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Analyst Blog

Autoliv Inc. (ALV - Analyst Report) recorded earnings of $1.29 per share in the first quarter of 2013, beating the Zacks Consensus Estimate by a couple of cents. Earnings improved 20.6% from $1.07 per share in the first quarter of 2012 due to a 46 cents effect from lower capacity alignments and antitrust investigations costs, partly offset by lower underlying operating profit of 24 cents.

Consolidated revenues slid 2.0% to $2.1 billion due to negative currency effects and a small divestiture. Excluding divestitures and effects of currency exchange, organic sales fell by slightly less than 1.0%.

However, operating income grew 19.0% to $182.4 million or 8.5% of sales due to a $59 million reduction in costs for capacity alignments and the antitrust investigations. Excluding capacity alignment and antitrust investigations costs, operating margin was 8.8%, which was higher than the company’s guidance on account of better than expected sales performance.

Segment Results
Sales of Airbag products (including steering wheels and passive safety electronics) dipped 2.7% to $1.4 billion. Excluding negative currency effects, airbag sales declined organically by slightly less than 2% due to the declines in light vehicle production (LVP) of 12% in Western Europe and 16% in Japan.

Sales of Seatbelt products slipped 2.9% to $688.6 million driven by a small divestiture in 2012 and negative currency effects. Excluding these effects, organic sales fell 1% primarily due to the drop in LVP in Western Europe.
Sales of Active safety products (automotive radar and night vision systems) surged 33.2% to $63.4 million, mainly due to new radar business with Daimler’s (DDAIF - Snapshot Report) Mercedes, which is rolling out collision prevention assist across most of its platforms.
Financial Position
Autoliv had cash and cash equivalents of $990.5 million as of Mar 31, 2013, up from $732.0 million as of Mar 31, 2012. Total debt reduced to $633.1 million from $678.0 million as of Mar 31, 2012. Consequently, debt-to-capitalization ratio declined to 14.3% from 16.5% as of Mar 31, 2012.

In the quarter, the company’s cash flow from operations improved to $140.8 million from $98.0 million a year ago, due to higher profits. Capital expenditures (net) increased to $86.0 million from $78.4 million in the prior-year quarter.
Autoliv expects consolidated and organic sales growth of 3% in the second quarter of the year, with an expected operating margin of 8.5%, excluding capacity alignments and antitrust investigations costs.

For full year 2013, the company anticipates organic sales growth in the band of 2% to 4%, a slight upward revision from the previous outlook of 1% to 3%.

Our Take

Autoliv has a stable market share in both airbag modules and seat belts in North America, Europe and Asia. The company has continuously expanded in low-cost countries, including Romania and China, in order to meet local demand and to consolidate manufacturing from high-cost countries.

However, we are concerned about the company’s increased raw material costs. Further, the company faces significant customer concentration risks as its top-5 represent about 60% of sales.

Currently, the company retains a Zacks Rank #3 on its stock, which translates to a Hold rating for the short term (1–3 months). Other stocks that are performing well in the industry include Tower International, Inc. (TOWR - Snapshot Report) and STRATTEC Security Corp. . They carry a Zacks Rank #1 (Strong Buy).