Autoliv: Initiating Coverage With A Cautious Buy After The Earnings Results

Core Viewpoint - Autoliv, Inc. reported earnings results on July 19, 2024, missing both top- and bottom-line estimates, leading to a significant decline in share price, which had already been falling since late May 2024 [1][19]. Earnings Results - Net sales decreased by 1.1% year-over-year to $2.61 billion, approximately$130 million below analyst estimates [2]. - Adjusted EPS fell by 3% compared to the previous year, reaching $1.87, which is$0.34 below expectations [2]. Sales Performance - Organic sales growth was 0.7%, outperforming global light vehicle production (LVP) by 1.4% [4][7]. - The company performed well in Asia (excluding China) and Europe, but underperformed in China and the Americas due to lower LVP driven by weaker vehicle sales [6][9]. Profitability - Despite declining sales, Autoliv improved its profitability, with gross profit margin increasing to 18.2% from 17.0% year-over-year, and adjusted operating profit margin rising to 8.5% from 8.0% [13][12]. - The primary driver of profitability improvements was cost reduction measures, including a 5% reduction in headcount [13][12]. Guidance and Outlook - For the full year 2024, the company anticipates around 2% organic sales growth, with a negative FX effect of about 1% on net sales [10]. - The adjusted operating margin is expected to be between 9.5% and 10.0%, with operating cash flow projected at approximately $1.1 billion [10]. Valuation - Autoliv's stock is currently trading at a significant discount compared to the consumer discretionary sector median and its own historical valuation, making it attractive from a valuation perspective [14][18]. - The company has been returning value to shareholders through dividends and share buybacks, with a current quarterly dividend of$0.68, corresponding to an annual yield of 2.8% [16][18]. Conclusion - The stock price decline is attributed to slowing sales, a challenging macroeconomic environment, unfavorable FX developments, and missing analyst estimates [19]. - Potential interest rate cuts in the U.S. could positively impact consumer confidence and demand for automobiles, which may benefit Autoliv [19]. - Overall, the stock is considered attractive for long-term investors [20].