Lear Corp. Tightening the Belt

Lear Corporation (LEA) is one of the largest independent automotive parts suppliers in the world, with a 9% global share. The company has undertaken a restructuring drive to contain its costs and streamline operations.

Lear’s expanding relationships with Hyundai, Toyota Motor Corp. (TM - Snapshot Report) and Nissan Motor Corp. (NSANY - Analyst Report) are expected to drive revenues from Asia. As a result, we rate the shares a Hold with a target of $23.00, which is 6.8x our 2008 EPS estimate.

Lear initiated a $380 million restructuring drive to streamline the company’s operations through cost reduction, capacity utilization, and closure of some plants. This plan is expected to result in 5-7% headcount reduction and 20 facility closures. Overall 40% of production is expected to be in low-cost countries. The firm is also focusing on the Seating and Electronics businesses, where Lear has very high market shares. On June 13, Lear announced that it has entered into agreements to acquire a 75% share of the automotive fabric business of New Trend Group Co., Ltd. in China.

In its financial outlook for 2008, Lear revised its sales outlook downward to approximately $15.3 billion from $15.5 billion previously. It lowered income before interest, other expenses, income taxes, restructuring costs and other special items outlook to a range of $600-$640 million. In addition, Lear increased its estimated restructuring investment for 2008 to about $125 million. The revised outlook for full-year 2008 free cash flow is approximately $200 million.

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