Aptiv(APTV) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Q1 2024 revenue was $4.9 billion, representing a 2% year-over-year growth, impacted by slowing EV production in North America and Europe [7][27] - EBITDA and operating income were$ 720 million and $544 million, respectively, with a 20% growth and 200 basis points margin expansion [7][27] - Earnings per share increased 27% to$ 1.16 [7][27] - The company repurchased $600 million of stock during the quarter, bringing the total to$ 900 million over the last two quarters [7][8] - Full-year 2024 revenue guidance was lowered by $450 million due to EV production weakness and foreign exchange impacts [8][35] Business Line Data and Key Metrics - Advanced Safety and User Experience (ASUX) segment grew 5%, driven by 24% growth in active safety, with$ 2.5 billion in new bookings [12][14] - Signal and Power Solutions (SPS) segment saw 1% revenue growth, with $10.3 billion in new bookings, including$ 7 billion in electrical distribution systems [12][18] - ASUX operating income margin was 10.8%, while SPS operating income margin was 11.2% [31][32] Market Data and Key Metrics - In China, the company secured $3 billion in new business awards, with 70% of bookings coming from local OEMs [13][64] - North America revenue grew 2%, Europe revenue declined 1%, and China revenue grew 5% above market [29][30] - High-voltage revenue declined 2% in North America and 6% in Europe due to EV production slowdowns [27][28] Company Strategy and Industry Competition - The company is focusing on cost reduction initiatives, including a 10% reduction in salary payroll and increased automation to 30% by 2026 [10][53] - Aptiv is well-positioned to support the transition to electrified, software-defined vehicles, with a strong portfolio across all powertrain platforms [21][22] - The company is leveraging its edge-to-cloud portfolio to capitalize on the automotive industry's transition to software-defined vehicles [25] Management Commentary on Operating Environment and Future Outlook - Management noted continued weakness in EV production, particularly in North America and Europe, leading to a revised 2024 outlook [8][27] - The company expects second-half revenue growth to accelerate, driven by new program launches and volume growth [39][40] - Aptiv remains confident in its long-term growth prospects, supported by its competitive position and cost-saving initiatives [11][43] Other Important Information - The company reached an agreement with Hyundai regarding the Motional joint venture, with Hyundai providing additional funding and acquiring 11% of Motional's common equity [41][42] - Aptiv increased its share repurchase target from$ 750 million to $1.5 billion for 2024, reflecting confidence in the stock's undervaluation [11][36] Q&A Session Summary Question: Growth potential with Japanese OEMs and local sourcing in China [46] - Aptiv is making progress with Japanese OEMs, particularly in ADAS and hybrid/BEV segments, and views itself as a local supplier in China due to its 30-year presence and localized capabilities [49][51] Question: Automation and labor cost savings [52] - The company aims to increase automation to 30% of labor hours by 2026 and 50% by 2030, starting from a baseline of 15% [53][54] Question: Gen 6 ADAS platform and growth over market [55] - The Gen 6 ADAS platform offers 15-30% cost savings to customers, and the company expects growth over market to remain in the 6-8% range [56][57] Question: ASUX margins and outlook [58] - ASUX margins are expected to remain in the 10.5-11% range for the year, driven by cost reductions and engineering rotation [59] Question: Positioning in China and emerging players [60] - Aptiv is well-positioned in China, with over 50% of bookings from local OEMs, and is working with emerging players like Xiaomi and Huawei [61][62] Question: Capital allocation and buyback strategy [67] - The company plans to continue share repurchases at healthy levels, given the stock's undervaluation, while also pursuing acquisitions to diversify revenues [68] Question: Active safety growth and pricing dynamics [84][87] - Active safety revenue is expected to grow over 20% for the year, with pricing dynamics shifting from material inflation to labor inflation [85][88] Question: Impact of powertrain shifts on SPS business [98] - The company can pivot between ICE, hybrid, and BEV product lines with minimal retooling, as many facilities already produce both low and high-voltage solutions [99][100] Question: Global production outlook [101] - The company revised its global vehicle production outlook down by 1%, primarily due to BEV production cuts, with some offset from increased ICE production [102][103]