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LEA shares see muted reaction to Q4 report; Co actively buying it's stock

AInvestTuesday, Feb 6, 2024 1:20 pm ET
2min read

Lear Corporation, a leading automotive technology company, announced its fourth-quarter earnings report for the fiscal year 2023. 

The company reported earnings of $3.03 per share, which fell short of the consensus estimate of $3.12 per share. 

Lear saw a 9% increase in sales, reaching $5.8 billion compared to $5.4 billion in the same period last year and expectations of $5.69 billion. The global automotive industry experienced a 9% increase in vehicle production during the fourth quarter of 2023 compared to the previous year. Adjusting for commodities, foreign exchange, and acquisitions, sales increased by 5%, driven by the acquisition of new business in both the Seating and E-Systems segments.

The company's Seating segment, which accounts for a significant portion of its sales, reported margins and adjusted margins of 5.6% and 6.8% of sales, respectively. The E-Systems segment, which focuses on advanced driver assistance systems (ADAS), reported margins and adjusted margins of 4.9% and 5.6% of sales, respectively.

Lear's core operating earnings for the fourth quarter of 2023 reached $288 million, accounting for 4.9% of sales. This is slightly higher than the $265 million (4.9% of sales) reported in the same period the previous year. The growth in earnings can be attributed primarily to the addition of new business.

Net income for the quarter amounted to $127 million, with adjusted net income totaling $177 million. These figures represent an improvement from the fourth quarter of 2022 when net income and adjusted net income stood at $118 million and $168 million, respectively. 

Lear's thermal comfort systems strategy has received positive feedback from customers, and the company expects it to lead to increased market share and higher margins in Seating. The E-Systems segment also showed positive momentum, achieving its sixth consecutive quarter of year-over-year margin improvement through new business and performance enhancements.

Ray Scott, the President and CEO of Lear, expressed satisfaction with the company's performance in 2023, highlighting record sales and strong earnings growth. Scott attributed these achievements to successful execution of their strategy and a recovering industry. He also noted the acquisition of IGB, which added new product technology and scale to their thermal comfort systems business. 

The company's net cash provided by operating activities was $570 million, and free cash flow was $377 million, compared to $537 million and $342 million, respectively, in the same quarter of the previous year. Lear Corporation also repurchased $175 million of its shares, the highest level of share repurchases in any quarter since the fourth quarter of 2018.

Lear expects its future success to be driven by a consolidated three-year core sales backlog of $2.8 billion, supporting global revenue growth and sales diversification. However, it is worth noting that launch delays and lower-than-expected volumes in certain electric vehicle programs have impacted the sales backlog. 

The company's forecast for fiscal year 2024 includes net sales in the range of $24.0 billion to $24.6 billion, in line with expectations. Core operating earnings are projected to be within the range of $1,155 million to $1,305 million, while adjusted EBITDA is expected to be between $1,795 million and $1,945 million. Lear also estimates restructuring costs to be approximately $125 million and operating cash flow to range from $1,275 million to $1,425 million. Capital spending is estimated to be around $675 million, resulting in projected free cash flow of $600 million to $750 million. In summary, despite slightly missing earnings estimates, 

Lear Corporation delivered strong sales growth and record earnings in 2023. The company's strategic execution, including the successful acquisition of IGB, contributed to its positive performance. Lear aims to continue its revenue and earnings growth trajectory in 2024, fueled by a robust sales backlog and market share expansion. However, challenges related to electric vehicle programs and launch delays may impact the core sales backlog. Share repurchases further emphasize Lear's commitment to shareholder value. With a positive outlook for the automotive industry and its solid financial position, Lear Corporation is poised for continued success in the coming year.

$LEA(LEA)

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