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Lear (LEA) Beats Q3 Earnings Estimates, Lowers 2018 Guidance

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Shares of Lear Corporation (LEA - Free Report) have lost approximately 2.5% in a day’s trading, following its third-quarter 2018 earnings release. During the quarter under review, the company reported adjusted earnings per share of $4.09, up 3% from the prior-year quarter figure. The bottom line surpassed the Zacks Consensus Estimate of $3.92. At the end of third-quarter 2018, net income was $252.5 million compared with $295.2 million recorded in the prior-year quarter.

During the reported quarter, revenues decreased 2% year over year to $4.89 billion. The top line was almost in line with the Zacks Consensus Estimate. Tough economic conditions leading to decline in volume, majorly in China and Europe, and fluctuations in exchange rates led to this turn down in year-over-year revenues.

Moreover, the company’s core operating earnings slumped $8 million year over year to $399.2 million in the reported quarter. In third-quarter 2017, the figure was $407.5 million.

Lear Corporation Price, Consensus and EPS Surprise

 

Segment Performances

In the reported quarter, revenues at the Seating segment declined 5% year over year to $3.7 billion. The adjusted margin was 8.6% compared with 8.1% in the prior year.

Revenues at the E-Systems segment rose 9% year over year to $1.2 billion. Additionally, adjusted margin was 12.1% compared with 14.4% in third-quarter 2017.

Financials

Lear had $1.2 billion of cash and cash equivalents as of Sep 30, 2018, compared with $1.5 billion as of Dec 31, 2017. The company had long-term debt of $1.95 billion as of Sep 30, 2018, almost in line with the figure recorded on Dec 31, 2017.

In third-quarter 2018, Lear’s net operating cash inflow was $268 million in comparison with $339 million on Sep 30, 2017. During the period, it had capital expenditure of $161 million, marking an increase from $156 million recorded in the prior year quarter. The company’s free cash flow was $107 million, a decline from $183 million recorded in the same quarter of 2017.

Capital Deployment

During the reported quarter, Lear repurchased 718,000 shares for $140 million. As of the end of the third quarter, the company had remaining share repurchase authorization of $1.2 billion.

2018 Outlook

Lear currently expects net sales of $21-$21.2 billion compared with $21.8-$22 billion stated earlier. Also, the company expects core operating earnings of $1.73-$1.75 million compared with $1.79-$1.81 million mentioned earlier.

Zacks Rank and Stocks to Consider

Lear currently carries a Zacks Rank #5 (Strong Sell). A few better-ranked stocks in the auto space are CarMax, Inc. (KMX - Free Report) , Allison Transmission Holdings, Inc. (ALSN - Free Report) and Advance Auto Parts, Inc. (AAP - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CarMax has an expected long-term growth rate of 3.3%. Over the past six months, shares of the company have moved up 12.4%.

Allison Transmission has an expected long-term growth rate of 10%. Over the past six months, shares of the company have moved up 12.8%.

Advance Auto has an expected long-term growth rate of 12.3%. Shares of the company have risen 40.3% over the past six months.

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