Visteon Management Discusses Q2 2013 Results - Earnings Call Transcript

Aug. 8.13 | About: Visteon Corporation (VC)

Visteon (NYSE:VC)

Q2 2013 Earnings Call

August 08, 2013 8:00 am ET

Executives

Robert R. Krakowiak - Vice President and Treasurer

Timothy D. Leuliette - Chief Executive Officer, President and Director

Jeffrey M. Stafeil - Chief Financial Officer and Executive Vice President

Analysts

Colin Langan - UBS Investment Bank, Research Division

Brian Arthur Johnson - Barclays Capital, Research Division

Kirk Ludtke - CRT Capital Group LLC, Research Division

Operator

Good morning. My name is Jennifer, and I will be your conference operator today. Welcome to Visteon's Second Quarter 2013 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded.

Before we begin this morning's conference call, I'd like to remind you this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future results and conditions but rather are subject to various factors, risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements.

Please refer to the slide entitled Forward-Looking Information for further information. Presentation materials for today’s call were posted on the company's website this morning. Please visit www.visteon.com/earnings to download the material if you have not already done so.

I would now like to introduce your host for today's conference call, Mr. Bob Krakowiak, Vice President, Treasurer and Investor Relations for Visteon Corporation. Mr. Krakowiak, you may begin.

Robert R. Krakowiak

Thank you, Jennifer. Good morning, everyone. With us today are Tim Leuliette, Visteon's President and Chief Executive Officer; and Jeff Stafeil, Visteon's Chief Financial Officer. We appreciate your interest in our company and taking the time to join us to review the second quarter of 2013. We have scheduled the meeting for an hour, and we'll open the lines for your questions after Tim and Jeff's remarks.

As mentioned, a presentation deck associated with today's call is posted on visteon.com within the Investors section. Also note that our Form 10-Q was filed earlier this morning with the news release. Again, thank you for joining us.

And now I will turn it over to Tim.

Timothy D. Leuliette

Thank you, Bob, and good morning, everyone. And thank you for joining us this is morning. We have a lot to go through this morning, so let's jump right to it. Page 2 of the deck, entitled Recent Highlights.

We had a good quarter. We have a lot to do here. We have a long journey in front of us, but we feel very comfortable with the steps that we're taking in the second quarter, specifically focused on fundamentals. Sales were up approximately $200 million to $1.9 billion and adjusted EBITDA of $187 million versus $147 million a year ago. Adjusted net income of $71 million, earnings per share of $1.41.

Underlying that was the strength in our Climate and Electronics product groups. Year-over-year adjusted EBITDA, up 38% and 17%, respectively. And as I've said in our press release, we saw the company from a sales gross margin and EBITDA perspective, up in all major regions of the world.

We have over $1 billion of liquidity as of June 30. And if you go back and look at what we have done over the last months, the last 12 months, we have bought back $175 million worth of stock and $50 million worth of bonds, have been repurchased. So again, strong liquidity performance against the grain of also improving the balance sheet.

We have a little over $1 billion, as I said, of cash, which is up $306 million from a year ago, and that we also have $114 million on our ABL availability. Debt of slightly under $800 million at $799 million, 1.2x, so again, we remain very -- leverage is quite light and our balance sheet remains very strong.

As we looked at the market, as we looked at the performance and I think as we talked to you at the last earnings announcement in Q1, we said we wanted to get a gauge of where this market was going before we went back and then looked at adjusting guidance. And after the second quarter, we said we'd look at that, and we are. At this point, we're not going to revise sales upward. We think that our sales forecast is pretty strong. And again, there's some pluses and minuses with currency and weaknesses, and Interiors strengthened, offset by some of the other product groups, but we're comfortable with our sales guidance. But we are going to increase our EBITDA, adjusted EBITDA guidance from $620 million to $660 million range to the $660 million to $690 million. And the free cash flow, we're going increase up to the $135 million to $170 million range. And adjusted EPS, to $4.83 to $6.11 versus the $4.04 to $5.52 we had previously. We believe that the performance in the first half of the year and what we see in the second half of the year gives us -- gains us comfort to proceed with that kind of guidance increase. And we're pleased with the performance of the team to achieve that.

Moving to the next page. Again, we talk about this every quarter. I would like to, again, highlight where the vehicles are built and where we sell our products. In the second quarter of 2013, half of the vehicles on earth were built in Asia; 24% in Europe; 20% in North America, with 14% in the United States. This, again, sort of sets the tone for where one should produce their products and where our customers are. On a consolidated basis, as you see, that we are 43% Asia, 31% Europe, 20% North America, 6% South America. Slightly -- just a slight variance from where the vehicle platforms are built around the world. On a nonconsolidated basis, when we include the YFV JV, you see that we remain very heavily focused as an Asian company.

Moving to the next page, Page 4. I want to, again, look here at where we have accomplished, what we've accomplished, what we believe some of the items we have remaining to do. And I'll, on the next few pages, focus on that. From an operational status perspective, I think as we look back over the first 6 months, we see that sales are up 10%, gross margin is up 130 basis points and adjusted EBITDA is up 23%. These reflect fundamentals. These reflect the team working on factory floor issues, engineering recovery issues, launch issues and addressing that order book that we have before us and will continue. The net income is up -- is $134 million for the first half versus $88 million in the similar period last year. But I must remember -- you must remember, as you look at our Q2, in particular, that last year we had a $63 million equity gain in that quarter. So on a quarter-by-quarter basis, on a pure performance basis, this quarter has been much stronger than a year ago. On adjusted free cash flow, we've generated almost $100 million in the first half of 2013 versus using $25 million a year ago.

We're increasing the guidance because, again, as I said earlier, of the strong first half financials and the projected performance we see in the second half. This has given us comfort to increase that guidance. We expect a strong Q4 supported, primarily, by that order book we've discussed in the past and the launches that occur towards the end of every year, and the expansion of our business base. However, Q3 will be impacted by the traditional cyclicality that we always see. And again, I think it's good to remember that the first half of the year, from a vehicle production perspective, is always stronger than the second half of the year. The full-year guidance reflects, in our minds, some softening of the worldwide vehicle production versus the first half. Year-over-year, China was up 12% in the first half, and we're projecting they'll only be up 8% in the second half, if you look specifically at the largest customers in China we have, which are: Shanghai GM, Shanghai Volkswagen, Hyundai-Kia. They were up a significant 29% in the first half of the year versus prior year. We don't expect that kind of pace to continue. We expect that to fall back about 5% to 10% from that pace in the second half of the year, but still very strong and a good growth -- representing good growth for the future.

In Europe, European volumes we also expect to soften. Again, there's always a softer second half than there is a first half in the industry. But we also see some inventory balancing that will occur in the second half. And most of that will be in Q4 -- in Q3, as some of the OEMs probably built a little ahead of the market. We're seeing Europe remain weak, but we don't see it deteriorating further. And in certain areas, we're seeing some strengths, but bottom line is our margin increased, our revenue increased, and our EBITDA contribution of Europe is generated not because of volumes increasing at this stage but because of content, and because of some innovative products that we're launching with our customers.

As we look to the next page, Page 5. Strategy actions that we outlined September 19 of last year are being implemented. I think it's important to note that the Climate consolidation is complete. And while that may be old news, in particular, remember that this is the first quarter where that total footprint has been seen. In the first quarter, that transaction of combining our Climate operations in the Halla-Visteon -- into Halla-Visteon as a combined company, was in process. We closed at the end of January, if you'll recall. So this second quarter is really the first time the industry and the investment community has had a chance to look at the strength of that particular business. And we're quite pleased with what we're seeing.

On the Electronics side, we've defined a strategic plan, defined around cockpit electronics. We've communicated that plan, it's being implemented and we continue to work towards integrating the YFVE element of that business. I'm sure we'll be talking about that more in the future. On the investors -- on the Interiors side, that divestiture remains a priority as we work to also improve operations. I think, through this process, we have been pleased with how the management team has had this duality of addressing operational issues and getting performance to the bottom line. At the same time, preparing and working through our game plan to divest the business. YFV transparency was a goal, and, again, we're going to spend some time on this call. Jeff will take you through a little bit more granularity on the 309 filings, but that has been part of our game plan, to increase transparency there. And we, I think, accomplished that and we'll continue to expand upon that process. And obviously, also, we've been working on the fixed cost and SG&A reduction plan that we identified back on January 15. As you'll recall, there was a template there of our fixed cost and SG&A goals for '13, '14 and beyond. And I would say to all of you that we're working towards that plan and achieving the task that we have identified.

Moving to the next page. This reflects the fact that we still have a long way to go. There's a lot to be done as we continue to transform this company. On an earnings basis, we have a lot of launches going on. We have a lot of -- we've expanding -- we're expanding facilities in North America, we're expanding facilities in Asia. Successfully launching that order book is the key to long-term growth. If you look at the second quarter, the second quarter was driven by one thing, fundamentals: improving earnings, getting business, launching that business successfully and delivering innovative products to the customer. That is what we do. And as we look forward beyond just this quarter, we continue to expand and we continue to see this company growing at above industry growth rates because of the stream of innovative products, I'll hit on a few in a moment. That -- to deliver on that is key. We'll continue to focus on operating margins. We're pleased with the 120 basis points improvement year-over-year. We see further opportunity, obviously. We'll be working towards that. And I want to emphasize the rightsizing of the fixed cost and SG&A expense, again, in line with what we've said in the past.

On the balance sheet side, again, there we want to delever the corporate parent, place debt in regions where the cash is generated. I think over time we'll see -- continue to see a migration there. And we'll be working towards that and communicating that to you. And we will continue our share repurchase program. We continue to also address our unfunded pension overhang. Jeff will spend some time here a little later on where we've moved on the pension versus a year ago and versus end of the year. It's all been positive movement because of actions we've taken, as well as what interest rates are occurring in the marketplace. And again, we will utilize the HVCC balance sheet for accretive Climate industry consolidation opportunities. We see HVCC as a consolidator in this industry, and we will leverage the power that company has and the strong balance sheet it has, to continue to create value.

Structurally, divesting Interiors remains one of the key priorities here that we're working on. And we are going to continue to address legacy issues that need to be dressed -- and need to be addressed and need to be cleaned up. As you know, we announced in the last part of last year, in November, $100 million of restructuring guidance for this year. That is on pace, but some of that will slip into early 2014 just because of the very nature of the process, primarily in Europe in the time line that we face. But that commitment, that investment and the improvement of that as a result of that is still in our base plan, and still being executed.

And also, we're not happy with our tax rate -- our effective tax rate around the world. There are elements there that are going to be addressed, both structurally in our footprint, as well as tax planning to address that. And again, these are all items that remain on our to-do list, remain active, that we're supporting. And this will, again, continue to create a company that has very attractive growth rates and good returns, and we're pleased with where we are on that path.

Typically, as I move to the next page, typically, we spend time and deep dive on one particular product group or an area of technology. We don't have time for that today because of some of the more expansive financial discussions, but I do want to hit on a few elements on the technology side.

First of all, we really are driven by 2 technology areas: Climate and Electronics. The technology -- the Climate is being driven by revolutionary change in the vehicle. When we look at environmental regulations, when we look at the impact of going from 5-liter inefficient engines to 1.4-liter very fuel-efficient engines, we're not generating the heat, we're not generating some of the thermals that we use to heat the passengers. So technologies are changing to continue to keep that passenger warm in Bemidji, Minnesota, even though the engine now is 1/3 the size it used to be. Or when you're pulling up in Miami or in the Middle East, and you want the air-conditioning to be running, but you have start-stop and you no longer have an engine running at the light, how do you keep cool? All of those technologies, the new battery technology launched, the cooling technology on the BMW i3, or the climate change requirements we're doing on refrigerants, all impact our technology base in Climate, making that a hotbed of innovative thought, innovative products and growth.

When we get to the Electronics area, the Electronics area is not automotive electronics per se, but we're morphing into that mobile device that we've talked about in prior meetings. The relationship we have, not only with customers, OEM customers, but the kind of work we do with the retail customer. And I just happened to sit through a review of some properties that were going out for customer review here next week, where we're looking at innovative ways to have that human-machine interface attack this whole issue of focus and information flow into the driver. As we do that, as we look at all those innovative technologies, we just don't interface with talking to customers directly, but we're involved in key technology events. And these technology events are sometimes with consortiums, they're sometimes with customers, they're sometimes with retail customers, but they're part of our footprint. And you will see Visteon continue to take an aggressive stand with reaching out beyond just the OEMs themselves to tailor our products to what the consumer wants. There's a long list here. They're around the world. I won't go through that in detail, other than to say that the e-Bee vehicle, which is our platform of sort of -- and test bed of some innovative products, is now going around the world. It's in India now. We've had, basically, 50 customer engagements, 14 major technical reviews with that vehicle and it's receiving significant, significant positive response as we work towards this next-generation vehicle. So fundamentally, as we go through here, the quarter was strong, fundamentals are strong. We still have a lot to do. But let me turn it over to Jeff now to take you through a lot of the financial information I'm sure you're waiting to hear. Jeff?

Jeffrey M. Stafeil

Yes, thanks, Tim. I have a fair amount to cover today, as Tim mentioned, and I'll try to move through these slides fairly quickly.

Starting on Slide 9, we'll talk about detail on our YFV investment, our 50% nonconsolidated joint venture in China.

The SEC, under Rule 3-09, requires separate financial statements to be filed for significant subsidiaries that meet certain conditions. YFV now meets these conditions, and as such, Visteon filed separate historical financial statements this past June on a Form 10-K/A. These statements are required on an annual basis going forward. As we recently filed these statements, we thought we'd take a few minutes to walk through the YFV financials and how they tie into Visteon's profits.

Turning to Slide 10, we show a very simplified structure for YFV. We own 50% of the parent company, as well as several direct stakes, shown on the red lines in the diagram, in various subsidiary entities. YFV is made up of essentially 5 businesses. Interiors, these are shown at the bottom of the page. And generally speaking, we hold a 50% economic interest in this group. Electronics, we own 40% directly and have 70% of the economic interest. This business is integral to our global electronics business outside of YFV. The Seating business, we have 25% of the economic interest of this business. And finally, Safety and Exterior businesses. YFV does not consolidate these 2 operations, and Visteon has a 25% economic interest in each.

Moving to Slide 11. We show consolidated YFV financials for 2011 and 2012 in RMB and U.S. dollars. These numbers include all of YFV and not just our 50% economic interest. Under IFRS, YFV generated RMB 39.8 billion in revenue and RMB 1.6 billion in profit in 2012.

On Slide 12, we provide a walk between IFRS financials and the amounts we recognized in U.S. GAAP. The primary difference between IFRS and U.S. GAAP was a 2012 noncash gain of $126 million recognized only in U.S. GAAP. Please note that we excluded this noncash gain in all of our adjusted EBITDA and adjusted net income calculations.

Moving to Slide 13. We show how the $369 million from the previous page reconciles to our equity income line. The major bridge items include our direct ownership interest in YFV subsidiaries, plus equity investments and other entities outside of YFV, such as our 50% holding of Duckyang.

Moving to Slide 14, final one in this section. We provide a buildup of YFV 2012 EBITDA. YFV generated RMB 2.6 billion in EBITDA during 2012, or USD 419 million in EBITDA. Visteon's 50% share of YFV's total EBITDA translates into $210 million. It is important to note 2 things. First, the figures on this page represent results for consolidated YFV only. Visteon's direct stakes in Yanfeng affiliates are not considered on the page, but contribute approximately $45 million of additional EBITDA. Second, the EBITDA amounts are positively impacted by YFV's equity from nonconsolidated affiliates and reflect a deduction for YFV's noncontrolling interests from other partners.

I'll now move to an overview of our second quarter 2013 financial results. Moving to Slide 16, we present our key financial results for the second quarter of 2013 compared to the second quarter of 2012. We had another very good quarter, as Tim mentioned, as we meaningfully improved versus prior year on all our key metrics. As we have explained on prior calls, our financial results are impacted by a number of items that make year-over-year comparisons difficult. The adjusted financial information presented on this slide excludes these items and represents how we manage the business internally. As non-GAAP financial measures, this adjusted financial information is reconciled to U.S. GAAP financials in the attached appendices -- appendix pages on Pages 30 through 32. I will discuss these metrics in more detail on the following pages.

Turning to Slide 17. We compare 2013 second quarter sales and adjusted EBITDA to last year. Sales were $1.9 billion, or $199 million better than the second quarter of 2012. The increase was primarily -- was driven by higher year-over-year volumes in all regions, particularly Asia and North America. Meanwhile, our adjusted EBITDA was $187 million, up $40 million versus the second quarter of 2012, and primarily reflected higher volumes and higher equity income, partially offset by a $12 million increase in noncontrolling interest. Our business equation, which was slightly positive on a year-over-year basis, included an $11 million year-over-year benefit related to certain design recoveries that were recognized in our Interiors product line.

Turning to Slide 18. We show our second quarter sales and adjusted EBITDA for our 3 products group segments: Climate, Electronics and Interiors. It should be noted that adjusted EBITDA figures on this page include the benefit of equity in affiliates, and a deduct for noncontrolling interest. In the second quarter, sales improved year-over-year for Climates and Electronics. However, Interior sales decreased due to lower volumes for certain key Visteon vehicles in Europe. Adjusted EBITDA for all product groups improved versus last year. We'll cover the details more on the following pages.

Turning now to Slide #19. We show our first half-year sales and adjusted EBITDA by product group. Note that the product group adjusted EBITDA on this page excludes equity income and noncontrolling interest, which are both shown separately at the bottom of the slide. We have subtotaled results for our Climate and Electronics businesses, and would like to call your attention to those lines. You'll note that sales and adjusted EBITDA for our combined Climate and Electronics businesses are up 17% and 30%, respectively, versus last year. Both of these product groups experienced strong year-over-year growth, driven by higher volumes and solid performance. Results for our Interiors product group continued to be impacted by lower European volumes. Sales and adjusted EBITDA for this business were down 13% and 22%, respectively, versus 2012. Our equity improved -- our equity income improved year-over-year, mainly due to the strength in China that benefited our YFV investment. Offsetting this gain was a $9 million increase in NCI, or noncontrolling interest, primarily related to our 70% ownership in HVCC.

Moving to Slide 20. We provide an overview of Climate sales and adjusted EBITDA for the second quarter versus the prior year. Climate sales were $1.2 billion, up $182 million, or 17%, compared with 2012. The increase reflects higher Hyundai volumes in Asia, Europe and North America, as well as the launch of new Hyundai business in Asia, and Ford business in North America and Europe. Currency also positively impacted sales by $11 million, primarily driven by a stronger Korean won and Chinese RMB. Adjusted EBITDA for the second quarter of 2013 was $119 million, up $33 million, or 38%, compared with the second quarter of 2012. Increased volumes are the biggest driver and were partially offset by increased product development costs, and $11 million more in noncontrolling interest. Currency also positively impacted adjusted EBITDA by $8 million. Climate's adjusted EBITDA margin was 10.9% in the second quarter, up 210 basis points versus the second quarter of 2012. It is important to note that the adjusted EBITDA margins on this slide and the next 2 slides exclude the impact of equity income and noncontrolling interest.

Moving to Slide 21. Taking a look at our Electronics sales and performance, you can see that sales were up in the second quarter or were $354 million, and adjusted EBITDA was $35 million. Electronics sales for the quarter increased $50 million versus 2012. The increase primarily reflects $72 million increase in our cockpit electronics business, partially offset by lower vehicle Electronics sales, which decreased by $14 million year-over-year to $29 million in the quarter. Adjusted EBITDA for the quarter increased $5 million versus 2012, primarily reflecting higher cockpit electronic volumes, partially offset by $5 million in lower profits related to lower volumes in our vehicle electronics product line and increased investment in product development costs.

Second quarter 2013 adjusted EBITDA margin, excluding equity income and noncontrolling interest, was 8.5% or about in line with last year. Adjusted EBITDA margins on cockpit electronics were up year-over-year, but were offset by the balance out of our vehicle electronics business. Furthermore, cockpit electronic margins were negatively impacted by a temporary contract manufacturing relationship, which will create operating efficiencies for Visteon starting in the third quarter. Excluding the impact of this contract manufacturing relationship, adjusted EBITDA margins for cockpit electronics would have increased by 100 basis points versus the second quarter of last year.

As we have previously discussed, the balance out of the vehicle electronics sales has negatively impacted our Electronics business in the past. We are expecting approximately $50 million of vehicle electronics sales in the second half of 2013, and project vehicle electronics sales in 2014 to be approximately $70 million. Although we will continue to see a modest impact on our results going forward as the business balances out, the impact will be considerably smaller going forward than it has been in the past.

Turning to Slide 22. Interior sales in the second quarter were $334 million and adjusted EBITDA was $47 million. Excluding equity income and NCI, adjusted EBITDA increased from $4 million last year to $11 million. Sales decreased versus the second quarter of 2012, primarily due to lower production volumes in Europe and South America, partially offset by slightly higher volumes in Asia. In total, volume reduced Interior sales, year-over-year, by $17 million. Despite lower volumes, adjusted EBITDA increased by $8 million versus the second quarter of 2012, largely driven by positive business equation, which primarily reflects an $11 million year-over-year increase in engineering-related design recoveries that we received from our customers during the quarter. It should also be noted that equity in affiliates related to the Interiors product group totaled $37 million in the second quarter of 2013, up $2 million from prior year. The increase reflects higher profits from Yanfeng affiliates, partially offset by the elimination of profits related to our R-TEK joint venture, which we sold in August 2012.

As we have already mentioned, we view our Interiors business as noncore and have targeted to divest the business. With that said, we continue to operate and implement improvement actions in the business, while supporting and investing in its growth. Much of the $100 million restructuring plan we discussed last year related to improvements in this business, and we continue to work closely with our management team of the business and customer base to improve the operations as we also seek divestment opportunities.

Moving to Slide 23. This provides the breakdown of the key components of our 2013 actual tax provision and cash tax payments. The table also provides a buildup of our full year 2013 estimated tax expense and cash payments. In the first half of the year, our income tax provision was $21 million, reflecting operating taxes in profitable countries, the accrual of withholding taxes related to current earnings from consolidated and nonconsolidated affiliates, and a $54 million noncash tax benefit related to a decrease in reserves for uncertain tax provisions -- positions related to audit developments in the first quarter.

For the full year, we expect our tax provision to range from $55 million to $90 million. As we mentioned during last quarter's earnings call, our tax expense will be uneven throughout the year due to the impact that ongoing tax proceedings outside the U.S. can have on our judgments regarding uncertain tax positions in the given quarter. Cash tax payments in the first half of 2013 were $79 million, excluding the Halla-Korea audit appeal deposit of approximately $20 million made during the first quarter. For the full year, we have updated our guidance for cash tax payments to be between $150 million and $180 million, primarily driven by higher earnings in taxable jurisdictions.

Moving to Slide 24, we discuss our U.S. pension funding status. Tim had mentioned this earlier. This slide summarizes movements in our liability in the last year, primarily due to the lump sum buyout executed in Q4 last year, plus movements in our discount rates. It also shows how our pension assets have performed during this time. Overall, the results have trended favorably. Our net unfunded liability decreased $189 million in the last 12 months and $99 million year-to-date. It should be noted that our liability is highly sensitive to movements in the discount rates. If the discount rate were to increase by 150 basis points, we would be 102% funded. However, if it decreased 150 basis points, we would only be 71% funded. If the rate moved up to the 20-year average of 6.33%, we would be in a surplus position at 104%.

Turning to Slide 25. We'll take a look at our cash flow and our capital structure. Despite a $44 million -- a negative $44 million of trade working capital flows in the second quarter, we managed to generate slightly positive adjusted free cash flow. Year-to-date, adjusted free cash flow is $97 million, but this has benefited from some positive working capital movements related to the calendar dates for quarter-end payments. Note that working capital has provided $53 million year-to-date, despite over $300 million growth in our sales. Based on our quarter-end dates for the third and fourth quarters, we expect this working capital benefit to reverse, but we anticipate that we will, nevertheless, achieve our full year free cash flow and adjusted free cash flow targets outlined later in this document.

Cash balances were slightly over $1 billion as of June 30, up $163 million since year end 2012. The improvement is primarily attributable to positive free cash flow and proceeds from debt raised at Halla, partially offset by $125 million of cash used to repurchase Visteon's stock earlier this year. Total debt at the end of the quarter was $799 million.

Finally, turning to Slide 26, and taking a look at our 2013 full year guidance. As Tim previously mentioned, we are increasing our guidance for adjusted EBITDA, free cash flow, adjusted free cash flow and adjusted EPS. We are maintaining our sales guidance. For the first year -- for the full year, we now project adjusted EBITDA of $660 million to $690 million, adjusted free cash flow of $135 million to $170 million and adjusted EPS of $4.83 to $6.11 per share. Our revised guidance primarily reflects an improved outlook for our Climate and Electronics businesses. We have not increased our sales guidance because, despite positive volume impacts in Climate and Electronics, our sales have also been impacted by lower Interior volumes and the weakening of the Korean won.

I want to quickly remind everyone of the impact that movements in the Korean won have on our sales and adjusted EBITDA. Visteon has significantly more cost exposure to the won than we do sales exposure. As the Korean won has weakened against the dollar versus our original guidance, it has negatively impacted our sales but positively impacted our profits. As we have already discussed, our 2013 adjusted EPS by quarter may vary significantly driven by the impact of certain tax proceedings outside the U.S. The impact of these proceedings will result in an uneven tax expense throughout the year and could result in further revisions to our EPS guidance.

Now let me turn the presentation back over to Bob for Q&A.

Robert R. Krakowiak

Thank you, Tim and Jeff. Jennifer, please open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Colin Langan with UBS.

Colin Langan - UBS Investment Bank, Research Division

Any color on the Interiors sale, how that's progressing? Do you think that could be completed by the end of this year?

Timothy D. Leuliette

Again, thank you, Colin, for the comments. As you know, we don't comment on M&A actions. As I said here, I think, in the past, when we do comment, it will be because the transaction has been completed, not because we have an LOI, MOU or in discussions. So I think it's best to say that the sale of Interiors remains a priority, and when there is a transaction at the right price and at the right time, we'll communicate that to you. And that's just the way we're going to operate on that.

Colin Langan - UBS Investment Bank, Research Division

Okay. Then, there's no time line targeted to get it completed by?

Timothy D. Leuliette

It was clearly a priority for us this year to work through that, and we are working through that. As you saw on our list here of priorities to get on the M&A side, divesting Interiors is one of the key priorities. So I'll just leave it at that.

Colin Langan - UBS Investment Bank, Research Division

Okay. And then, we saw JCI is selling its electronics business. Can you explain how your Electronics as similar or different, as we kind of look at what prices they get for that business, and whether we should think about it as a readthrough for your -- the value of your business?

Timothy D. Leuliette

Yes. The JCI electronics business, as you saw, I think they have obviously announced a sale of one of their big components of that business, which -- it was in an area that's not an area where we compete in. They do compete in some areas we do, such as the clusters and a little bit in the infotainment side. And -- but fundamentally, I think we have a different footprint. I think that our focus at this stage remains upon what I'll call the expansion of the vehicle into the mobile device world. I think their electronic capability has got some areas that are consistent with that. But like many of us, if you look at that -- and I think we've shown back on the, I guess it was February when we did the deep dive on Electronics, we showed in our space where we were and where JCI was on the like components. And again, I think the smaller piece of their Electronics business is in this what we call clusters and infotainment side. And you can see where we stand and where they stand in that area.

Colin Langan - UBS Investment Bank, Research Division

Okay. So the biggest overlap is in the clusters part?

Timothy D. Leuliette

There is some overlap in a part of their business, that's correct.

Colin Langan - UBS Investment Bank, Research Division

And in the past, you've mentioned that you needed better scale in Electronics, but you're not interested in M&A. So how do you -- how can you achieve that and so would you -- how would you achieve that going forward?

Timothy D. Leuliette

Well, I think that, first of all, we've got a pretty good indigenous growth plan when you look at the order book. Secondly, we've said that we would not leverage the Visteon balance sheet to achieve an M&A transaction. But there are other relationship, partnerships, working relationships that could occur to expand our effective footprint. I also ask you to look at, for example, what we're doing on HVCC, where we're utilizing the balance sheet of a subsidiary. So there are many paths one could use to expand that business if a proper opportunity presented itself. But I think the focus at this point is, #1 on our list is to get the YFV component integrated in this in a more effective way and that, we've mentioned, is a priority. We, today -- basically, when you look at that, it's about 1/3 of the size of our current business, but it's really outside of our footprint. We're looking at ways to sort of work closer with that and prioritize that. But again, a lot of opportunities in the Electronics side.

Colin Langan - UBS Investment Bank, Research Division

Okay. And just one last question. Any update on the restructuring, sort of, how far -- I guess, it's $100 million in spend, that looks like it came down a little bit. But how far are you through the restructuring, and how much is reflected in our current results? Or is that really going to be something we see more in the second half?

Timothy D. Leuliette

Jeff, do you want to go through the specifics there?

Jeffrey M. Stafeil

Yes. Colin, there's a, I'd say, a number of actions that are in process. You saw us take a charge in the fourth quarter of last year relating to a facility in France, and another one in the first quarter of this year relating to a different facility in France. Those actions are under way. A lot of the benefit will start to come to us a little bit later. And some of those actions were done because of some product movements from the customer standpoint. So the benefit is more of just mitigating against a future loss. A lot of the corporate actions continue to go through, I would say, a lot of the corporate SG&A and fixed cost reductions we have targeted. We're still on plan to the presentation I think we put out at the Deutsche Bank conference back in January, if you'd reference that document. We're looking -- but a lot of the actions we have will pay more dividends in 2014, as it takes a while to set up some of these. So I'd say, we're still on path. Some of these things just move, as far as the cash and the timing of the expense, a little further out in the calendar as we pace them appropriately from a business and operating perspective.

Timothy D. Leuliette

I would add to that, that in addition, we've seen some pretty darn good revenue growth in the first half of the year, which has also created some headwind there. And I've been pleased with the fact that we still have kept to plan despite that. Secondly, we've also done the spinoff, if you will, of the Climate business into the HVCC activity. And as you get -- go through that transaction, little things -- it's interesting, I was over there a few months back and now every water tower, every piece of stationery, every sign, every door, every bus for employees has got the Halla-Visteon Climate Corporation. So this whole infrastructural change in the cost of transferring and creating that new business get embedded in your SG&A, and has been done and completed. Again, we don't -- we haven't kind of missed our task on it. So a lot of good work going on in that. And I do say that we are on path, confirming what Jeff said.

Operator

Your next question from the line of Brian Johnson with Barclays.

Brian Arthur Johnson - Barclays Capital, Research Division

A couple of things. You've got cash building up on the balance sheet. Any thoughts on when to move on the share buybacks, and any reason not to have done it in the past quarter?

Timothy D. Leuliette

Regarding what we're going to do in the future, you'll be the second to know as we execute our plan. But I would say, first of all, we outlined a 2-year business -- or a 2-year plan, stock buyback plan. We were aggressive in the first quarter. We intend to maintain that plan and look at opportunities. If there are opportunities to expand that, we will. I think, again, just like we were in the first quarter, of sitting back and looking at the year and getting comfortable with the year, we now have got 6 months behind us. Let's assess where we head for the rest of the year and take a look at the marketplace, a lot of dynamics. But again, we I think have been very clear that the businesses themselves generate sufficient cash to reinvest. They're cash-generating businesses and they invest in themselves. If we have excess cash over time, it'll work its way back to the shareholder.

Brian Arthur Johnson - Barclays Capital, Research Division

Okay. And secondly, Halla's had a nice run up in stock. You've always talked about its -- 51% makes more sense than 70%. Any thoughts on potential timing of monetizing some of that Halla position?

Timothy D. Leuliette

Well, I think, today is the first time that the investment community has had a real good shot at looking at Halla-Visteon as a combined entity. I ask you to look at Page, I think it's 20 in our deck, which is the Climate footprint, the Climate financials. And as you see, we got some pretty good momentum there. So the question is, timing is -- let us execute there a bit. We have no gun to our head. There is a tremendous growth there. There's a tremendous order book there. There's margin improvement there. So let us get a few quarters of that under our belt, let the market respond to that and then we'll come back and ask that question. I don't feel, at this point in time, that, that stock has achieved a value for which it's attractive for us to start monetizing.

Brian Arthur Johnson - Barclays Capital, Research Division

Okay. And then, a final question around Interiors. Can you quantify, if you haven't, the recovery that helped in this quarter? And then just secondly, there wasn't a lot of growth in this, which I think is good because it's the least profitable business. Is that by design? Is their business a trading off here that might make it more digestible to a buyer and as it trades off, can you reduce the cost base proportionally?

Timothy D. Leuliette

That's about $7 million or $8 million, Jeff, of the onetime?

Jeffrey M. Stafeil

$11 million year-over-year difference.

Timothy D. Leuliette

$11 million year-over-year difference, the onetime event.

Brian Arthur Johnson - Barclays Capital, Research Division

And that's a small business equation?

Timothy D. Leuliette

Yes.

Jeffrey M. Stafeil

It was really, just to be clear on that, it's engineering recoveries, which are just episodic. And in this business, we tend to -- we bill out our engineering time, but before we can recognize it in revenue, certain milestones need to be met. So it does not -- it's not necessarily a onetime event. It just comes in episodically with the launch of new programs.

Brian Arthur Johnson - Barclays Capital, Research Division

Right, lumpy. But it's also nice to see the customers actually pay?

Timothy D. Leuliette

Also a good thing. But I would say this, the order book for Interiors has not dried up. There are certain pieces of business that roll off because of the very nature of where we're taking the company. But we are sustaining that business. We are interfacing with the customers. We are investing in the business. We're not bleeding it for cash. We are creating a sustainable business that we feel will be better properly placed in the hands of the Interior consolidator. This is a business for which you need a good global footprint. As you know, we don't have an Interiors presence in North America. So there are people that are in this business that we believe are more appropriate stewards of these assets. But the way to optimize the value of that business to those people is not to bleed it and to not go out and be aggressive where we can, where appropriate, in achieving new business. So you'll see, and I think we've discussed in the past in our cash flows that we are investing in the business. We're putting engineering money there. We're also putting capital in place for new programs. So that business will continue to be optimized. But optimized does not mean to be milked, it means to be put in a position such that it's attractive and can transition to a new owner as seamlessly as possible.

Brian Arthur Johnson - Barclays Capital, Research Division

Yes. And final question on Electronics. We heard Delphi noting a bit of softness in high-end electronic systems. Harman noted its major growth was in mid-market, and that's in the branded audio. It was down a bit. I mean, a, what are you seeing in terms of mix within mid-range versus upper electronics infotainment uptake? And b, kind of, where is Visteon's business positioned in that sort of scalable mid-range versus higher-end systems?

Timothy D. Leuliette

It's a good question. We compete, primarily, in that space in the low- to mid-range, that's our sweet spot. And what we're seeing is that we can effectively add content in the low- and mid-range and continue to move up. So part of the pressure that's being felt at the upper end is because of platforms we have, the Eagle platform being one of the electronic platforms we have, of achieving some of the customers' needs. As you look, especially globally, the world is not all upscale C- and D-size cars, it's mostly an A and B world. It's a world of a very cost-effective, lower-priced product. And that has been our historical footprint. If you look at the Volkswagen business that we've discussed in the past, and the Renault-Nissan business we've discussed in the past, large vehicle platforms, right focus in that area, the Ford platforms. Again, not in the upper end but in the low- to mid-range globally. And that's been a good vehicle growth for us. And we don't see that changing. As a matter fact, that's really one of the engines of growth for us in the future.

Brian Arthur Johnson - Barclays Capital, Research Division

And if you could had to flag a publicly disclosed platform clients could look at to say, "Okay, I get it. That's a leading-edge mid-range system," where -- we certainly know the e-Bee, and we've seen that out in Las Vegas, but something that's in the market now and selling well?

Timothy D. Leuliette

Well, I think, most of the Ford products globally, the Renault-Nissan B platforms, the Volkswagen A-B platform products, I think, is probably an area to look at, as far as vehicle for us that we can discuss, I guess, yes.

Operator

[Operator Instructions] And we do have a question from the line of Kirk Ludtke with CRT Capital.

Kirk Ludtke - CRT Capital Group LLC, Research Division

A couple of follow-ups. With respect to -- you mentioned that you'd like to get the tax rate down, and one strategy for doing that might be to move some debt into areas where you have taxable income. And of -- the 6.75% are callable next year. Can you talk a little bit about how you might reposition the debt? And I guess, more specifically, what your target leverage is for the business on a consolidated basis?

Jeffrey M. Stafeil

Kirk, I'll answer that in a few different ways. But I'd say, one of the focus points for us is looking at our earnings line and looking at tax. And I don't recall the exact page number in the appendix of our February 28 conference call, but we gave a page in the back that showed our taxable income in profitable locations, or our PBT in profitable locations around the world, and our effective rate there was in the low 20% range. But then, we summarized the amount of losses we made in areas around the world, obviously, where we weren't enjoying any tax benefit. And the U.S. is one of those. We don't have much operations in the U.S., as you know. Having our debt here is something that we've looked at. It certainly doesn't give us a tax benefit as it would in some other jurisdictions around the world. But that whole equation of how we look at it is much more, I'd say, there's many more things in the equation than just our debt location as we look at -- as we talk about our service organizations and central service environment, where those are located, and making sure that we have those things, as much as we can, matching up against profitable locations that they're serving so we can enjoy tax deductions for those types of expenses. And as we looked through, I'd say, all of those things, we're seeing opportunity. It's going to take a little time and energy to manifest itself. But with target -- I'd say our target leverage is probably peer-group average. I don't think we want to get away from ourselves there. I would probably say we're a bit under-levered today. We still have, certainly, opportunities to increase our cash balances going forward. But trying to put that in locations around the world then, I'd say, there's a lot of opportunities for putting it in different regions where we could enjoy the tax benefit.

Timothy D. Leuliette

I think, Kirk, your comment, though, that this is becoming a more financially attractive debt to address is true. And we're obviously cognizant and aware of that.

Kirk Ludtke - CRT Capital Group LLC, Research Division

Yes, I'm sure. I just -- you mentioned that you wouldn't lever up to buy something, but I guess, is it conceivable that you'd lever up to pay a special dividend?

Timothy D. Leuliette

Special dividends have not been a focus of the business and a priority given, especially some of the tax nature of some of our shareholders. I think the first issue here is migrating debt from the parent to the subsidiaries -- to subsidiaries, where appropriate -- is appropriate. As I said I think in the past a number of times that probably at Visteon Corp. perspective, that long term should probably be not an entity where you carry a lot of debt. But in the interim period, the next couple of years as we transition through this, probably, replacement of that debt into the more efficient areas and more tax-efficient areas is clearly a priority. But again, I will come back and look at the migration of the debt away from the parent to subsidiaries, where appropriate, will be explored. And I think the issue is that's a more efficient use and a more appropriate use of that capital.

Operator

Thank you. And we have no further questions at this time.

Robert R. Krakowiak

Very good, Jennifer. With that, I'd like to thank -- first of all, thank everyone for your questions and your participation in today's call. And I'd like to turn it over to Tim for his final comments.

Timothy D. Leuliette

Thanks, Bob. And thanks, all of you, for your interest in Visteon and your support of the company. We know we have a path here that we still have a lot to execute on. I go back to that September 19 presentation back in Boston at the Citi Conference and the update we did at the Deutsche Conference in January, as far as setting guideposts and setting good targets and setting the objectives, not only tactically but strategically in where we want to head. We have further work to do. We have further execution to achieve. But I do sit back and say, I've been pleased, very pleased with the team this quarter as far as just looking at the fundamentals side of this. And again, I'm sure we'll see some of you next week at the JPMorgan Conference, where we can go into greater depth in some of these questions. But we feel comfortable with where the direction of the company is, we are generating value, we like the order book. I would say, the order book has got some good momentum this year. We'll discuss that, obviously, later. But I feel that we are positioning Visteon for growth and for margin improvement. And the story will continue to unfold quarter-after-quarter. So again, thank you for your support, and we look forward to seeing you next week. Thank you.

Jeffrey M. Stafeil

Thank you.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect at this time. Good day.

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Visteon (VC): Q2 EPS of $1.29 beats by $0.24. Revenue of $1.89B beats by $0.01B. (PR)