Delphi dividend looks doubtful

DETROIT - Delphi Corp, the vehicle-parts maker that ousted its finance chief and controller on March 4 and said it would restate three years of earnings, may cut or suspend its dividend, say vehicle industry analysts.

"They can better support their operations by saving their cash," said Efraim Levy, an analyst with Standard & Poor's Equity in New York. Joseph Amaturo, an analyst with Calyon Securities (US) in New York: "I don't think they really have a choice."

Eliminating the 7USc quarterly dividend would save Delphi, the world's largest supplier of automotive components, US$157 million ($213 million) annually as it confronts its third-straight annual loss.

The Troy, Michigan, company forecasts a net loss of as much as US$350 million this year as raw-material prices rise, employee health-care costs increase, and General Motors, its largest customer, reduces North American production.

"If they were going to pay a dividend, it would have to come from their cash on hand," Amaturo said.

"They have a mandatory pension contribution of US$600 million this year, which eats up most of the free cash flow expected to be generated in 2005."

Suspending the dividend may force some investor funds, limited to owning shares of dividend-paying companies, to dump the stock, said Michael Ward, a CreditSights analyst in New York.

Delphi, the former GM unit, has paid a 7USc quarterly dividend since going public in 1999.

Last year's first dividend announcement was March 1. The company has made such announcements as late as March 26.

"We have nothing to announce," Claudia Baucus, a Delphi spokeswoman, said.

"We usually make an announcement in the first quarter. We still have the full month of March."

Delphi shares, which have lost about 19 per cent of their value since the March 4 announcement, are down about 43 per cent for the year.

The stock is trading around US$5.15 in New York Stock Exchange composite trading.

Eleven of the 18 analysts that follow Delphi have a "sell" rating on the company, according to data compiled by Bloomberg.

Six rate the stock a "hold", and only one, a "buy".

Delphi overstated cash flow in 1999 and 2000 by selling inventory in one quarter and buying it back in later quarters, according to a March 4 regulatory filing.

Delphi also inflated pretax income in 2001 by booking rebates in one lump payment from suppliers such as Electronic Data Systems in Plano, Texas, that should have been spread out over several years, the filing said.

Delphi announced in September that the US Securities and Exchange Commission was looking into US$86.5 million in transactions with Electronic Data.

The company also said its chief financial officer, Alan Dawes, 50, and chief controller, Paul Free, left the company.

Delphi named John Sheehan, 44, acting chief financial officer, effective immediately. John Blahnik, vice-president of mergers and acquisitions, was demoted to a non-officer position, Delphi said.

"Our audit committee, which is composed of all outside directors, has taken appropriate actions based on the results of an ongoing and independent investigation regarding accounting transactions principally from 1999 to 2001," Delphi chief executive J. T. Battenberg III, 61, said.

The committee's members are Robert Brust, chief financial officer of Eastman Kodak in Rochester, New York; Oscar De Paula Bernardes Neto, chief executive of Syntechrom-Panamby Ice in Sao Paulo; and Cynthia Niekamp, a vice-president with BorgWarner in Auburn Hills, Michigan.

- BLOOMBERG