Autoliv Returns to Profitability

Autoliv (ALV - Analyst Report) has shown a profit of $33.7 million or 37 cents per share in the third quarter of the year, after reporting losses for the preceding three quarters. The Sweden-based supplier of automotive safety systems has also beaten the Zacks Consensus Estimate of 24 cents per share. Nevertheless, earnings declined from $34 million, or 44 cents per share, in the same quarter of 2008.

Autoliv believed higher light vehicle production from the "Cash for Clunkers" program and other stimulus packages boosted its earnings. Consolidated net sales declined 14% to $1.32 billion while organic sales (i.e., sales excluding currency effects and acquisitions/ divestitures) fell 12%.

Segment Performance

Sales of airbag products decreased 12% to $858 million. Organic sales in the segment dipped 11% compared to an 18% decline in light vehicle production (LVP) in the Triad (i.e. North America, Europe and Japan) due to new business with Ford (F - Analyst Report), Volkswagen, Chevrolet, Opel, Suzuki, Nissan (NSANY - Analyst Report), Toyota (TM - Snapshot Report) and Great Wall.

Sales of seatbelt products dropped 17% to $468 million. Organic sales in the segment fell 13% compared to a 21% decline in global LVP. This primarily reflected Autoliv’s greater dependence on advanced higher-value-added seatbelts, particularly for the European and North American markets.

Regional Performance

Sales in Europe dipped 21% to $634 million. Organic sales in the region decreased 16%, less than the 12% decline in European light vehicle production, due to the government's scrapping incentives that favored smaller vehicles.

Sales in North America dropped 16% to $310 million. Organic sales in the region declined 11% while the North American LVP dropped almost twice as much. The company’s better-than-market performance was primarily due to new business for Ford’s new F-Series, Chrysler’s Dodge Ram, Chevrolet’s Traverse and Equinox, and Toyota’s Rav4 and Venza.

Sales in Japan dipped 25% to $136 million. Organic sales declined 40% due to the 25% drop in Japanese LVP. Sales in the region were also affected by the production decline for most of the premium cars, SUVs and other vehicles with higher safety value for export to North America and West Europe.

Sales in the Rest of the World increased 25% to $246 million. Organic sales increase of 32% was better than the strong growth in the region’s LVP of 21%. Autoliv’s market share gains in the region reflected new business in China (for Suzuki, Buick, Chevrolet, Daewoo, Nissan, Volkswagen, Audi, Honda, Kia, Great Wall and Geely) and in India (for Mahindra).

Financial Position

Autoliv had cash and cash equivalents of $430 million as of Sept. 30, 2009. Long-term debt amounted to $1.19 billion as on that date. The long-term debt-to-capitalization ratio stood at 33%.

In the first nine months of 2009, cash flow from operations decreased $182 million to $244 million. Capital expenditures stood at $90 million as of the above period compared to $202 million in the year-ago period.

Outlook

Autoliv expects its organic sales for the upcoming quarter to grow by more than 10% due to an expected rebound in the European LVP mix following the expiration of many incentive programs that favored small vehicles with low safety value. The company’s organic sales in China are also expected to continue growing faster than the country’s LVP due to many new market launches as mentioned above. The company anticipated an operating margin, excluding restructuring costs, of at least 7%.

For the full year 2009, consolidated sales are anticipated to decline by 25% based on the assumption that organic sales will outperform LVP in North America and Western Europe by 5%. The full-year operating margin, excluding restructuring charges, is expected to exceed 2%.

We recommend the shares of Autoliv as Outperform.