Lear Corporation (NYSE: LEA), a leading global supplier of automotive seating and electrical systems, today reported record sales and earnings for the first quarter 2017. Highlights include:
- Sales of $5.0 billion, up 7% from a year ago; up 9% excluding the impact of foreign exchange
- Net income of $305.8 million, up 23% from $248.4 million in the prior year
- Core operating earnings of $431.5 million with a margin of 8.6%, up from 8.3% a year ago
- Earnings per share of $4.35 and adjusted earnings per share of $4.27, up 26% from the prior year
- Net cash provided by operating activities and free cash flow of $278.9 million and $158.1 million, respectively
- Increased quarterly cash dividend from $0.30 to $0.50 per share and increased share repurchase authorization to $1 billion
- Signed a definitive agreement to acquire Grupo Antolin’s seating business
“Our industry-leading cost structure and product capabilities are driving outstanding financial results and market share gains in both product segments,” said Matt Simoncini, Lear’s president and chief executive officer. “We have a record sales backlog that will provide continued profitable sales growth and superior shareholder returns. This year, we celebrate our 100th anniversary, and the Company has never been in a stronger competitive position. I have never been more optimistic about our future.”
First Quarter Financial Results
(in millions, except per share amounts)
2017
2016
Reported Sales
$4,998.5
$4,662.9
Net income
$305.8
$248.4
Earnings per share
$4.35
$3.29
Adjusted (1) Core operating earnings
$431.5
$386.8
Adjusted net income
$300.1
$256.4
Adjusted earnings per share
$4.27
$3.40
Sales in the first quarter increased 7% to $5.0 billion. Excluding the impact of foreign exchange, sales were up 9%, with growth in all regions. The increase reflects the addition of new business and increased production volumes on key platforms in both of our product segments. Sales for both of our segments were up 7%. Excluding the impact of foreign exchange, sales for our Seating and E-Systems segments were up 9% and 8%, respectively.
Core operating earnings were $431.5 million, or 8.6% of sales, reflecting the increase in sales and favorable operating performance. In the Seating segment, margins and adjusted margins increased 20 basis points to 8.3% and 8.5% of sales, respectively. In the E-Systems segment, margins increased 50 basis points and adjusted margins increased 40 basis points to 14.6% and 14.9% of sales, respectively.
Earnings per share were up 32% to $4.35 per share and include a tax benefit related to a change in the accounting for share-based compensation. Adjusted earnings per share were up 26% to $4.27 per share, reflecting the improved operating earnings, a reduced share count and a lower effective tax rate.
In the first quarter of 2017, net cash provided by operating activities was $278.9 million, and free cash flow was $158.1 million.
(1) For more information regarding our non-GAAP financial measures, see “Non-GAAP Financial Information” below.
Increased Share Repurchase Authorization and Dividend
On February 13, 2017, Lear’s Board of Directors authorized an increase in Lear’s share repurchase authorization, bringing the total value of shares that may be repurchased to $1 billion. In addition, the Board increased Lear’s quarterly cash dividend from $0.30 per share to $0.50 per share.
During the first quarter of 2017, Lear repurchased approximately 0.9 million shares of its common stock for a total of $127 million. As of the end of the first quarter, Lear had a remaining share repurchase authorization of $873 million, which expires on December 31, 2019, and reflects approximately 9% of Lear’s total market capitalization at current market prices.
Since initiating the share repurchase program in early 2011, Lear has repurchased 42.0 million shares of its common stock for a total of $3.2 billion at an average price of $75.96 per share. This represents a reduction of approximately 40% of our shares outstanding at the time that we began the program.
Acquisition of Grupo Antolin’s Seating Business
On February 6, 2017, Lear signed a definitive agreement to acquire Grupo Antolin’s seating business, which is headquartered in France with operations in five countries in Europe and North Africa. Grupo Antolin’s seating business is comprised of just-in-time seat assembly, seat structures & mechanisms and seat covers, and is well positioned among the largest European automakers, including Daimler, Peugeot Citroen, Renault Nissan and Volkswagen. Grupo Antolin’s seating business has an experienced management team, modern facilities and a reputation for lean manufacturing, superior quality and innovation, including high-functionality and light weight seat designs. We believe that Grupo Antolin’s capabilities are an excellent complement to Lear’s existing seating business.
The transaction is expected to close in the second quarter of 2017.
Full Year 2017 Financial Outlook
Lear’s 2017 financial outlook is unchanged from the prior outlook. The current outlook is based on industry vehicle production assumptions of 17.6 million units in North America, down 1% from the prior year, 22.8 million units in Europe and Africa, up 2% from the prior year, and 26.3 million units in China, up 2% from the prior year. Lear’s financial outlook is based on an average full year exchange rate of $1.05/Euro.
Sales in 2017 are expected to be approximately $19.5 billion, and core operating earnings are expected to be about $1.6 billion. Net cash provided by operating activities is estimated to be $1.6 billion, and capital spending is expected to be $550 million, resulting in free cash flow in excess of $1.0 billion.
The Company’s effective tax rate on an adjusted basis is expected to be approximately 26%. Adjusted net income is expected to be approximately $1.1 billion.
Pretax operational restructuring costs are estimated to be $65 million, and depreciation and amortization expense is estimated to be $385 million.
Certain of the forward-looking financial measures above are provided on a non-GAAP basis. The Company does not provide a reconciliation of such forward-looking measures to the most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States (“GAAP”) because to do so would be potentially misleading and not practical given the difficulty of projecting event driven transactional and other non-core operating items in any future period. The magnitude of these items, however, may be significant.
Webcast Information
Lear will webcast a conference call to review the Company’s first quarter 2017 financial results and related matters on April 26, 2017, at 9:00 a.m. Eastern Time, through the investor relations link at http://ir.lear.com/. In addition, the conference call can be accessed by dialing 1-800-789-4751 (domestic) or 1-973-200-3975 (international). The audio replay will be available two hours following the call at 1-855-859-2056 (domestic) or 1-404-537-3406 (international) and will be available until May 10, 2017, with a Conference I.D. of 19652648.
