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Why Shares of Delphi Technologies Fell Today

By Lou Whiteman - Aug 2, 2019 at 5:01PM

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Macroeconomic headwinds are pushing against this turnaround story.

What happened

Shares of Delphi Technologies (DLPH) traded down more than 6% on Friday, as investors continued to digest the automotive supplier's weaker-than-expected earnings and a potential escalation of the trade battle between the U.S. and China. With the drop, shares have now lost more than 14% over two trading sessions, erasing most of the gains the stock enjoyed earlier in the year.

So what

On Aug. 1, Delphi reported second-quarter earnings of $0.58 per share on revenue of $1.12 billion, falling short of analyst expectations for $0.61 per share in earnings on revenue of $1.14 billion. The company has generated revenue of $2.3 billion year to date, down 10% year over year (down 6% on a constant currency basis).

A wheel, a car battery, and other assorted automotive supplies

Image source: Getty Images.

Delphi is a tough company to get a read on right now. The company is a specialist in propulsion technologies, offering products both for electric vehicles and to make internal-combustion-engine vehicles cleaner and more fuel-efficient. But its sluggish results provide fresh reason for investors to worry about whether auto demand has peaked. If so, growth will be hard to come by in the quarters ahead.

Shares of Delphi and other auto suppliers are under added pressure because the U.S. said on Thursday that it plans to impose additional tariffs on China on Sept. 1. The auto industry counts China as a key source for both manufacturing and future sales, and a normalization of trade relations is key to the bull case for much of the automotive industry.

Now what

Delphi is now more than a year removed from a late 2017 split that separated the powertrain business from its self-driving tech operations. Delphi was expected to be the slow-but-steady company to come out of the split, but it has lost nearly 70% of its value since the separation was completed.

Delphi CEO Richard F. Dauch, on the job since January, is working to streamline operations to improve profitability, but that process will take time to show results. Given the fears of an industry slowdown, and the macroeconomic pressures that come with trade wars, it's no surprise that investors prefer to watch this one from the sidelines.

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