Autoliv Lags, Profits Fall 14%
Autoliv Inc. (ALV) saw a 14% fall in profits to $1.33 per share in the second quarter of the year from $1.54 in the year-ago quarter due to weak markets in Europe and South America as well as higher raw material prices. With this, the company also missed the Zacks Consensus Estimate by 6 cents per share. In absolute terms, profits fell 13% to $126.4 million from $145.0 million a year ago.
Consolidated sales increased a meager 1% to $2.09 billion, lower than the Zacks Consensus Estimate of $2.13 billion. Excluding negative currency effects of 6% and a small divestiture, organic sales went up roughly 8%, outperforming its own guidance of 7% due to better performance in North America that more than offset lower sales in China and Western Europe.
Operating income declined to $190 million (9.1% of sales) from $205 million (10.0%) in the second quarter of 2011. The declines were driven by an increase in research development and engineering expenses by $9 million and capacity alignment costs by $4 million compared with the prior-year quarter.
Segments Results
Sales of Airbag Products (including steering wheels and passive safety electronics) edged up 1% to $1.37 billion, with more than 7% rise in organic sales. It was adversely affected by negative light vehicle production (:LVP) mix with a fall in LVP in Western Europe.
Sales of Seatbelt Products were flat at $669 million due to negative currency effects of 8%. However, organic sales grew 8% due to strong performance in North America, China and Japan as well as global trend towards advanced and higher value-added seatbelt systems.
Sales of Active Safety Products (primarily automotive radar and night vision systems) escalated 27% to $49 million and organically by 30%. The strong improvement was driven by new radar business for Daimler’s (DDAIF) Mercedes’ B- and M-classes and new camera business for BMW’s 1- and 3-series.
Financial Position
Autoliv had cash and cash equivalents of $917.3 million as of June 30, 2012 compared with $559.7 million as of June 30, 2011. Total debt declined to $644.2 million as of June 30, 2012 from $693.8 million as of June 30, 2011. Consequently, debt-to-capitalization ratio declined to 15.3% as of June 30, 2012 from 17.6% in the year-ago period.
In the first half of the year, cash flow from operations improved to $316.6 million from $273.3 million a year ago due to favorable changes in operating assets and liabilities.
Capital expenditures (net) decreased to $163.6 million from $170.6 million in the prior-year period.
Outlook
Autoliv anticipates organic sales to grow by about 4% in the third quarter of the year. However, consolidated sales are expected to decline by 3% in the quarter due to negative currency effects of 6% and the effect from the divestiture of Autoliv Mekan.
For full year 2012, given the forecast of a 5% increase in LVP provided by IHS Inc. (IHS), Autoliv expects organic sales to improve 6%. Meanwhile, consolidated sales are expected to increase marginally by 1% due to currency effects (4%) and divestiture of Autoliv Mekan as discussed above. The company expects operating margin to be 10% for the third quarter and the same for the full year.
In order to outperform global LVP, capital expenditures are expected to remain at a high level of 4.5% of sales in 2012. Operations are expected to continue to generate a strong cash flow in the magnitude of $700 million for the full year 2012, excluding payments for antitrust investigations.
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.
Due to these factors, the company retains a Zacks #3 Rank on its stock, which translates to a ‘Hold’ rating for the short term (1–3 months).
Read the Full Research Report on DDAIF
Read the Full Research Report on ALV
Read the Full Research Report on IHS
More From Zacks.com
