It has been about a month since the last earnings report for Lear (
LEA Quick Quote LEA - Free Report) . Shares have lost about 4.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Lear due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Lear's Q2 Earnings Beat Estimates and Rise Y/Y
Lear reported second-quarter 2023 adjusted earnings of $3.33 per share, which surged from $1.79 recorded in the year-ago quarter. The bottom line also surpassed the Zacks Consensus Estimate of $3.21 per share. Higher-than-expected revenues and profits from both the Seating and E-Systems segments led to the outperformance. In the reported quarter, revenues increased 18% year over year to $5,999.2 million. The top line also beat the Zacks Consensus Estimate of $5,859 million on higher-than-expected production on key platforms and the addition of new business in both segments.
Sales of the Seating segment totaled $4,468.1 million in the reported quarter, reflecting a 15.3% increase from the year-ago quarter and surpassing our estimate of $4,274 million thanks to higher-than-expected volumes, strong backlog and acquisition benefits. Segmental earnings came in at $292.9 million, up from $213.9 million recorded in the year-ago quarter. The reported figure also topped our forecast of $285 million on the sales outperformance. The segment recorded adjusted margins of 7.2% of sales, up from 6% in the previous-year quarter.
Sales in the E-Systems segment were $1,531.1 million, up 28% year over year. The figure also came ahead of our estimate of $1,511.3 million on strong volumes and backlog. Segmental earnings amounted to $52.90 million, up from $2 million in the corresponding quarter of 2022. The metric breezed past our projection of $24.5 million on sales outperformance. For the E-Systems segment, the adjusted margin was 4.1% of sales, up from 2% in the year-ago quarter.
Performance by Region
Sales in the North America region increased 12.6% year over year to $2,469.8 million in the quarter under review and exceeded our projection by $22.9 million.
Sales in the Europe and Africa region grew 25.6% year over year to $2,192.5 million in the quarter. The metric also topped our estimate of $1,978.7 million.
Sales in the Asia region increased 21% year over year to $1,109 million in the quarter, narrowly missing our forecast of $1,123 million.
Sales in the South America region rose 5% year over year to $227.8 million in the quarter, falling short of our prediction by $8.7 million.
The company had $901.9 million in cash and cash equivalents as of Jul 1, 2023 compared with $1,114.9 million recorded as of Dec 31, 2022. Long-term debt was $2,741.4 million at the quarter end compared with a debt of $2,591.2 million as of 2022-end.
During the quarter under discussion, net cash used in operating activities totaled $311.4 million, a noticeable improvement from $11.4 million in the corresponding quarter of 2022. In the reported period, its capital expenditure amounted to $168.3 million, down from $172.2 million. The company registered a free cash flow (FCF) of $158.3 million in the quarter under review compared to negative FCF of $160.8 million in the previous-year quarter.
During the quarter, LEA repurchased 286,630 shares of its common stock for a total of $38 million. At the end of the quarter, Lear had a remaining share repurchase authorization of nearly $1.2 billion, which will expire on Dec 31, 2024. In the second quarter of 2023, Lear returned $83 million to investors via buybacks and dividends.
Lear projects its full-year net sales in the band of $22,350-$23,050 million, up from $20,891 million recorded in 2022. Core operating earnings are envisioned in the range of $1,010-$1,140 million, implying an uptick from $871 million generated in 2022. Operating cash flow is projected within $1,180-$1,280 million. Lear anticipates FCF in the band of $480-$580 million. Capital spending is forecast to be $700 million. Adjusted EBITDA is envisioned within the range of $1,610-$1,740 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
Currently, Lear has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Lear has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Lear is part of the Zacks Automotive - Original Equipment industry. Over the past month, Allison Transmission (
ALSN Quick Quote ALSN - Free Report) , a stock from the same industry, has gained 1%. The company reported its results for the quarter ended June 2023 more than a month ago.
Allison Transmission reported revenues of $783 million in the last reported quarter, representing a year-over-year change of +17.9%. EPS of $1.92 for the same period compares with $1.26 a year ago.
Allison Transmission is expected to post earnings of $1.71 per share for the current quarter, representing a year-over-year change of +17.9%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.1%.
Allison Transmission has a Zacks Rank #1 (Strong Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.