Lear Misses Consensus, Positive Outlook For 2019

-10.27%
Downside
145
Market
130
Trefis
LEA: Lear logo
LEA
Lear

Lear Corporation (NYSE: LEA) reported its Fiscal Year 2018 results recently and conducted a call with the analysts on the same day.  Lear missed the consensus estimates for earnings and revenue for the Fiscal Year 2018. The company reported $21.15 billion in revenue, up by 3% year on year (YOY). This was driven by a strong backlog, favorable foreign exchange, sales resulting from gaining control affiliates and the acquisition of Grupo Antolin’s seating business and partially offset by the impact of lower production volumes on key platforms in major markets. The company’s core operating earnings were up by $30 million to $1.75 billion, with a margin of 8.3%. E-Systems margin of 11.3% was down 300 basis points from 2017 while seating systems margins were flat at around 8%.

We have a $172 price estimate for the company, which is above the current market price. View our interactive dashboard – Our Outlook For Lear Corporation In 2019 – and modify the key assumptions to arrive at your own price estimate for the company.

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Key Highlights of Fiscal Year 2018:

The company had delivered decent results in the face of significant macroeconomic headwinds. They had a substantial volume reduction in the second half of the year but achieved record full year sales and operating income in 2018. The consolidated backlog of $3.4 billion is the best in its history. Equity earnings were down YOY in the fourth quarter and full year, pulled down due to a weakened production environment in China and the consolidation of a couple of their Chinese wire harness joint ventures. 4th Quarter revenue was down by 9% YOY at $3.7 billion, the reduction was driven by lower production on key Lear platforms in every major region, particularly Europe and China, and a negative impact of foreign exchange, somewhat offset by strong revenue growth from the backlog.

The company’s focus is on attacking costs and driving efficiency and excellence to gain on a competitive advantage. Currently the company has experienced teams deployed all over the world, analyzing efficiencies and implementing changes across its global portfolio, making operational excellence a competitive advantage.

Fiscal Year 2019 Outlook:

For the Fiscal Year 2019 the company is expecting a revenue generation between $20.9 billion to $21.7 billion with operating income expected to be between in $1.6 billion to $ 1.7 billion. The company expects a higher Capex (approx. $700 million) and restructuring expense of about $140 million to put a slight pressure on the Free cash flow available at the end of year.

The company continues to invest in operation excellence to give itself an edge over competition. Partnership with Techstars, Exo Technology partnership with Hyundai, and a joint development partnership with Gentherm will be expected to benefit the revenue and costs in the near term. Overall the company gives a positive outlook for the next year and is expected to do well.

 

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