Lear(US:LEA) Huachuang Securities·2024-08-08 09:31Investment Rating - The report does not explicitly mention an investment rating for Lear Corporation (LEA) [1][2][3] Core Views - Lear Corporation's Q2 2024 revenue was $6 billion, showing a slight year-over-year increase, with overall revenue growth outperforming the market by approximately 3 percentage points (PP) [2][8] - The company's core operating EBIT remained flat at $302 million compared to the same period last year, while adjusted EPS increased by 8% to $3.6 [9] - Free cash flow for Q2 2024 was $170 million, up 8% year-over-year, while operating cash flow decreased by 6% to $291 million [10] - The company expects full-year 2024 revenue to be between $23.2 billion and $23.7 billion, with core operating earnings projected at $1.03 billion to $1.2 billion and adjusted EBITDA between $1.7 billion and $1.8 billion [17] Financial Performance Revenue - Q2 2024 revenue was $6 billion, with electronic systems revenue growing 2% year-over-year to $1.6 billion and seating revenue flat at $4.4 billion [8][11][13] - North America revenue growth outperformed the market by 1 PP, Europe by 7 PP, while China lagged behind the market by 5 PP [2][16] Profitability - Core operating EBIT was $302 million, flat year-over-year, with adjusted EPS at $3.6, up 8% [9] - Seating business adjusted earnings were $302 million, down 6%, with an adjusted operating margin of 6.8% [11] - Electronic systems business adjusted earnings were $82 million, up 30%, with an adjusted operating margin of 5.3%, up from 4.1% in the same period last year [13] Cash Flow - Free cash flow was $170 million, up 8% year-over-year, while operating cash flow was $291 million, down 6% [10] - The company repurchased $60 million worth of shares and paid $44.7 million in dividends during Q2 2024 [10] Business Segments Seating Business - Q2 2024 seating revenue was $4.4 billion, flat year-over-year, with adjusted earnings of $302 million, down 6% [11] - The company is advancing its thermal comfort solutions, including the ComfortFlex modular seating and ComfortMax seating products, with plans to supply these to Volvo, Lucid, and a European OEM [11][12] - The company expects seating thermal comfort revenue to exceed $1 billion by 2027 [12] Electronic Systems Business - Q2 2024 electronic systems revenue was $1.6 billion, up 2% year-over-year, with adjusted earnings of $82 million, up 30% [13] - The business achieved its eighth consecutive quarter of year-over-year margin growth, securing orders from Volvo, Geely, and potential orders from Volkswagen and Audi [13] - The acquisition of WIP, an industrial automation company, was completed on July 17, 2024, to accelerate the company's global industrial automation plan [13] Regional Performance - Global automotive production in Q2 2024 was 21.8 million units, down 1% year-over-year, with North America up 2%, Europe and Africa down 6%, and China up 5% [15] - North America revenue growth outperformed the market by 1 PP, Europe by 7 PP, while China lagged behind the market by 5 PP [16] Guidance - Full-year 2024 revenue is expected to be between $23.2 billion and $23.7 billion, with core operating earnings projected at $1.03 billion to $1.2 billion and adjusted EBITDA between $1.7 billion and $1.8 billion [17] - H2 2024 seating revenue is expected to be $8.5 billion, with core operating earnings of $533 million [18] - H2 2024 electronic systems revenue is expected to be $3 billion, with core operating earnings of $166 million [19] Customer Development - The company has a strong presence in China, with two-thirds of its orders in the past three years coming from local Chinese automakers, including BYD and Geely [14] - The company expects to supply approximately 30% of BYD's seating needs in the coming years [14] Automation and Efficiency - The company is focusing on automation to improve efficiency and reduce labor costs, with recent acquisitions like WIP contributing to this strategy [13][30] - The company expects to see significant cost savings and margin improvements from its automation initiatives in the coming years [24][30] Market Trends - The company is navigating the transition from internal combustion engine (ICE) vehicles to electric vehicles (EVs), with EV platform sales declines impacting revenue [21][22] - The company expects to outperform the market in both seating and electronic systems businesses, with seating expected to grow 4% and electronic systems 6% over the next five years [23][24]