TRW Automotive Holdings Corp. (TRW) reported a profit of $168 million, or $1.40 per share, in the fourth quarter of 2009. The result marks a sharp contrast to a loss of $74 million, or 73 cents per share, in the prior-year period. The profit was also significantly better than the Zacks Consensus Estimate of 73 cents per share.

The improvement was driven primarily by a positive impact from the higher level of sales – especially in Europe and the rest of world. Other contributing factors included restructuring and cost containment actions implemented by the company and lower raw material prices. Sales in the quarter rose 20% to $3.4 billion.

For full year 2009, TRW posted a profit of $137 million, or $1.26 per share, compared to $153 million, or $1.50 per share, a year ago. The profit was significantly higher than the Zacks Consensus Estimate of 48 cents per share. However, sales in the year sagged 22.5% to $11.6 billion, due to a sharp decline in global automotive production volumes.

TRW had cash and cash equivalents of $788 million as of December 31, 2009, almost flat compared to the year-ago level. Long-term debt amounted to $2.4 billion as of that date. This reflected a long-term debt-to-capitalization ratio of 67%.

For full-year 2009, net cash flow was $455 million from operating activities, compared to $773 million in the prior year. The decline in cash flow was attributable to higher working capital requirements. Capital expenditures reduced to $201 million from $482 million in 2008. Free cash flow was $254 million, compared to $291 million in 2008.

Road Ahead

TRW anticipates sales in the range of $12.3 billion to $12.9 billion for full year 2010 and $3.4 billion for the upcoming quarter. The expectations were based on the assumptions for industry production volumes of 10.8 million units in North America and 16 million units in Europe, up 27% and down 2%, respectively, compared to 2009.

Further, TRW expects that the continuing recovery in the North American market and the benefits achieved from restructuring and cost containment actions implemented in 2009 will offset an increase in pension expense, rising commodity prices and other factors in 2010.

Estimate Revisions Trend

Over the last 30 days, only one analyst has revised upward for full year 2010, out of the 7 analysts covering the stock. Therefore, in the absence of any significant agreement among analysts, our long-term recommendation on the stock remains “Outperform”.

With respect to earnings surprises, the stock has performed consistently well over the trailing four quarters. Consequently, the average earnings surprise was as high as 144.53%.

The current Zacks Consensus Estimate for the first quarter and full-year 2010 are 38 cents and $1.82, respectively. The upside potential of these estimates, essentially a proxy for future earnings surprises, currently stands at minus 13.16% and plus 1.65%, respectively.

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