Autoliv: 2024 Outlook Is Uninspiring But Things Could Get Better

Core Viewpoint - Autoliv, Inc. is currently rated as a Hold due to disappointing Q2 performance and unfavorable 2024 guidance, although there are potential improvements expected from cost management and sales growth in the Chinese market [1][9]. Financial Performance - Autoliv's Q2 2024 revenue decreased by 1.1% year-over-year to $2,605 million, marking a 4.6$2.73 billion [3]. - The company's normalized earnings per share (EPS) for Q2 2024 was $1.87, reflecting a 2.9$2.21 [3][4]. - Autoliv's operating margin for Q2 2024 was 4.84%, which was 138 basis points below the consensus forecast, with a year-over-year improvement narrowing from 252 basis points in Q1 2024 to 44 basis points [4]. Full-Year Guidance - The company revised its FY 2024 organic revenue growth guidance down from 5% to 2%, and the operating margin guidance was lowered from 10.5% to 9.75% [6]. - Autoliv's updated outlook assumes a global light vehicle production decline of around 3%, which is worse than the previously expected 1% decline, negatively impacting sales and operating margins [6]. Cost Management Initiatives - Autoliv is on track with its structural cost reduction activities, aiming to double annual cost savings from $50 million this year to$100 million next year, and eventually to $130 million [7]. - The company's gross margin improved by 1.3 percentage points quarter-over-quarter and 1.2 percentage points year-over-year to 18.2% in Q2 2024, indicating progress in cost management [7]. Market Position in China - Autoliv's sales in China from domestic OEMs increased to 38% in Q2 2024, up from 20% in Q1 2022, reflecting a strategic shift towards domestic manufacturers [8]. - The company reported a 39% year-over-year and 25% quarter-over-quarter increase in sales generated from Chinese OEMs, suggesting a potential for improved performance in the Chinese market [8]. Valuation Insights - Autoliv is currently trading at a normalized P/E of 11.1 times, with a consensus FY 2023-2028 normalized EPS CAGR forecast of 12.6 times, resulting in a PEG ratio of 0.88 times, indicating a 12% discount to a fair PEG multiple of 1 [9].