) recorded a 16.9% decline in earnings per share to $1.23 in the
third quarter of the year from $1.48 in the third quarter of 2011
while net income dipped 15.1% to $117.5 million from $138.4
million a year ago. With this, the company also missed the Zacks
Consensus Estimate by 19 cents per share.
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The decline in profits was attributable to higher effective tax
rate (causing a reduction of 9 cents in EPS), negative currency
translation effects (6 cents), increase in shares outstanding (3
cents) and capacity alignment and antitrust investigation costs
Consolidated sales ebbed 3.5% to $1.9 billion due to lower sales
in Airbag and Seatbelt segments. Excluding the adverse currency
effects and the effect of a small divestiture, organic sales rose
2% during the quarter, which is narrower than the expected
increase of 4%.
The diversion from expected growth in organic sales was
attributable to temporary plant closures by vehicle manufacturers
in Europe, the strike in South Korea and weaker demand in China
for Japanese-made vehicles due to the political conflict between
China and Japan.
Gross profit deteriorated 5.7% by $387.6 million from $411.2
million in the third quarter in 2011 while gross margin declined
to 19.9% from 20.4% a year ago. The decline can be attributable
to negative currency translation effects, a plant fire, uneven
capacity utilization due to a weak demand in certain markets as
well as overtime expenses from strong demand in other markets.
Performance by Segments
Sales of Airbag Products slid 4% to $1.3 billion. Excluding
negative currency effects of 5%, organic sales inched up 1%
compared to the 2% increase in global light vehicle production
(LVP). Sales of knee airbags almost doubled due to their further
integration into many vehicles, which partially offset the
effects from the strike in South Korea and the fall in European
Sales of Seatbelt Products shrank 6% to $621.4 million, due to
negative currency effects of 7% and a 1% divestiture effect from
the sale of Klippan Ltd in 2011. Organic sales rose 2%, in line
with the increase in global LVP despite the sharp decline in West
European LVP. Sales continued to be strong in North America,
China and the Rest of Asia due to the inclination advanced and
higher value added seatbelt systems.
Sales of Active Safety Products surged 43% to $57.0 million and
organically by 47% from the third quarter of 2011. This increase
was attributable to new radar business for
) Mercedes B-, E and M-classes and
) Cadillac ATS, XTS and SRX models, as well as due to new camera
business for BMW's 1- and 3-series.
Autoliv had cash and cash equivalents of $908.2 million as of
September 30, 2012 compared with $630.7 million in the
corresponding period a year ago. Total debt reduced to $655.5
million from $702.0 million as of September 30, 2011.
Consequently, debt-to-capitalization ratio declined to 15.1% from
17.6% a year ago.
In the first nine months of the year, the company's cash flow
from operations decreased to $447.3 million from $465.1 million a
year ago, mainly due to lower profits. However, capital
expenditures (net) increased marginally to $261.3 million from
$256.6 million in the prior-year period.
In the fourth quarter of the year, Autoliv expects consolidated
sales to be flat on a year-over-year basis while organic sales
are expected to grow between 0% and 2%. The lower expected growth
can be attributable to a fall in European LVP and sluggish growth
in China. The company anticipates an operating margin of 9% for
the quarter, excluding costs related to capacity alignments and
the antitrust investigations and related class action suits.
For full year 2012, Autoliv expects consolidated sales to be flat
as well, with a 4% rise in organic sales. The company also
expects an operating margin of more than 9.5% for the year,
excluding costs mentioned above for the quarter.
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 in order to meet
local demand and to consolidate manufacturing from high-cost
However, it faces significant customer concentration risks and
unfavorable economic conditions in Europe are expected to mar its
results. These, along with the disappointing results, have led
the company retain a Zacks #4 Rank, which translates to a Sell
rating for the short term (1 to 3 months).