Autoliv's Earnings Beat Estimates

Zacks

Autoliv Inc. (ALV) reported second quarter 2013 earnings of $1.44 per share, beating the Zacks Consensus Estimate by 5 cents. Earnings improved 8.3% from $1.33 per share reported in the second quarter of 2012 on the back of lower effective tax rate and favorable interest expense.

Consolidated revenues rose 5.2% to $2.19 billion, beating the Zacks Consensus Estimate of $2.17 billion. The year-over-year improvement in revenues was driven by increasing focus on safety by leading Chinese car manufacturers.

Revenues from Europe benefited from increase in vehicle production and higher sales to premium European carmakers. This was partially offset by a divestiture in 2012 and adverse currency effects. Excluding divestitures and effects of currency exchange, organic sales went up 6% as against expectations of a 3% increase.

Operating income grew 1.9% to $194.0 million or 8.8% of sales from $190.4 million or 9.1% in the year-ago quarter. Excluding capacity alignment and antitrust investigations costs, operating margin was 9.1%, which was higher than the company’s guidance of 8.5%.

Segment Results
 
Sales of Airbag products (including steering wheels and passive safety electronics) increased 3.6% to $1.4 billion. Excluding negative currency effects, airbag sales improved by more than 4% due to strong sales in China.

Sales of Seatbelt products improved 3.7% to $693.0 million driven by favorable currency effects. Organic sales rose 12% primarily due to strong sales in China.
 
Sales of Active safety products (automotive radar, night vision systems and vision camera with driver assist systems) surged 71.4% to $84.5 million. The increase was driven mainly by the new radar business with Daimler’s (DDAIF) Mercedes, which is rolling out collision prevention assist across most of its platforms. The growing radar business for General Motor Company’s (GM) Chevrolet, Cadillac, GMC and Buick brands also boosted sales.
 
Financial Position
 
Autoliv had cash and cash equivalents of $1.0 billion as of Jun 30, 2013, up from $917.3 million as of Jun 30, 2012. Total debt decreased to $624.0 million from $644.2 million as of Jun 30, 2012.

In the first half of 2013, the company’s cash flow from operations improved to $332.6 million from $316.6 million a year ago. Capital expenditures (net) increased to $174.2 million from $163.6 million in the year-ago period.
 
Guidance
 
Autoliv expects consolidated and organic sales growth of 6% and projects operating margin to be 8.5% in the third quarter, excluding capacity alignments and antitrust investigations costs.

For full year 2013, the company anticipates organic sales growth of 4% and operating margin of around 9%, excluding capacity alignments and antitrust investigations costs.


Our Take

Autoliv has a stable market share in both airbag modules and seat belts in North America, Europe and Asia. The company has continuously expanded in low-cost countries, including Romania and China, in order to meet local demand and to consolidate manufacturing from high-cost countries. However, we are concerned about significant customer concentration risks as the company’s top-five represents about 60% of sales.

Currently, the company retains a Zacks Rank #3 (Hold). In the same industry, Visteon Corp. (VC), which carries a Zacks Rank # 1 (Strong Buy), is worth a look at the moment.
 

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