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Moody's Affirms Lear Corp. Ratings

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Moody's Investors Service has reaffirmed Ba2 Corporate Family and Ba2-PD Probability of Default ratings on Lear Corp. (NYSE:LEA). The rating agency raised the rating outlook on the company to positive from stable. Also, the agency reiterated other ratings on Lear Corp., like the senior unsecured notes rating at Ba2 and the Speculative Grade Liquidity Rating at SGL-1.

Moody’s reaffirmed the rating and increased the outlook as it expects Lear Corp. to record continued free cash flow generation and higher margins in the near future, even with flat year-over-year auto sales in North America. Lear Corp. expects profit margins to increase in the seating business by 5% in 2014 on better performance and lower launch costs in the segment.

Reaffirmation of the SGL-1 rating indicates Lear Corp.’s enhanced liquidity profile over the next twelve months together with strong balance sheet and positive free cash flow generation. In the first nine months of 2013, cash flow from operating activities increased 19.1% to $429.6 million from $360.7 million in the same period of 2012.

Lear Corp. posted a 12.4% rise in adjusted earnings per share to $1.45 in the third quarter of 2013 compared with $1.29 per share in the year-ago quarter. Earnings surpassed the Zacks Consensus Estimate by 13 cents. Revenues increased 10.7% to $3.92 billion in the reported quarter, beating the Zacks Consensus Estimate of $3.83 billion.

For full-year 2013, Lear Corp. anticipates revenues of $16 billion, up from the prior expectation of $15.8 billion. The company expects industry vehicle production of 19.5 million units in Europe and Africa, up 1% from the prior outlook. However, it retained its expectations of industry vehicle production at 16.2 million units in North America and 18.7 million units in China.

Adjusted net earnings are expected to be $505 million for the year. Core operating earnings are anticipated to be roughly $835 million, up from the previous outlook of $750–$800 million.

Lear Corp. designs, manufactures, assembles and supplies automotive seat systems, electrical distribution systems, and related components primarily to automotive original equipment manufacturers. The company sells its products chiefly in North America, South America, Europe and Asia. The company retains a Zacks Rank #3 (Hold).

Some other stocks that are performing well in the industry where Lear Corp. operates are Visteon Corporation (NYSE:VC), Gentex Corp. (NASD:GNTX) and American Axle & Manufacturing Holdings Inc. (NYSE:AXL). While Visteon and Gentex sport a Zacks Rank #1 (Strong Buy), American Axle carries a Zacks Rank #2 (Buy).

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