Lear(US:LEA)2023-10-26 19:25Financial Data and Key Metrics Changes - Adjusted earnings per share increased by 23% to $2.87 compared to $2.33 a year ago [129] - Operating cash flow improved significantly to $404 million for the quarter, up from $252 million in 2022 [129] - Core operating earnings increased by 14% from last year to $267 million [138] Business Line Data and Key Metrics Changes - Core operating earnings improved to $79 million or 5.3% of sales compared to $53 million and 3.9% of sales in 2022 [1] - E-Systems achieved the highest operating margins in over two years, marking the fifth consecutive quarter of year-over-year margin improvement [124] - Seating margins were negatively impacted by production disruptions related to the UAW strike and GM full-size truck downtime [130] Market Data and Key Metrics Changes - Global vehicle production increased by 4% compared to the same period last year, with North America up by 9% and Europe by 6% [126] - Total company revenue growth lagged the market by one percentage point, primarily due to unfavorable platform mix and downtime in seating at General Motors [127] Company Strategy and Development Direction - The company is focused on vertical integration capabilities across the entire seat, allowing for more complete systems and improved sourcing control [72] - The thermal comfort integration and innovation strategy is gaining traction, with positive customer feedback and new awards [120][121] - The company aims to achieve a target of 8% operating margin in E-Systems by 2025, with expectations for meaningful improvement next year [32] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the three-year backlog, with $2.85 billion overall, despite some expected revenue reductions due to customer announcements [105] - The ongoing UAW labor strike is expected to impact revenue, with an estimated loss of approximately $60 million per week [133] - Management remains optimistic about the growth trajectory, citing a strong pipeline of new business and customer engagement [39][40] Other Important Information - The company has $3 billion of available liquidity and is on track to meet or exceed its target of 80% free cash flow conversion for the year [2] - The company repurchased $75 million of stock in the third quarter, more than the first and second quarters combined [2] - The company is experiencing wage inflation pressures, particularly in Mexico and Eastern Europe, which may impact future margins [28] Q&A Session Summary Question: E-Systems performance and profitability modeling for 2024 - Management indicated that E-Systems performance exceeded expectations, with a strong exit rate of 6.4% in the fourth quarter excluding the strike [7] Question: Impact of EV launches on backlog - Management noted that the timing of EV launches is critical, and they will update the three-year backlog in the fourth quarter earnings call [12][13] Question: Commodity pricing and earnings impact - Management discussed a modest softening in commodities, with steel prices drifting down, but wage inflation remains a concern [28] Question: Cost recoveries and negotiations with customers - Management confirmed ongoing negotiations for cost recoveries, with an increased focus on design changes and cost optimization [62] Question: Exposure to Altium and EV platforms - Management provided details on the company's exposure to the Altium platform, including battery disconnect units and expected revenue impacts [93][94]