On Jun 3, we maintained our Neutral recommendation on Autoliv Inc. (ALV) based on improved first quarter 2013 earnings and stable global market share. However, we are concerned about the decline in revenues in the first quarter of 2013 and adverse impacts on sales volume due to lower light vehicle production in Europe.
Why the Reiteration?
On April 26, Autoliv recorded earnings of $1.29 per share in the first quarter of 2013, beating the Zacks Consensus Estimate by a couple of cents. Earnings improved 20.6% year on year due to a 46 cents effect from lower capacity alignments and antitrust investigations costs, partly offset by lower underlying operating profit of 24 cents.
However, consolidated revenues slid 2.0% to $2.1 billion due to negative currency effects and a small divestiture. Excluding divestitures and effects of currency exchange, organic sales fell almost 1.0%.
Following the release of the first quarter results, the Zacks Consensus Estimate for fiscal 2013 decreased marginally by 0.5% to $5.64 per share. The Zacks Consensus Estimate for fiscal 2014 went down 1.1% to $6.19 per share. Currently, Autoliv retains a Zacks Rank #3 (Hold).
Autoliv benefits from its expansion in the low-cost regions of Romania and China. The company has opportunities in these countries due to the rise in demand for automobile protection products. In addition, the cost of production in these countries is 55% of that in higher-cost countries.
Autoliv also expects to be favorably impacted by reduction in debt obligation, which in turn will increase operational flexibility. The company’s total debt reduced to $633.1 million from $678.0 million as of Mar 31, 2012. Consequently, debt-to-capitalization ratio declined to 14.3% from 16.5% as of Mar 31, 2012.
However, Autoliv faces challenges from concentrated customer base. Its top three customers - including Ford Motor Co. (F), Renault-Nissan and General Motors Company (GM) account for roughly 20%, 15% and 10% of the company’s sales, respectively. The top-5 contributes about 60% of sales and the top-10 represents nearly 75% of sales.
Other Stocks to Look For
Tower International, Inc. (TOWR), a Zacks Rank #1 (Strong Buy) stock, is currently performing well in the industry where Autoliv operates.
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