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Lear (LEA) Down 14.2% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Lear (LEA - Free Report) . Shares have lost about 14.2% 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 drivers.

Lear Q1 Earnings & Revenues Miss Estimates, Down Y/Y

Lear reported first-quarter 2019 adjusted earnings per share of $4 compared with $5.10 recorded in the prior-year quarter. Also, the bottom line missed the Zacks Consensus Estimate of $4.06. At the end of first-quarter 2019, adjusted net income was $253 million compared with $345 million recorded in the prior-year quarter.

During the reported quarter, the company’s revenues decreased 10% year over year to $5.2 billion, whereas the Zacks Consensus Estimate was pegged at $5.7 billion. Revenues were impacted by lower production on key Lear platforms, which were partly offset by the addition of new business.

Moreover, the company’s core operating earnings declined to $378 million from $491 million in first-quarter 2018.

Segment Performances

In the reported quarter, net sales at the Seating segment were $3.9 billion compared with $4.3 billion in first-quarter 2018. The adjusted margin was 7.6% compared with 8.3% in the prior-year quarter.

Net sales at the E-Systems segment was $1.2 billion compared with $1.4 billion generated in the year-ago quarter. Additionally, adjusted margin was 11.3% compared with 14.1% in first-quarter 2018.

Financials

Lear had $1.2 billion of cash and cash equivalents as of Mar 30, 2019, down from $1.5 billion recorded on Dec 31, 2018. The company had long-term debt of $1.94 billion as of Mar 30, 2019, almost unchanged from the figure as of Dec 31, 2018.

At the end of first-quarter 2019, Lear’s net operating cash inflow was $51.6 million in comparison with $236.8 million as of Mar 31, 2018. During the period, its capital expenditure was $122.8 million, marking a decrease from $162.8 million recorded in the prior-year quarter.

Capital Deployment

During the reported quarter, Lear repurchased 804,270 shares for $118 million. As of the end of the fourth quarter, the company had remaining share repurchase authorization of $1.47 billion.

2019 Outlook

Lear reiterated its 2019 guidance. The company currently expects net sales of $20.9-$21.7 billion and adjusted net income of $1.08-$1.17 billion. Further, it projects capital spending of roughly $700 million compared with the last year’s capital expenditure of $677 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.9% due to these changes.

VGM Scores

At this time, Lear has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lear has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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