Lear Corporation (NYSE: LEA), a leading global supplier of automotive seating and electrical systems, today reported record financial results for the second quarter of 2016. Highlights include:
Record sales of $4.7 billion, reflecting continued growth in both segments
Net income of $282 million versus $182 million in the prior year
Record core operating earnings of $399 million, an increase of 18% from prior year, with a record margin of 8.4%, up from 7.3% a year ago
Earnings per share of $3.82, with adjusted earnings per share of $3.66, up 30% from prior year
Repurchased 2.3 million shares, approximately 3% of shares outstanding
Increasing full year outlook for earnings and free cash flow
“The Company’s operating fundamentals are the strongest in our history, and we are very well positioned for future growth in both of our business segments. In Seating, we have received outstanding customer response to our craftsmanship initiative and our new ‘Intelligent Seat.’ In Electrical, our electrical distribution capabilities, connected gateway modules, wireless technology and software expertise are allowing Lear to capitalize on the rapidly growing vehicle communication and connectivity mega-trend. In addition, we offer hybrid and high-power electrical systems, including 48-volt architectures, as well as the most efficient vehicle battery charging capabilities. These unique capabilities in both product segments, combined with our low-cost footprint and strong capital structure, provide Lear with a competitive advantage and will continue to drive profitable growth,” said Matt
Simoncini, Lear’s president and chief executive officer.
Second Quarter Financial Results
(in millions, except per share amounts)
2016
2015
Reported –
Sales
$ 4,724.8
$ 4,635.1
Net income
$282.4
$181.9
Earnings per share
$3.82
$2.33
Adjusted –
Core operating earnings
$398.5
$337.4
Adjusted earnings per share
$3.66
$2.82
In the Seating segment, sales were up 2% to $3.6 billion. Excluding the impact of foreign exchange and commodity prices, sales increased 4%, reflecting the addition of new business and improved production volumes on key platforms. Segment earnings were $288 million or 7.9% of sales. Adjusted segment earnings were $302 million or 8.3% of sales. Adjusted margins improved 120 basis points from a year ago, reflecting the increase in sales and strong operating performance.
In the Electrical segment, sales were up 3% to $1.1 billion. Excluding the impact of foreign exchange and commodity prices, sales increased 5%, reflecting the addition of new business. Segment earnings were $151 million or 14.0% of sales. Adjusted segment earnings were $161 million or 14.8% of sales. Adjusted margins improved 90 basis points from a year ago, reflecting the increase in sales and favorable operating performance.
In the second quarter of 2016, net cash provided by operating activities was $529 million and free cash flow was $435 million.
For more information regarding our non-GAAP financial measures, see “Non-GAAP Financial Information” below.
Share Repurchase Program
During the second quarter of 2016, Lear repurchased approximately 2.3 million shares of its common stock for a total of $250 million. As of the end of the second quarter, Lear had a remaining share repurchase authorization of $595 million, which expires on December 31, 2017, and reflects approximately 7% of Lear’s total market capitalization at current market prices.
Since initiating the share repurchase program in early 2011, Lear has repurchased 38.9 million shares of its common stock for a total of $2.8 billion at an average price of $72.06 per share. This represents a reduction of approximately 37% of our shares outstanding at the time we began the program.
Full Year 2016 Financial Outlook
Lear is increasing its full year 2016 financial guidance for earnings and free cash flow based on our strong first half performance and outlook for the full year.
Our 2016 financial outlook is based on industry vehicle production assumptions of 18.0 million units in North America, up 3% from the prior year, 22.3 million units in Europe & Africa, up 3% from the prior year, and 24.0 million units in China, up 6% from the prior year. Lear’s financial outlook is based on an average full year exchange rate of $1.10/Euro.
Sales in 2016 are expected to be in the range of $18.5 billion to $18.8 billion. Core operating earnings are expected to be in the range of $1.45 billion to $1.50 billion, an increase of $50 million from the prior guidance. Free cash flow is expected to be approximately $900 million, an increase of $50 million from the prior guidance, reflecting net cash provided by operating activities of approximately $1.425 billion and capital spending of approximately $525 million.
Our effective tax rate is expected to be approximately 28%, unchanged from the prior outlook. Adjusted net income is expected to be in the range of $935 million to $975 million, up from the prior range of $900 million to $940 million.
Pretax operational restructuring costs are estimated to be about $70 million, and depreciation and amortization expense is estimated to be about $375 million, both unchanged from the prior outlook.
Non-GAAP Financial Information
Certain of the forward-looking financial measures above are provided on a non-GAAP basis. A reconciliation of forward-looking financial measures to the most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States (“GAAP”) is 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.
In addition to the results reported in accordance with GAAP included throughout this press release, the Company has provided information regarding “pretax income before equity income, interest, other (income) expense, restructuring costs and other special items” (core operating earnings or adjusted segment earnings), “adjusted net income attributable to Lear” (adjusted net income), “adjusted diluted net income per share attributable to Lear” (adjusted earnings per share), “tax expense excluding the impact of restructuring costs and other special items” and “free cash flow” (each, a non-GAAP financial measure). Other (income) expense includes, among other things, non-income related taxes, foreign exchange gains and losses, gains and losses related to certain derivative instruments and hedging activities, gains and losses on the extinguishment of debt and gains and losses on the disposal
of fixed assets. Adjusted net income and adjusted earnings per share represent net income attributable to Lear and diluted net income per share attributable to Lear, respectively, adjusted for restructuring costs and other special items, including the tax effect thereon. Free cash flow represents net cash provided by operating activities, excluding the settlement of accounts payable in conjunction with the acquisition of Eagle Ottawa, less capital expenditures.
Management believes the non-GAAP financial measures used in this press release are useful to both management and investors in their analysis of the Company’s financial position and results of operations. In particular, management believes that core operating earnings, adjusted net income, adjusted earnings per share and tax expense excluding the impact of restructuring costs and other special items are useful measures in assessing the Company’s financial performance by excluding certain items that are not indicative of the Company’s core operating performance or that may obscure trends useful in evaluating the Company’s continuing operating activities. Management also believes that these measures are useful to both management and investors in their analysis of the Company’s results of operations and provide improved comparability between fiscal periods. Management believes that free
cash flow is useful to both management and investors in their analysis of the Company’s ability to service and repay its debt. Further, management uses these non-GAAP financial measures for planning and forecasting future periods.
Core operating earnings, adjusted net income, adjusted earnings per share, tax expense excluding the impact of restructuring costs and other special items and free cash flow should not be considered in isolation or as a substitute for net income attributable to Lear, diluted net income per share attributable to Lear, cash provided by operating activities or other income statement or cash flow statement data prepared in accordance with GAAP or as a measure of profitability or liquidity. In addition, the calculation of free cash flow does not reflect cash used to service debt and, therefore, does not reflect funds available for investment or other discretionary uses. Also, these non-GAAP financial measures, as determined and presented by the Company, may not be comparable to related or similarly titled measures reported by other companies.
For reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP, see the attached supplemental data pages which, together with this press release, have been posted on the Company’s website through the investor relations link at http://www.lear.com.
Webcast Information
Lear will webcast a conference call to review the Company’s second quarter 2016 financial results and related matters on July 28, 2016, at 8:00 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 August 11, 2016, with a Conference I.D. of 84757757.
