How Lear’s Seating Division Is Geared For Growth Through The End Of The Decade

Lear Corporation (NYSE:LEA) is the leading global supplier of automotive seating and electrical systems to automakers around the world. The company’s top line has expanded at a CAGR of 8.8% between 2010-2015, much more than the nominal 4% growth in global vehicle production during this period. Why Lear’s revenue growth has beaten the growth in global vehicle production can be attributed to two main reasons. Firstly, the company’s business is well-diversified — spread across various clients and all over the world. In other words, if production in one market goes down, Lear can extract growth from some other market. Also, the company is not heavily dependent on only one client. Secondly, Lear has been able to grow its revenue per unit vehicle, i.e. content installed per vehicle, across both the seating and electrical systems divisions.

In this article, we will discuss how Lear’s seating division is geared for future growth. For this, we will focus on the well-diversified seating business and how seating content per vehicle is growing for Lear.

• The Seating Business Is Strongly Placed In Crucial Markets Around The World

Source: Lear Corporation Presentation

Lear has a global market share of ~22% in seating assembly, which is valued at around $64 billion currently. Trefis previously estimated global vehicle production to grow at a CAGR of 3% between 2016-2021 and Lear’s seating market share to remain relatively flat. However, the company estimates its own share to rise to ~27% by 2021 as it is well positioned for future growth on the back of strong presence in growing markets such as China, and a leading position in categories such as luxury seating and SUV/Crossover seating, which are fast-growing categories in the seat assembly market. In view of this growth, Trefis has revised its estimate for Lear’s seating market share growth. We currently estimate Lear to stretch its market share to nearly 27% by 2021 on the back of higher proportional growth in China, luxury and SUV/Crossover seating — segments where the company is strongly positioned, causing an 8% upside to the valuation for Lear Corporation.

• Luxury Seating And Seating In SUVs/Crossovers Boost Lear’s Content Per Vehicle

Growing demand for SUVs and Crossovers is aiding in growing content. Customers are opting for SUVs and Crossovers, which combine the looks of a car with the functionality of a utility vehicle. Why this benefits Lear is because these vehicles typically require more seating and electrical content per unit. Growing global production of SUVs/Crossovers and Lear’s strong share in this category (more than its market share in the overall seat assembly market) means that the company’s content per vehicle will grow strongly going forward.

Source: Lear Corporation Presentation

In addition to the growth in larger vehicles, growth in premium vehicle sales is also expected to aid the growth in content per vehicle. Luxury vehicles require more elaborate seating and electrical content. Luxury brand seating currently represents around 20% of the seat assembly market, and is outpacing the overall market. Lear also boasts of a strong market share in luxury seating thanks to its acquisition of Eagle Ottawa, the world’s largest supplier of premium automotive leather. Just prior to its acquisition by Lear in early 2015, Eagle Ottawa generated approximately 17% of its revenue from Europe, where Lear was already the exclusive seating provider for some of the compact models made by BMW, Audi, and Mercedes. Inclusion of Eagle Ottawa made Lear more competitive in the premium seating space in Europe, as well as other markets such as North America. 

Considering that the content per vehicle for luxury brands and SUVs/Crossovers is more than the average content per vehicle, and that Lear’s market share in these categories is more than its overall seating market share, growth in these segments would ensure growth in Lear’s seating market share, as well as content per vehicle going forward. Trefis currently forecasts Lear’s seating content per vehicle to grow at a CAGR of 2.2% through 2021, to over $830.

Lear’s diversified seating business and stronghold in fast-growing categories such as luxury brands and SUVs/Crossovers is expected to fuel growth in the seating business, which forms just over 69% of the company’s current valuation, according to our estimates.

Have more questions on Lear Corporation? See the links below.

• Why Lear Has Been Growing By More Than The Global Vehicle Production Growth
• Downside To Lear’s Valuation If Global Automotive Growth Slows Down
• How China Is A Major Boost For Lear Corporation Right Now
• Lear Raises Guidance On Solid Operational Performance
• What Will Be The Jump In Lear’s Valuation If Electrical Margin Jumps By More Than Expected?
• What Will Be The Jump In Lear’s Valuation If Seating Margin Expands By More Than Expected?
• Growing Content In China Could Add To Lear’s Growth This Year
• Lear Earnings Review: Profit Rises On Solid Performance Across Seating And Electrical Segments
• What’s Lear Corporation’s Fundamental Value Based On Expected 2015 Results?
• Where Will Lear’s Revenue And EBITDA Growth Come From Over The Next Three Years?
• What Is Lear Corporation’s Revenue And EBITDA Breakdown?
• Lear Corporation: Year In Review
• By What Percentage Have Lear’s Revenues And EBITDA Grown Over The Last Five Years?
• How Has Lear Corporation’s Revenue And EBITDA Composition Changed Over 2011-2015?
• What Is Lear Corporation’s Geographical And Client-Wise Revenue Breakdown?
• Why Lear’s Stock Has Appreciated 90% In The Last Five Years

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