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:
Net sales of $4.1 billion, up 12%
Core operating earnings of $224 million, up 13%
Adjusted earnings per share of $1.62, up 20%
Free cash flow of $74 million
Record quarterly sales and earnings in EPMS; 15th consecutive quarter of year-over-year margin improvement
Executed $800 million ASR program and retired 11.9 million shares
Increasing full year outlook for net sales, core operating earnings and free cash flow
Business Conditions
In the second quarter, global vehicle production increased 3% from a year ago, including increases of 11% in China and 6% in North America. Europe and Africa industry production was up 2% compared to a year ago. While the European industry continues to be below trend, this was the first quarter without a year-over-year decline since the fourth quarter of 2011.
“Lear performed well in the second quarter, with sales and earnings growing faster than global industry production,” said Matt Simoncini, Lear’s president and chief executive officer. “Our strong financial position allows us to strengthen and grow our business while improving our cost structure. We plan to maintain a balanced approach of investing in the business and returning excess cash to shareholders in order to drive shareholder value.”
Second Quarter 2013 Financial Results
For the second quarter of 2013, Lear reported net sales of $4.1 billion, core operating earnings of $224 million, net income of $137 million, diluted earnings per share of $1.60 and adjusted earnings per share of $1.62. This compares with net sales of $3.7 billion, core operating earnings of $197 million, net income of $145 million, diluted earnings per share of $1.45 and adjusted earnings per share of $1.35 in the second 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 10% to $3.1 billion, reflecting higher production on key platforms, the addition of new business and the Guilford acquisition. Adjusted segment earnings were $178 million or 5.8% of sales. Earnings decreased from last year, primarily reflecting the impact of key program changeovers, partially offset by the increase in sales. 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 20% to $1.0 billion, driven primarily by the addition of new business and higher production on key platforms. Adjusted segment earnings were $101 million or 9.7% 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 second quarter of 2013, free cash flow was $74 million, and net cash provided by operating activities was $202 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
During the second quarter, Lear executed an $800 million accelerated share repurchase (ASR) program and retired 11.9 million shares of its common stock. The specific number of shares that Lear will ultimately repurchase under the ASR program will be based on the daily volume weighted average price of Lear’s common stock during the term of the program. The transaction is expected to be completed no later than March 2014.
After the completion of the ASR program, Lear will have $750 million remaining in its existing share repurchase authorization, which will expire two years after the completion of the ASR program. Since initiating the share repurchase program in early 2011, Lear has repurchased 27.1 million shares of its common stock. This represents a reduction of approximately 25% of our shares since we began the program.
Full Year 2013 Financial Outlook
Lear has increased its full year 2013 financial outlook for net sales, core operating earnings, tax expense and free cash flow.
Net sales in 2013 are expected to be approximately $15.8 billion, up from a range of $15.0 to $15.5 billion. Core operating earnings are expected to be $750 to $800 million, and free cash flow is expected to be approximately $300 million, both up $25 million from the prior outlook. Interest expense is expected to be approximately $80 million, unchanged from the prior outlook.
Pretax income before restructuring costs and other special items is estimated to be in the range of $675 to $725 million. Tax expense, excluding the impact of restructuring costs and other special items, is expected to be in the range of $200 to $215 million, resulting in an effective tax rate of approximately 30%. Adjusted net income attributable to Lear is expected to be in the range of $440 to $475 million.
Pretax operational restructuring costs are estimated to be about $50 million. Adjusted capital spending is estimated to be approximately $450 million. Depreciation and amortization expense is estimated to be about $285 million.
Key assumptions for our 2013 financial outlook include industry vehicle production of 16.2 million units in North America, up 1% from the prior outlook, 19.2 million units in Europe and Africa, up 1% from the prior outlook, and 18.7 million units in China, down slightly from the prior outlook. Lear’s financial guidance is based on an average full year exchange rate of $1.31/Euro, up 1% from the prior outlook.
