Lear Corporation (NYSE: LEA), a leading global supplier of automotive seating and electrical distribution systems, today reported financial results for the second quarter. Highlights include:
- Sales of $4.6 billion, up 11% from a year ago
- Record core operating earnings of $275 million, up 23%
- Record adjusted net income of $174 million, up 26%
- Record adjusted earnings per share of $2.12, up 31%
- Record Seating sales, up 12% and earnings up 10%
- Record Electrical sales, up 9% and record earnings, up 41%
- Returned $172 million to shareholders through share repurchases and dividends
- Increased full year outlook for sales, earnings and free cash flow
“In the second quarter, we continued our positive momentum with record financial results,” said Matt Simoncini, Lear’s president and chief executive officer. “Our record performance in the quarter reflects the investments that we have made in improving our cost structure and expanding our component capabilities globally. We are well positioned to take advantage of industry trends toward global vehicle platforms, direct component sourcing and increasing electrical content.”
Business Conditions
In the second quarter, global vehicle production increased 3% from a year ago, reflecting production increases in each of the three largest automotive markets in the world. Production was up 12% in China, 4% in North America and 2% in Europe & Africa. Production was down 25% in South America.
Second Quarter 2014 Financial Results
For the second quarter of 2014, Lear reported sales of $4.6 billion, core operating earnings of $275 million, net income of $149 million and adjusted earnings per share of $2.12. This compares with sales of $4.1 billion, core operating earnings of $224 million, net income of $137 million and adjusted earnings per share of $1.62 for the second quarter of 2013.
In the Seating segment, sales were up 12% to a record $3.4 billion, reflecting the addition of new business and higher production on key platforms. Adjusted segment earnings were $197 million or 5.7% of sales. Earnings increased 10% from last year, primarily reflecting the increase in sales and favorable operating performance.
Our Electrical segment continues to deliver record sales and earnings, driven by an industry leading cost structure, favorable industry growth trends and market share gains. Sales grew by 9% to a record $1.1 billion, driven primarily by the addition of new business. Adjusted segment earnings were a record $143 million or 12.5% of sales, marking our 19th consecutive quarter of year-over-year margin improvement. Earnings increased 41% from last year, reflecting favorable operating performance, as well as the increase in sales.
In the second quarter of 2014, free cash flow was $137 million, and net cash provided by operating activities was $229 million.
A reconciliation of core operating earnings to pretax income before equity income, 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), is provided in the attached supplemental data pages.
Share Repurchase Program
Following the final settlement of the accelerated share repurchase (ASR) program in April 2014, Lear resumed open market share repurchases. During the second quarter of 2014, Lear repurchased 1.2 million shares of its common stock for a total of $101 million. Total share repurchases, including the ASR settlement of $55 million, were $156 million in the second quarter.
As of the end of the second quarter, we have a remaining share repurchase authorization of $594 million, which expires in April 2016 and reflects approximately 8% of Lear’s total market capitalization at current market prices.
Since initiating the share repurchase program in early 2011, Lear has repurchased 28.2 million shares of its common stock at a cost of $1.7 billion. This represents a reduction of approximately 25% of our shares outstanding at the time we began the program.
Full Year 2014 Financial Outlook
Lear has increased its full year 2014 financial outlook for sales, core operating earnings and free cash flow.
Our 2014 financial outlook is based on industry vehicle production assumptions of 20.4 million units in Europe & Africa, up 2% from the prior outlook, 17.0 million units in North America, up 1% from the prior outlook, and 21.2 million units in China, in-line with the prior outlook. Lear’s financial guidance is based on an average full year exchange rate of $1.37/Euro.
Sales in 2014 are expected to be in the range of $17.6 to $17.9 billion, up from the prior range of $17.2 to $17.7 billion. Core operating earnings are expected to be in the range of $975 to $1,025 million, up from the prior range of $935 to $985 million. Free cash flow is expected to be in the range of $400 to $450 million, up $25 million from the prior outlook.
Pretax income before restructuring costs and other special items is estimated to be in the range of $910 to $960 million. Tax expense, excluding the impact of restructuring costs and other special items, is expected to be in the range of $270 to $285 million. Adjusted net income attributable to Lear is expected to be in the range of $610 to $645 million.
Pretax operational restructuring costs are expected to be approximately $90 million, up $25 million from the prior outlook, reflecting plant consolidations in Europe and other census related actions. The outlook for capital spending and depreciation and amortization expense is unchanged at approximately $450 million and $310 million, respectively.
