Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lear Corp (LEA, Financial) achieved a quarterly record revenue of over $6 billion in the second quarter.
- Adjusted earnings per share increased by 8% to $3.60, driven by higher adjusted net income and share repurchase program benefits.
- The company repurchased $60 million of shares and paid $44 million in dividends during the quarter.
- Lear Corp (LEA) continues to diversify its customer base, securing new contracts with major automotive brands like Volvo, Volkswagen, and Audi.
- The acquisition of W.E.T. Industrial Automation is expected to enhance Lear Corp (LEA)'s automation initiatives globally, leveraging robotics, AI, and vision systems.
Negative Points
- Global vehicle production decreased by 1% compared to the same period last year, impacting overall sales.
- Lower volumes on key Lear platforms negatively affected core operating earnings, which remained flat at $302 million.
- The company experienced a reduction in its full-year revenue outlook to $23.2 billion to $23.7 billion, down from previous estimates.
- Lear Corp (LEA) is facing challenges with lower production volumes on electric vehicle platforms, which contributed to a significant portion of the revenue reduction.
- The company anticipates continued restructuring costs, increasing the outlook for these expenses by $25 million to $150 million.
Q & A Highlights
Q: On the Chinese automakers, you mentioned being 30% of BYD's seating suppliers in a few years. Who are the other suppliers, and is there a difference in opportunity between vehicles sold within China versus those exported?
A: BYD has in-house seat manufacturing and a joint venture with Faurecia. Our business with BYD and these two entities will cover the majority of BYD's seating needs. We see no significant content differences between domestic and export markets. BYD is setting up manufacturing outside China, and we expect to maintain our share as they expand globally.
Q: How much disruption is being caused by the slowdown in EV programs, and how do you see this impacting 2025 and beyond?
A: About 65% of our revenue reduction is due to lower volumes on EV platforms. This includes slower ramp-ups and lower production rates on existing programs. The impact varies by customer and program, with some dedicated EV capacity facing more margin pressure. We expect some ICE program extensions to offset this slowdown.
Q: Regarding the 2024 guidance, are recent OEM production cuts already embedded in your plans, or should we expect more risk?
A: We've adjusted our second-half outlook to reflect recent announcements and our expectations for further cuts, particularly on EV platforms. We've tried to balance the risk and potential upside, with a midpoint that is neither overly conservative nor aggressive.
Q: With the slowdown in EVs and other production cuts, how do you view Lear's growth algorithm over the next one to three years?
A: Despite the EV slowdown, E-Systems continues to grow over market due to low-voltage content on ICE vehicles. Seating growth is more uncertain due to EV platform weighting. We expect ICE program extensions to help offset slower EV ramp-ups. Long-term, we remain confident in our growth targets due to our strong backlog and competitive advantages in thermal comfort and E-Systems.
Q: Can you provide more detail on the recent UAW strike affecting your seating plant and any associated costs?
A: We reached a tentative agreement and resumed production. The costs associated with the new contract are reflected in our guidance.
Q: What is your current assumption for Mexican peso exposure?
A: We still assume a $60 million headwind, with 85% hedged. If the peso remains stable, there is a modest opportunity for improvement in the last few months of the year.
Q: How much of the $285 million backlog reduction is due to lower EV volumes, and what is the potential impact of ICE extensions on the 2025 backlog?
A: Roughly $250 million of the backlog reduction is due to lower EV volumes. We expect some of this volume to shift to 2025. ICE extensions could offset the lower EV volumes, but it's too early to quantify this impact.
Q: Are you seeing any signs of distress among Tier 2 suppliers due to the recent deterioration in the LVP environment?
A: We are not seeing significant changes in supplier distress. Our vertical integration in seating allows us to bring business in-house if needed, mitigating potential disruptions.
Q: How do recent automation efforts, including the W.E.T. acquisition, impact your margin targets for Seating and E-Systems?
A: Automation and recent acquisitions are driving operational efficiencies and cost reductions. We expect these efforts to more than offset wage inflation over time, supporting our margin targets.
Q: How do you see your JIT market share evolving globally, given your investments in modularity and thermal comfort?
A: We are on track to achieve our long-term 29% market share goal in seating. Thermal comfort and modularity are key enablers, driving both JIT and component business growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
