Clarios (f/k/a Johnson Controls Power Solutions) reported modest revenue and EBITDA declines for fiscal 1Q20 ended 31 December, according to two sources familiar with the matter.
The company partly attributed the performance to original equipment weakness in the US/Canada region, along with a mild winter. Management also warned that the coronavirus is likely to weigh on near-term performance, given that production at car manufacturers such as Toyota and Volkswagen has been declining amidst regional manufacturing plant shut-downs in China.
“With these auto guys, the excrement flows downhill from car manufacturers to the servicers,” one of the sources said.
The power solutions company reported USD 447m of adjusted EBITDA in 1Q20, compared to USD 481m in 1Q19, excluding year-over-year foreign currency impact. Revenue for the quarter also dropped 9% year-over-year to USD 2.215bn, compared to USD 2.427bn in 1Q19, both sources said.
The company’s 2020 guidance is set at USD 1.65bn – USD 1.7bn for adjusted EBITDA and USD 350m – USD 370m for capex. For context, 2019 EBITDA was USD 1.624bn. Management also told investors that it expects USD 65m of cost savings for the rest of the fiscal year after booking USD 35m in 1Q20, the sources continued.
Using the midpoints of EBITDA and capex guidance, one of the sources estimated free cash flow for 2020 at USD 473m with USD 600m of interest expense, USD 200m of cash taxes and USD 42m of mandatory principal payments.
As of 31 December, liquidity totaled USD 912m through USD 326m of cash and USD 586m of revolver availability. The company is 6.8x levered, based on USD 1.581bn of LTM adjusted EBITDA and USD 10.774bn of total debt.
Clarios was formed when Brookfield acquired the energy solutions arm of Johnson Controls in May 2019 after a tumultuous syndication process for the loans and bonds backing the LBO.
The USD 1.95bn 8.5% senior unsecured notes due 2027 traded today at 109 to yield 5.938%, compared to trades in the 108 context before the earnings report, according to MarketAxess. The USD 1bn 6.25% senior secured notes due 2026 last traded yesterday at 108.25 to yield 3.721%, in line with pre-earnings levels.
Clarios did not respond to a request for comment.