It has been about a month since the last earnings report for Lear (LEA). Shares have added about 33.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Lear due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Lear Q1 Earnings & Revenues Down Y/Y Amid Coronavirus
Lear's first-quarter 2020 adjusted earnings came in at $2.05 per share, down from the prior-year quarter’s $4. However, the bottom line surpassed the Zacks Consensus Estimate of $1.08. Higher-than-expected adjusted earnings in its Seating segment led to this outperformance.
At the end of first-quarter 2020, adjusted net income was $124 million compared with the prior-year quarter’s $253 million.
In the reported quarter, revenues declined 13.6% year over year to $4,458 million. This downside resulted from lower production amid the coronavirus pandemic and foreign-exchange rate fluctuations, partly offset by the addition of new business. The top line, however, beat the Zacks Consensus Estimate of $4,281 million.
The company’s core operating earnings declined to $205 million from the $378 million reported in first-quarter 2019.
In first-quarter 2020, sales in the Seating segment totaled $3,367 million, down 14% year over year. Adjusted segment earnings were $201.3 million compared with the $297.3 million witnessed in the first quarter of 2019. However, it topped the Zacks Consensus Estimate of $227 million in the quarter. Adjusted margin for the Seating segment was 6% of sales.
Sales in the E-Systems segment totaled $1,091.1 million, marking a decline of 12.4% year over year in first-quarter 2020. Adjusted segment earnings amounted to $52.7 million in the quarter compared with the $140.3 million recorded in the first quarter of 2019. Further, the figure missed the consensus mark of $79 million. For the E-Systems segment, adjusted margin was 4.8% of sales.
Dividends & Share Repurchase
During the first quarter, Lear repurchased $70 million of stock. The company also paid cash dividend of 77 cents per common share on Mar 18, 2020.
However, Lear suspended its quarterly dividend for second-quarter 2020 and existing share-repurchase program until further notice on the coronavirus scare.
Lear has also suspended the 2020 guidance as it expects the coronavirus pandemic’s impact to strain its operations in the days to come.
The company had $2,449.1 million of cash and cash equivalents as of Apr 4, 2020, compared with $1,487.7 million recorded as of Dec 31, 2019. It had a long-term debt of $2306.8 million as of Apr 4, 2020, compared with $2,293.7 million recorded as of Dec 31, 2019.
At the end of the first quarter, Lear’s net operating cash inflow was $222.3 million compared with $51.6 million as of Mar 30, 2019. During the period, its capital expenditure amounted to $109.1 million, down from the $122.8 million recorded in the prior-year quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -76.92% due to these changes.
At this time, Lear has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lear has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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