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Lear Corp. posted a 20.0% rise in adjusted earnings per share to $1.62 in the second quarter of 2013 from $1.35 in the corresponding quarter last year. With this, earnings beat the Zacks Consensus Estimate by a significant margin of 27 cents.

Adjusted net earnings rose only 2.1% to $138.3 million in the quarter from $135.4 million in the year-ago quarter. The significant rise in earnings per share compared to a meager rise in net earnings can be attributable to a year-over-year decrease in average shares outstanding during the quarter.

Revenues increased 12.2% to $4.1 billion in the reported quarter, surpassing the Zacks Consensus Estimate of $3.9 million. Global industry production increased 3% year over year, with an 11% rise in China and 6% hike in North America. Industry production in Europe and Africa went up 2% for the first time since the fourth quarter of 2011.

Segment Results

Revenues from the Seating segment went up 9.9% to $3.1 billion, driven by higher production on key platforms, addition of new business and the acquisition of Guilford. Adjusted earnings declined 3.6% to $178.0 million or 5.8% of sales in the quarter. The year-over-year fall in earnings was due to changeovers of key program, partially offset by the increase in sales.

Revenues from Electrical Power Management Systems segment rose 19.8% to $1.0 billion due to addition of new business and higher production on key platforms. Adjusted earnings surged 71.6% to $101.4 million or 8.4% of sales in the quarter, driven by increase in sales and improved operating efficiencies.

Share Repurchase

Lear initiated an $800 million accelerated share repurchase (ASR) program and retired 11.9 million shares of its common stock in the quarter. The new share repurchase program will be completed by Mar 2014. After the completion of the program, Lear will have $750 million remaining under its existing share repurchase authorization, which will expire two years after the completion of the ASR program.  

Since the initiation of the share repurchase program in early 2011, Lear repurchased 27.1 million shares of its common stock. This represented a reduction of roughly 25% of its shares since the inception of the program.

Financial Position

Lear had cash and cash equivalents of $841.1 million as of Jun 29, 2013, down from $1.4 billion as of Dec 31, 2012. Long-term debt rose to $1.06 billion as of Jun 29, 2013 compared with $626.3 million as of Dec 31, 2012.

In the first six months of 2013, cash flow from operating activities soared 66.1% to $265.4 million from $159.8 million in the same period of 2012. Capital expenditure (adjusted) increased 24.7% to $219.3 million compared with $175.9 million a year ago. These led to a free cash flow of $46.1 million in the 2013-first half compared with a free cash flow use of $16.1 million in the year-ago period.

Outlook

In 2013, Lear anticipates revenues of $15.8 billion, up from the prior range of $15.0 to $15.5 billion. Adjusted net earnings are expected to be in the range of $440 to $475 million for the year. Adjusted capital expenditures are estimated to be $450 million for the year.

Lear anticipates industry vehicle production of 16.2 million units in North America, up 1% from the prior guidance; 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 guidance.  

Our Take

Lear Corporation designs, manufactures, assembles and supplies automotive seat systems, electrical distribution systems, and related components primarily to automotive original equipment manufacturers. The company sells its products chiefly in North America, South America, Europe, and Asia. The company retains a Zacks Rank #2 (Buy).

Other stocks that are also performing well in the automotive components industry include Visteon Corp. , Gentex Corp. and American Axle & Manufacturing Holdings Inc. . Visteon and Gentex are Zacks Rank #1 (Strong Buy) stocks while American Axle & Manufacturing retains a Zacks Rank #2 (Buy).

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