Hayes Lemmerz Intl: Reinventing the Wheel

It’s been a long and sometimes rocky road for Hayes Lemmerz International (Nasdaq: HAYZ) since its founding companies manufactured wood-spoke wheels for Henry Ford’s Model T. The Northville, Mich.-based maker of steel and aluminum wheels has survived the decline of the Big Three automakers in Detroit and a Chapter 11 reorganization earlier this decade, and now seems on track to reap the benefits from its concentrated effort to restructure operations and restore profitability.

The company earlier this month announced solid gains in sales and earnings for the first fiscal quarter ended April 30, and said it was on target to reach full-year goals of $2.2 billion in sales and $200 million to $210 million in EBITDA, compared with $2.06 billion and $188.6 million in the year ended January 31.

Hayes Lemmerz is the global leader in supplying steel and aluminum wheels to passenger cars and steel wheels to commercial vehicles. It has had a laser focus in the past couple of years in positioning itself in the global automotive market and now realizes three-quarters of its sales outside the United States (and four-fifths of its wheel sales). While it still depends heavily on the Big Three in the Unites States, it has won virtually all the major European and Asian carmakers as customers as it shifts production to low-cost sites in Czech Republic, Turkey, Thailand and India.

At the same time, it has shut down and sold off non-core operations in the Unites States  and in general downsized the company, going from 43 facilities and 11,000 employees when it emerged from Chapter 11 in 2003 to 30 facilities and 8,500 employees now. Of those 30 facilities, only seven, with 1,500 employees, are in the Unites States – the remaining 23 facilities and 7,000 employees are spread among 13 foreign countries. Wheels, which represented two-thirds of sales in 2003, are projected to account for 84% in 2007. Other products include components for brakes and powertrains.

The company followed up its operational efforts with a successful capital restructuring this spring, raising $180 million in a rights offering, plus a $13 million direct investment by manager Deutsche Bank, to retire senior debt. It consolidated the rest of its debt in a $495 million syndicated loan and a $175 million euro-denominated note offering in Europe, so that the end result is to slash $24 million annually from its interest expense ($76 million in the past fiscal year), extend maturities (the earliest now is 2013), and better match its income streams.

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