Investors Cheer Delphi Automotive's March Toward Self-Driving Vehicles

By Daniel Miller Markets Fool.com

Delphi Automotive (NYSE: DLPH)started the day off on the right foot, especially with its investors. The company, one of the world's largest auto-parts suppliers, posted better-than-expected results on both the top and bottom line Wednesday. Better yet, management also announced some strategic initiatives that thrilled investors. Let's look at what the spin-off of its powertrain unit means and examine some highlights from the company's impressive first quarter.

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By the numbers

Delphi's revenue jumped 9%, adjusted for currency exchange, acquisitions, and divestitures, to $4.3 billion, well above analysts' consensus estimates of $4.12 billion, according to Thomson Reuters. Its adjusted revenue reflects strong global growth: 7% in North America, but 10% in both Europe and Asia and 16% in South America.Looking at the bottom line, the parts supplier's net income from continuing operations reached $335 million during the first quarter, or $1.24 per share. Excluding special items, however, its adjusted earnings soared 17% to $1.59 per share, well above estimates calling for $1.46.

Ford's Fusion testing driverless-vehicle technology. Image source: Ford Motor Company.

Driving into the future

And while its earnings surge was thrilling for investors, the company's strategy to shed its lower-margin businesses and focus on a future of developing driverless-vehicle technology gave investors even more reason to cheer.

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"Our first-quarter results reflect a great start to the year, building on the momentum we saw in 2016 with another quarter of strong growth, margins, and cash flow," said Kevin Clark, president and CEO, in a press release. "Today also marks a major milestone in the evolution of our company, as we announced plans to spin off our powertrain segment, creating two independent companies, each well positioned to meet the rapidly changing needs of our customers and deliver value to all of our stakeholders."

Delphi's intention is to execute a tax-free spinoff of its powertrain-systems business segment into a completely separate and publicly traded company named Powertrain. The transaction itself is expected to be completed by next March, and it will leave Delphi shareholders with shares of both companies. Management believes this move will better position the two companies to create incremental value for investors, and it's the latest in a slew of moves in recent years.

Image source: Delphi Automotive's May 3, 2017, first-quarter presentation.

After the powertrain segment is separated, it'll leave Delphi focused on higher-margin electronics and safety products and electrical and electronic architecture. In other words, Delphi sees that the automotive industry is evolving rapidly toward driverless vehicles over the next two decades and wants to carve out a leading position in the technology required to make that future a reality. This is a great move for investors, as Delphi post-spinoff will be well positioned for upcoming industry megatrends that will help protect the company's top and bottom line, even as the U.S. new-vehicle market plateaus. Investors shouldn't be surprised if Delphi turns into a global leader in driverless-vehicle technology, as it has the engineering capabilities and cost structure to execute on its strategies moving forward.

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Daniel Miller has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.