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Lear Q3 Earnings Beat Estimates

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Lear Corp. (LEA - Free Report) posted a 12.4% rise in adjusted earnings per share to $1.45 in the third quarter of 2013 compared with $1.29 per share in the year-ago quarter. Earnings beat the Zacks Consensus Estimate by 13 cents.

Revenues increased 10.7% to $3.92 billion in the reported quarter, beating the Zacks Consensus Estimate of $3.83 billion. Global industry production increased 4% year over year, with an 8% rise in China and 6% hike in North America. Industry production in Europe and Africa went up 2%.

Core operating income improved 15.2% to $206.5 million from $179.3 million in the third quarter of 2012.

Segment Results

Revenues from the Seating segment went up 8.6% year on year to $2.9 billion driven by higher production on key platforms together with addition of new business. Adjusted earnings declined 3.7% to $155.1 million or 5.4% of sales in the quarter. The year-over-year decline in earnings was due to changeover of key programs, partially offset by higher sales and better operating efficiencies.

Revenues from Electrical Power Management Systems segment rose 17% to $1.03 billion due to the addition of new business and higher production on key platforms. Adjusted earnings surged 70% to $112.2 million or 10.9% of sales in the quarter, driven by increase in sales and improved operating efficiencies.

Financial Position

Lear had cash and cash equivalents of $884 million as of Sep 28, 2013, down from $1.4 billion as of Dec 31, 2012. Long-term debt rose to $1.1 billion as of Sep 28, 2013 compared with $626.3 million as of Dec 31, 2012.

In the first nine months of 2013, cash flow from operating activities increased 19.1% to $429.6 million from $360.7 million in the same period of 2012. Capital expenditure (adjusted) increased 11.4% to $322.1 million compared with $289.1 million a year ago. These led to a free cash flow of $107.5 million in the first nine months of 2013 compared with a free cash flow of $71.6 million in the year-ago period.


For 2013, Lear anticipates revenues of $16 billion, up from the prior expectation of $15.8 billion. Lear expects industry vehicle production of 19.5 million units in Europe and Africa, up 1% from the prior outlook. However, it retained its expectations of industry vehicle production of 16.2 million units in North America and 18.7 million units in China.

Adjusted net earnings are expected to be $505 million for the year. Core operating earnings are anticipated to be approximately $835 million, up from previous outlook of $750 to $800 million.

Free cash flow is expected to be around $325 million. Adjusted capital expenditure and depreciation and amortization expense are estimated to be $450 million and $285 million, respectively, for the year.

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 #3 (Hold).

Other stocks that are also performing well in the automotive components industry include Federal-Mogul Corp. , Gentex Corp. (GNTX - Free Report) and Denso Corp. (DNZOY - Free Report) . All these are Zacks Rank #1 (Strong Buy) stocks.

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