "Operating earnings", as used by the chief operating decision makers
and management, monitors the performance of the business
specifically at the segmented level. Operating earnings is
calculated by the company as gross margin less selling, general and
administrative expenses.


Three Months Ended Six Months Ended
June 30 June 30
2006 2005 2006 2005
------------------------------------------------------------------------
$ $ $ $

Gross margin 79,438 77,661 155,391 141,023
Selling, general and
administrative 30,267 25,915 60,598 49,709
------------------------------------------------------------------------
Operating earnings 49,171 51,746 94,793 91,314
------------------------------------------------------------------------


Under Canadian generally accepted accounting principles ("GAAP"), this financial measure does not have a standardized meaning and is unlikely to be comparable to similar measures presented by other issuers.

Second Quarter Operating Highlights

The second quarter of 2006 saw sales grow 4.9% to $607.1 million, compared to $578.8 million for the second quarter of 2005. Second quarter year to date sales have increased $82.1 million or 7.4%, to $1,190.4 million, compared to $1,108.3 million for the same period in 2005. During the quarter, engine and transmission/driveline sales reported some moderate growth (1.7% over second quarter of 2005) reflecting some ongoing pre-buy in the medium and heavy duty truck market, strength in high performance vehicle and SUV sales, continued strong growth in the off-road market and an overall slight increase in North American light vehicle production, offset by general pricing pressure in the current tough industry environment and the foreign exchange impact of the strengthening Canadian dollar ($25.7 million for the quarter; $44.2 million year to date). Industrial sales, almost exclusively aerial work platforms, showed a strong improvement of $19.7 million (22.9%) over the same period in 2005, although this was also offset by the foreign exchange impact of the strengthening Canadian dollar ($9.5 million for the quarter; $15.4 million year to date).

Operating earnings in the second quarter decreased 4.8% to $49.2 million, compared to $51.7 million for the same period last year. The company's operating earnings grew by $3.5 million or 3.8% for the six months ended June 2006. The engine and transmission/driveline businesses experienced pressure on operating earnings during the quarter principally due to increased carrying costs arising from some delayed launches and reduced volumes, principally in the SUV/pick-up truck and light vehicle 6-speed transmission areas, material and other inputs price increases not recoverable and general pricing pressure in the environment. Industrial operating earnings compressed slightly over second quarter 2005 due to mix and development costs associated with the new boom product.

For the quarter, earnings from continuing operations were $32.3 million (5.3% of sales) versus $29.8 million (5.1% of sales) for 2005. For the first half of the year, earnings from continuing operations were $58.3 million (4.9% of sales) versus $52.2 million (4.7% of sales) for 2005. Excluding the effect of the one-time gain of $3.5 million from a reduction in tax expense related to lower Canadian tax rates, earnings from continuing operations for the quarter would have been $28.8 million (4.7% of sales) and $54.8 million (4.6% of sales) for the year to date. This normalized decrease in earnings during the quarter is due to the decline in operating earnings described above, partially offset by a moderate reduction in interest costs and an improvement in the overall income tax rate due to increased non-Canadian based earnings.

Dividends

The Board of Directors today declared a dividend in respect to the quarter ended June 30, 2006 of CDN$0.06 per share on the common shares of the company, payable on or after September 15, 2006 to shareholders of record on August 25, 2006.

Outlook

While we are pleased with our earnings stability in the second quarter of 2006 and year to date, there exists significant volatility and uncertainty in the automotive industry as articulated in the forward looking statements section of this Press Release. As a result, we are not providing an outlook for the balance of 2006.

Risk and Uncertainties (forward looking statements)

Certain information provided by Linamar in these unaudited interim financial statements, MD&A and other documents published throughout the year that are not recitation of historical facts may constitute forward looking statements. The words "estimate", "believe", "expect" and similar expressions are intended to identify forward-looking statements. Persons reading this report are cautioned that such statements are only predictions and the actual events or results may differ materially. In evaluating such forward-looking statements, readers should specifically consider the various factors that could cause actual events or results to differ materially from those indicated by such forward-looking statements.

Such forward-looking information may involve important risks and uncertainties that could materially alter results in the future from those expressed or implied in any forward-looking statements made by, or on behalf of, Linamar. Some risks and uncertainties may cause results to differ from current expectations. The factors which are expected to have the greatest impact on Linamar include but are not limited to: the extent of OEM outsourcing, industry cyclicality, trade and labour disruptions, pricing concessions and cost absorptions, delays in program launches, the company's dependence on certain engine and transmission/driveline programs and major OEM customers, currency exposure, and technological developments by Linamar's competitors, changes in the various economies in which Linamar operates, fluctuations in interest rates, and environmental emission and safety regulations.

A large proportion of the company's sales are denominated in U.S. dollars and the company also purchases a significant amount of raw materials, supplies and equipment in U.S. dollars. The strengthening of the Canadian dollar has the potential to have a negative impact on financial results. The company has employed a foreign exchange risk management strategy to attempt to mitigate the impact but cannot be completely assured that the entire exchange effect has been offset.

Other factors and risks and uncertainties that could cause results to differ from current expectations are discussed in the MD&A and include, but are not limited to: fluctuations in interest rates, environmental emission and safety regulations, governmental, environmental and regulatory policies, and changes in the competitive environment in which Linamar operates. Linamar assumes no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those reflected in the forward-looking statements.



Frank Hasenfratz Linda Hasenfratz
Chairman of the Board Chief Executive Officer


Guelph, Ontario
August 8, 2006



Contact Information

  • Linamar Corporation
    Linda Hasenfratz
    (519) 836-7550
    or
    Linamar Corporation
    Peggy Mulligan
    (519) 836-7550