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Autoliv Earnings Beat but Sales Decline

Zacks Equity Research

Autoliv Inc. (ALV) 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% from $1.07 per share in the first quarter of 2012 due to a 46 cents effect from lower capacity alignments and antitrust investigations costs, partly offset by lower underlying operating profit of 24 cents.

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 by slightly less than 1.0%.

However, operating income grew 19.0% to $182.4 million or 8.5% of sales due to a $59 million reduction in costs for capacity alignments and the antitrust investigations. Excluding capacity alignment and antitrust investigations costs, operating margin was 8.8%, which was higher than the company’s guidance on account of better than expected sales performance.

Segment Results
Sales of Airbag products (including steering wheels and passive safety electronics) dipped 2.7% to $1.4 billion. Excluding negative currency effects, airbag sales declined organically by slightly less than 2% due to the declines in light vehicle production (:LVP) of 12% in Western Europe and 16% in Japan.

Sales of Seatbelt products slipped 2.9% to $688.6 million driven by a small divestiture in 2012 and negative currency effects. Excluding these effects, organic sales fell 1% primarily due to the drop in LVP in Western Europe.
Sales of Active safety products (automotive radar and night vision systems) surged 33.2% to $63.4 million, mainly due to new radar business with Daimler’s (DDAIY) Mercedes, which is rolling out collision prevention assist across most of its platforms.
Financial Position
Autoliv had cash and cash equivalents of $990.5 million as of Mar 31, 2013, up from $732.0 million as of Mar 31, 2012. 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.

In the quarter, the company’s cash flow from operations improved to $140.8 million from $98.0 million a year ago, due to higher profits. Capital expenditures (net) increased to $86.0 million from $78.4 million in the prior-year quarter.
Autoliv expects consolidated and organic sales growth of 3% in the second quarter of the year, with an expected operating margin of 8.5%, excluding capacity alignments and antitrust investigations costs.

For full year 2013, the company anticipates organic sales growth in the band of 2% to 4%, a slight upward revision from the previous outlook of 1% to 3%.

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 the company’s increased raw material costs. Further, the company faces significant customer concentration risks as its top-5 represent about 60% of sales.

Currently, the company retains a Zacks Rank #3 on its stock, which translates to a Hold rating for the short term (1–3 months). Other stocks that are performing well in the industry include Tower International, Inc. (TOWR) and STRATTEC Security Corp. (STRT). They carry a Zacks Rank #1 (Strong Buy).

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