Lear (LEA) Beats on Earnings and Revenues, Raises Guidance

Lear Corp. LEA posted adjusted earnings per share of $2.12 in the second quarter of 2014, marking a 31% rise from $1.62 in the year-ago quarter. Moreover, earnings beat the Zacks Consensus Estimate of $1.96. Adjusted net income amounted to $174 million, up 26% over the second quarter of 2013.

Revenues increased 11% to $4.59 billion in the reported quarter, beating the Zacks Consensus Estimate of $4.44 billion. Global industry production grew 3% year over year due to a rise of 12% in China, 4% in North America and 2% in Europe and Africa. Industry production in South America fell 25% year over year.

Core operating income improved 23% to a record high of $275 million from $224 million in the second quarter of 2013.

Segment Results

Revenues from the Seating segment went up 12% year on year to a record high of $3.4 billion, driven by higher production on key platforms together with addition of new business. Adjusted earnings increased 10% to $197 million and constituted 5.7% of sales in the quarter. The year-over-year increase in earnings was due to higher sales and enhanced operating efficiencies.

Revenues from Electrical segment rose 9% to a record high of $1.1 billion due to addition of new business. Adjusted earnings surged 41% to a record high of $143 million or 12.5% of sales in the quarter, driven by higher sales and improved operating efficiencies.

Financial Position

Lear had cash and cash equivalents of $865.1 million as of Jun 28, 2014, down from $1.14 billion as of Dec 31, 2013. Long-term debt rose to $1.07 billion as of Jun 28, 2014 compared with $1.06 billion as of Dec 31, 2013.

In the first half of 2014, cash flow from operating activities declined to $175 million from $265.4 million in the same period of 2013. Capital expenditure (adjusted) fell to $189.1 million from $219.3 million a year ago. These led to a free cash flow of negative $14.1 million in the first half of 2014 against a free cash flow of $46.1 million in the year-ago period.

Share Repurchase

Lear resumed share repurchases from the open market following the final settlement of its accelerated share repurchase ASR program in Apr 2014. During the second quarter of 2014, the company bought back 1.2 million shares for $101 million from the open market. ASR settlement amounted to $55 million, taking the total share repurchase to $156 million.

Lear had remaining share repurchase authorization of $594 million at the end of the quarter. Since initiating the buyback program in early 2011, the company has repurchased 28.2 million shares for $1.7 billion.

Outlook

For 2014, Lear anticipates revenues of $17.6 billion to $17.9 billion, up from the prior projection of $17.2–$17.7 billion. The company expects industry vehicle production of 20.4 million units in Europe and Africa, 17 million units in North America and 21.2 million units in China.

Adjusted net earnings are forecasted to be $610–$645 million for the year. Core operating earnings are anticipated to be approximately $975 million to $1.03 billion, up from previous outlook of $935– $985 million.

Free cash flow is expected to be around $400–$450 million, up $25 million from the prior outlook. Adjusted capital expenditure as well as depreciation and amortization expense are estimated to be $450 million and $310 million, respectively, for the year.

Currently, Lear Corp. carries a Zacks Rank #2 (Buy). Other stocks that are performing well in industry include Magna International Inc. MGA, Tower International, Inc. TOWR and Visteon Corporation VC. All these are Zacks Rank #1 (Strong Buy) stocks.

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