Lear Corporation (NYSE: LEA), a leading global supplier of automotive seating and electrical distribution systems, today reported financial results for the first quarter. Highlights include:
Net sales of $3.9 billion, up 8%
Core operating earnings of $201 million, up 3%
Adjusted earnings per share of $1.30
Record quarterly sales and earnings in EPMS; 14th consecutive quarter of year-over-year margin improvement
Increased liquidity by $1 billion through bond issuance and increased revolver
Increased share repurchase authorization by $1.55 billion
Entered into agreement for $800 million Accelerated Share Repurchase program
Increased quarterly dividend by 21% to $0.17 per share
Completed divestiture of non-core IAC equity interest
Business Conditions
In the first quarter, global industry vehicle production decreased 1% from a year ago; down 8% in Europe, up 12% in China and up 1% in North America.
“Lear had another quarter of strong operating performance,” said Matt Simoncini, Lear’s president and chief executive officer. “We are following a balanced approach of investing in our business and maintaining a strong and flexible balance sheet while returning excess cash to shareholders. During the quarter, we took several actions to improve our capital structure and financial flexibility. Additionally, we have significantly increased our dividend, as well as the size and pace of our share repurchase program.”
First Quarter 2013 Financial Results
For the first quarter of 2013, Lear reported net sales of $3.9 billion, core operating earnings of $201 million, net income of $109 million, diluted earnings per share of $1.13 and adjusted earnings per share of $1.30. This compares with net sales of $3.6 billion, core operating earnings of $195 million, net income of $134 million, diluted earnings per share of $1.32 and adjusted earnings per share of $1.38 in the first quarter of 2012. A reconciliation of core operating earnings to pretax income before equity income and adjusted earnings per share to diluted net income per share attributable to Lear, 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.
In the Seating segment, net sales were up 3% to $2.9 billion, and adjusted segment earnings were $164 million or 5.6% of sales. Earnings decreased from last year, reflecting lower production in Europe, the impact of key program changeovers and increased product and facility launch costs in South America. A reconciliation of adjusted segment earnings to reported segment earnings, as determined in accordance with GAAP, is provided in the attached supplemental data pages.
Our Electrical Power Management Systems segment achieved record quarterly sales and earnings. Net sales grew by 25% to $1.0 billion, driven primarily by the addition of new business and higher production on key platforms. Adjusted segment earnings were $90 million or 8.7% of sales. Earnings increased from last year, reflecting the increase in sales, as well as improved operating efficiencies. A reconciliation of adjusted segment earnings to reported segment earnings, as determined in accordance with GAAP, is provided in the attached supplemental data pages.
In the first quarter of 2013, free cash flow was a use of $28 million, and net cash provided by operating activities was $64 million. A reconciliation of free cash flow to net cash provided by operating activities, as determined in accordance with GAAP, is provided in the attached supplemental data pages.
Share Repurchase Program
In January 2013, the Company’s Board of Directors approved an $800 million increase to its share repurchase authorization, bringing the total authorization since the program began to $1.5 billion. During the first quarter of 2013, Lear repurchased 3.7 million shares of its common stock for a total of $200 million. Since initiating the share repurchase program in early 2011, Lear has repurchased 15.2 million shares of its common stock at a cost of $702 million.
In April 2013, the Company’s Board of Directors authorized an additional $750 million in share repurchases, bringing the total available repurchase authorization to $1.55 billion. Including $702 million of share repurchases to date and the $1.55 billion in available repurchase authorization, the Board has authorized $2.25 billion in share repurchases since the first quarter of 2011. The available repurchase authorization reflects approximately one-third of Lear’s present market capitalization.
Accelerated Share Repurchase Program
Today, Lear entered into an agreement with Citibank, N.A. to repurchase $800 million of its common stock under an accelerated share repurchase (ASR) program. Lear will acquire these shares under the previously announced share repurchase program.
Under the ASR agreement, Lear will fund $800 million and retire approximately 12 million shares within the next week. The specific number of shares Lear will ultimately repurchase under the ASR will be based on the daily volume weighted average price of Lear’s common stock during the term of the agreement. The transaction will be funded with cash on hand and is expected to be completed within 11 months.
Full Year 2013 Financial Outlook
Lear’s financial outlook for 2013 remains unchanged.
Net sales are expected to be $15.0 to $15.5 billion, and core operating earnings are expected to be $725 to $775 million. Free cash flow in 2013 is expected to be approximately $275 million, and interest expense in 2013 is expected to be approximately $80 million.
Pretax income before restructuring costs and other special items is estimated to be in the range of $650 to $700 million. Tax expense, excluding the impact of restructuring costs and other special items, is expected to be in the range of $195 to $210 million, resulting in an effective tax rate of approximately 30%. Adjusted net income attributable to Lear is expected to be in the range of $420 to $455 million.
Pretax operational restructuring costs in 2013 are estimated to be about $50 million. Adjusted capital spending in 2013 is estimated to be approximately $450 million. Depreciation and amortization expense is estimated to be about $285 million in 2013.
Key assumptions for our 2013 financial outlook include industry vehicle production of 16.1 million units in North America, up 3% from the prior outlook, 19.1 million units in Europe and Africa, up 1% from the prior outlook, and 18.8 million units in China, up 1% from the prior outlook. Lear’s financial guidance is based on an average full year exchange rate of $1.30/Euro.
