Lear Corporation (NYSE: LEA), a leading global supplier of automotive seating and electrical distribution systems, today reported improved financial results for the fourth quarter and full year 2014 and confirmed its full year 2015 financial outlook. Highlights include:
Fourth Quarter 2014
- Sales of $4.5 billion, up 7% from a year ago
- Core operating earnings of $280 million, up 35%
- Company operating margin of 6.2%, up from 4.9% a year ago
- Improved margins in both business segments
- Adjusted earnings per share of $2.27, up 46%
- Refinanced debt to increase liquidity, improve financial flexibility and reduce borrowing costs
Full Year 2014
- Sales of $17.7 billion, up 9% from a year ago
- Core operating earnings of $1.05 billion, up 25%
- Company operating margin of 5.9%, up from 5.2% a year ago
- Improved sales and margins in both business segments
- Adjusted earnings per share of $8.15, up 38%
- Free cash flow of $503 million
- Returned $477 million to shareholders through share repurchases and dividends
Completed Eagle Ottawa acquisition in January 2015
“2014 marked our fifth consecutive year of higher sales, earnings per share and strong free cash flow,” said Matt Simoncini, Lear’s president and chief executive officer. “Sales grew faster than industry production, and we improved our margins in both business segments on a year-over-year basis. Our improving financial results and our strong sales backlog demonstrate that our focused strategy is delivering value for our customers and for our shareholders. The investments that we have made in expanding our Electrical business, increasing our component capabilities and improving our low-cost manufacturing and engineering footprint in both business segments, as well as the acquisitions of Eagle Ottawa and Guilford, have positioned Lear to take advantage of industry growth and major industry trends.”
Business Conditions
In the fourth quarter, global vehicle production increased 1% from a year ago, primarily reflecting growth in China and North America. Production was up 7% in China and up 4% in North America. Production was flat in Europe & Africa and down 12% in South America.
For the full year, global vehicle production increased 3% from a year ago to a record 85.6 million vehicles. Production in China, North America and Europe & Africa increased by 9%, 5% and 3%, respectively. Production in South America was down 17%.
Fourth Quarter 2014 Financial Results
For the fourth quarter of 2014, Lear reported sales of $4.5 billion, core operating earnings of $280 million, net income of $262 million and adjusted earnings per share of $2.27. This compares with sales of $4.3 billion, core operating earnings of $208 million, net income of $73 million and adjusted earnings per share of $1.55 for the fourth quarter of 2013.
In the Seating segment, sales were up 10% to $3.5 billion, reflecting higher production on key platforms and the addition of new business, partially offset by the impact of foreign exchange. Adjusted segment earnings were $203 million or 5.9% of sales. Earnings increased 30% from last year, primarily reflecting the increase in sales and favorable operating performance.
In the Electrical segment, sales were down 1% to $1.1 billion. Excluding the impact of foreign exchange, sales were up 4%, primarily reflecting the addition of new business. The Electrical segment continues to report strong earnings growth, driven by an industry leading cost structure and strong operating performance. Adjusted segment earnings were $146 million or 13.3% of sales, marking our 21st consecutive quarter of year-over-year margin improvement. Earnings increased 18% from last year, reflecting favorable operating performance.
In the fourth quarter of 2014, free cash flow was $372 million, and net cash provided by operating activities was $516 million.
Reconciliations of core operating earnings to pretax income before equity income, adjusted net income to net income attributable to Lear, adjusted earnings per share to diluted net income per share attributable to Lear, adjusted segment earnings to reported segment earnings and free cash flow to net cash provided by operating activities, in each case as determined in accordance with accounting principles generally accepted in the United States (GAAP), are provided in the attached supplemental data pages.
Full Year 2014 Financial Results
For the full year 2014, Lear reported sales of $17.7 billion, core operating earnings of $1.05 billion, net income of $672 million and adjusted earnings per share of $8.15. This compares with sales of $16.2 billion, core operating earnings of $839 million, net income of $431 million and adjusted earnings per share of $5.90 in 2013.
In the Seating segment, net sales were up 11% to $13.3 billion, reflecting primarily higher production on key platforms and the addition of new business. Adjusted segment earnings were $752 million or 5.7% of sales. Earnings increased 15% from last year, primarily reflecting the increase in sales and favorable operating performance.
In the Electrical segment, net sales were up 5% to $4.4 billion, driven primarily by the addition of new business. Adjusted segment earnings were $567 million or 12.8% of sales. Earnings increased 33% from last year, reflecting operating efficiencies, as well as the increase in sales.
Free cash flow in 2014 was $503 million, and net cash provided by operating activities was $928 million.
Debt Financing
In November 2014, Lear took advantage of favorable conditions in the debt markets to increase liquidity and reduce our overall borrowing costs. Lear increased its revolving credit facility by $250 million to $1.25 billion and extended the maturity to 2019. The Company also issued $1.15 billion of new debt to fund 100% of the Eagle Ottawa acquisition and the anticipated March 2015 redemption of our remaining 8.125% senior notes due in 2020. Lear remains committed to maintaining a strong and flexible balance sheet with sufficient liquidity and investment grade credit metrics.
Share Repurchase Program
During the fourth quarter of 2014, Lear repurchased 1.6 million shares of its common stock for a total of $152 million. As of the end of the fourth quarter, we have a remaining share repurchase authorization of $339 million, which expires in April 2016 and reflects approximately 4% of Lear’s total market capitalization at current market prices.
Since initiating the share repurchase program in early 2011, Lear has repurchased 30.9 million shares of its common stock for a total of $1.9 billion at an average price of $61.97 per share. This represents a reduction of approximately 29% of our shares outstanding at the time we began the program.
Eagle Ottawa Acquisition
On January 5, 2015, Lear completed its acquisition of Eagle Ottawa, the world’s leading supplier of premium automotive leather. Eagle Ottawa will further strengthen Lear’s industry leading seat cover capabilities, improve profitability and accelerate our growth prospects.
The Eagle Ottawa acquisition is consistent with our strategy to strengthen and profitably grow our two business segments by expanding our component capabilities with a focus on customer and geographic diversification. We have already begun to integrate Eagle Ottawa into Lear’s operations and look forward to the benefits this acquisition will bring to our Company.
Full Year 2015 Financial Outlook
Summarized below are highlights of our 2015 full year financial outlook, which includes the impact of the Eagle Ottawa acquisition. Key 2015 assumptions include industry vehicle production of 17.4 million units in North America, up 3% from 2014, 20.5 million units in Europe & Africa, consistent with 2014, and 22.9 million units in China, up 8% from 2014. Lear’s financial guidance is based on an average full year exchange rate of $1.15/Euro, down 14% from 2014.
Sales in 2015 are expected to be in the range of $18.5 to $19.0 billion, and core operating earnings are expected to be in the range of $1.175 to $1.225 billion. The increased earnings reflect higher sales and improving Company margins. Free cash flow in 2015 is expected to be approximately $575 million.
Pretax income before restructuring costs and other special items is estimated to be in the range of $1.08 to $1.13 billion. Our effective tax rate is expected to be approximately 30% in 2015. Adjusted net income attributable to Lear is expected to be in the range of $720 to $755 million.
Pretax operational restructuring costs in 2015 are estimated to be about $80 million. Capital spending in 2015 is estimated to be approximately $500 million. Depreciation and amortization expense is estimated to be about $385 million in 2015.
