Lear(LEA) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Sales for Q1 2022 were $5.2 billion, a decrease of 3% year-over-year, while core operating earnings were $184 million compared to $336 million in the previous year [22][5][18] - Adjusted earnings per share were $1.80, down from $3.73 a year ago [22] - Operating cash flow generated in the quarter was $221 million, down from $248 million in 2021 [22] - Free cash flow was $90 million compared to $135 million last year [22] Business Line Data and Key Metrics Changes - Seating segment sales were $3.9 billion, a decrease of 2% from 2021, with core operating earnings of $218 million, down from $307 million [23][24] - E-Systems segment sales were $1.3 billion, a decrease of 5% from 2021, with operating earnings of $42 million, down from $95 million [24][22] Market Data and Key Metrics Changes - Global vehicle production decreased by 4% compared to 2021, significantly impacted by semiconductor shortages and COVID-related shutdowns [21] - Lear's sales outperformed global industry production by 4 percentage points, with seating growing 5 points above market and E-Systems growing 1 point above market [21][22] Company Strategy and Development Direction - The company is focusing on operational excellence and process improvements, including restructuring to streamline operations and improve efficiencies [9][30] - Lear is targeting investments in areas that provide the best returns and is exiting certain product lines in E-Systems [9][10] - The company aims to leverage its vertical integration to create a unique value proposition for customers, particularly in thermal management solutions [49][50] Management's Comments on Operating Environment and Future Outlook - Management expressed that the operating environment remains challenging due to semiconductor disruptions, elevated commodity costs, and geopolitical tensions [8][9] - The company anticipates a muted volume recovery in the near term, with industry conditions expected to remain challenging well into 2023 [8][9] - Lear's 2022 sales outlook is now expected to be in the range of $20.4 billion to $21.2 billion, reflecting a decrease from previous guidance [28][29] Other Important Information - The company completed the acquisition of Kongsberg, which is expected to enhance its seating capabilities and product offerings [12][13] - Lear's electrification business is projected to grow rapidly, with new business awards for electrification increasing significantly [18][20] Q&A Session Summary Question: Raw material guidance increase - Management noted a modest increase in raw material guidance due to recoverable costs from contractual arrangements, primarily driven by steel and supplier component costs [32][33] Question: Margin recovery timeframe - Management indicated that margin recovery is expected to be gradual, with improvements anticipated in the second half of the year as commodity costs stabilize and volumes increase [42][44] Question: Gross over market performance - Management explained that strong growth over market was observed in North America and Europe, while challenges in China impacted overall performance [58][59]