Lear Corp. has reported record sales and earnings for the second quarter 2017.
Sales in the second quarter increased 8 percent to $5.1 billion. Excluding the impact of foreign exchange, sales were up 10 percent, with growth in all regions. Lear said the increase reflects the addition of new business in both of the company’s product segments and the acquisition of Grupo Antolin’s seating business.
Core operating earnings were $439 million, or 8.6 percent of sales, reflecting the increase in sales and favorable operating performance. In the Seating segment, margins and adjusted margins increased to 8 percent and 8.4 percent of sales, respectively. In the E-Systems segment, margins and adjusted margins increased to 14.2 percent and 14.9 percent of sales, respectively.
Earnings per share were up 18 percent to $4.49 per share. Adjusted earnings per share were up 20 percent to $4.39 per share, reflecting the improved operating earnings, a reduced share count and a lower effective tax rate. In the second quarter of 2017, net cash provided by operating activities was $566 million, and free cash flow was $413 million.
“In the second quarter, we continued to grow our sales faster than industry production, improve our operating margins in both segments and achieve record overall financial results. Accordingly, we are increasing our full year outlook for sales, earnings and free cash flow,” said Matt Simoncini, Lear’s president and CEO. “With our unique product capabilities, industry-leading cost structure and record backlog, we are well positioned to continue to gain market share and grow our earnings.”
Share Repurchase Program
During the second quarter of 2017, Lear repurchased approximately 0.9 million shares of its common stock for a total of $127 million. As of the end of the second quarter, Lear had a remaining share repurchase authorization of $746 million, which expires on Dec. 31, 2019, and reflects approximately 7 percent of Lear’s total market capitalization at current market prices.
Since initiating the share repurchase program in early 2011, Lear has repurchased 42.9 million shares of its common stock for a total of $3.3 billion at an average price of $77.33 per share. This represents a reduction of approximately 41 percent of Lear’s shares outstanding at the time that we began the program.
Acquisition of Grupo Antolin’s Seating Business
On April 28, Lear completed the acquisition of Grupo Antolin’s seating business, with operations in five countries in Europe and North Africa. Grupo Antolin’s seating business is comprised of just-in-time seat assembly, seat structures and mechanisms and seat covers and is well-positioned among the largest European automakers, including Daimler, Peugeot Citroën, Renault Nissan and Volkswagen.
Full Year 2017 Financial Outlook
Lear is increasing its full year 2017 financial outlook for sales, earnings and free cash flow based on strong first half performance, the addition of Grupo Antolin’s seating business and the company’s outlook for the remainder of the year.
The current outlook is based on a global industry production assumption of 93.1 million vehicles, up 2 percent from 2016. On a regional basis, vehicle production is forecasted to be 17.4 million units in North America, down 2 percent, 22.9 million units in Europe and Africa, up 3 percent and 26 million units in China, up 1 percent. Lear’s financial outlook is based on an average exchange rate of $1.12/Euro for the remainder of the year.
Sales in 2017 are expected to be approximately $20 billion, and core operating earnings are expected to be about $1.65 billion. Capital spending is expected to be $560 million, up $10 million from the company’s prior outlook primarily reflecting the addition of Grupo Antolin. Net cash provided by operating activities is estimated to be $1.66 billion, and free cash flow is forecast to be approximately $1.1 billion.
The company’s effective tax rate on an adjusted basis is expected to be approximately 26 percent. Adjusted net income is expected to be approximately $1.1 billion.
Pretax operational restructuring costs are estimated to be $65 million, and depreciation and amortization expense is estimated to be $405 million.
