Lear(US:LEA)2021-11-02 16:53Financial Data and Key Metrics Changes - Lear Corporation's sales declined 13% year-over-year to $4.3 billion in Q3 2021, with adjusted earnings per share at $0.53 compared to $3.73 a year ago [24][30] - Core operating earnings were $98 million, down from adjusted operating earnings of $327 million in the previous year, primarily due to lower production volumes and higher commodity costs [24][26] - Free cash flow was negative $157 million compared to $474 million in 2020, impacted by lower earnings and increased working capital [24][28] Business Line Data and Key Metrics Changes - The seating segment's sales were $3.2 billion, a decrease of 14% from Q3 2020, with production downtime due to semiconductor shortages reducing sales by approximately $1.1 billion or 25% [25] - E-Systems sales were $1.1 billion, down 9% from the previous year, with production downtime related to semiconductor shortages reducing sales by approximately $300 million or 21% [26][18] Market Data and Key Metrics Changes - Global vehicle production decreased by 19% compared to 2020, with Lear's sales-weighted global production declining by approximately 25% [22] - In North America, Lear's growth over market was 12 points, driven by new business in both segments and strong production of GM's full-size SUVs [23] Company Strategy and Development Direction - Lear announced the acquisition of Kongsberg Automotive's interior comfort division to strengthen its seating business and enhance vertical integration capabilities [6][11] - The company is focusing on electrification and has formed joint ventures to enhance capabilities in this area, including partnerships for high voltage and low voltage applications [6][7] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing supply chain challenges and limited visibility on production schedules, which are expected to continue impacting the auto industry into 2022 [32][33] - Despite challenges, management expressed confidence in strong customer demand and a robust product lineup, positioning the company for recovery once supply constraints are resolved [32] Other Important Information - Lear returned $100 million to shareholders in Q3 2021 through share repurchases and a doubled dividend [8][28] - The company expects full-year 2021 global vehicle production to be roughly the same as 2020, with sales guidance reduced to $18.8 billion to $19.2 billion [30][31] Q&A Session Summary Question: Can you explain the operational differences between Q4 and Q3? - Management indicated that Q3 benefited from commercial negotiations and reduced incentive compensation accruals, which may not repeat in Q4, leading to a higher decremental impact in Q4 [36][37] Question: What are the expected margins for the Kongsberg acquisition? - Management expects a relatively quick turnaround in profitability for Kongsberg, estimating a 6-12 month timeframe for improvements due to operational synergies [40][41] Question: What is driving the growth over market in seating? - Growth over market is attributed to market share gains, strong production of GM's full-size pickups, and favorable product mix in luxury segments [46][47] Question: What are the expected commodity cost impacts for next year? - Management anticipates a $130 million headwind from commodity costs in seating, with some offset expected from lagged recovery from previous increases [49][50] Question: How is labor impacting operations? - Labor shortages are a challenge, particularly in North America, but management does not expect significant impacts on operating margins [71][73]