Lear Corporation (LEA)

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Lear (LEA)

Q4 2012 Earnings Call

February 01, 2013 9:00 am ET

Executives

Ed Lowenfeld

Matthew J. Simoncini - Chief Executive Officer, President and Director

Jeffrey H. Vanneste - Chief Financial Officer and Senior Vice President

Shari L. Burgess - Vice President and Treasurer

Analysts

Itay Michaeli - Citigroup Inc, Research Division

Rod Lache - Deutsche Bank AG, Research Division

John Murphy - BofA Merrill Lynch, Research Division

Ravi Shanker - Morgan Stanley, Research Division

Brian Arthur Johnson - Barclays Capital, Research Division

Christopher J. Ceraso - Crédit Suisse AG, Research Division

Aditya Oberoi - Goldman Sachs Group Inc., Research Division

Emmanuel Rosner - Credit Agricole Securities (USA) Inc., Research Division

Colin Langan - UBS Investment Bank, Research Division

Joseph Spak - RBC Capital Markets, LLC, Research Division

H. Peter Nesvold - Jefferies & Company, Inc., Research Division

Brett D. Hoselton - KeyBanc Capital Markets Inc., Research Division

Ryan Brinkman - JP Morgan Chase & Co, Research Division

Adam Brooks - Sidoti & Company, LLC

Presentation

Operator

Good morning, ladies and gentlemen. My name is Martina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lear Corporation Fourth Quarter and Full Year Earnings Call. [Operator Instructions] I would now like to turn the call over to Ed Lowenfeld, Vice President, Investor Relations. Please go ahead Mr. Lowenfeld.

Ed Lowenfeld

Thank you, Martina. Good morning, everyone, and thank you for joining as for our fourth quarter and full year 2012 earnings call. Our earnings press release was filed this morning with the Securities and Exchange Commission, and materials for our earnings call are posted on our website, lear.com, through the Investor Relations link.

Today's presenters are Matt Simoncini, President and CEO; and Jeff Vanneste, Chief Financial Officer. Also participating on the call are several other members of Lear's leadership.

Before we begin, I'd like to remind you that during the call, we will be making forward-looking statements that are subject to risks and uncertainties. Some of the factors that could impact our future results are described in the slide titled Investor Information at the beginning of the presentation materials and also in our SEC filings. In addition, we will be referring to certain non-GAAP financial measures. Additional information regarding these measures can be found in the slides labeled Non-GAAP Financial Information at the end of the presentation materials.

Slide 3 shows the agenda for today's review. First, Matt Simoncini will provide a company overview. Next, Jeff Vanneste will cover our fourth quarter and full year financial results for 2012 and outlook for 2013, then Matt will come back with some wrap-up comments. Following the formal presentation, we will be happy take your questions. Now please turn to Slide #4, and I'll hand it over to Matt.

Matthew J. Simoncini

Thanks, Ed, and good morning. Despite a challenging industry environment in Europe, Lear posted strong financial results in the fourth quarter with the improvement in sales, earnings and free cash flow. Sales in the fourth quarter were $3.7 billion, up 6% from a year ago, reflecting the benefit in new business and the Guilford acquisition, partially offset by adverse impact of foreign exchange. Lower production in Europe was largely offset by increased productions in other regions of the world. Adjusted earnings per share was $1.48 per share, up 17% from a year ago, and free cash flow was $219 million.

Our Electrical business continues its rapid growth and achieved a quarterly sales record of $959 million in the fourth quarter. Adjusted margins improved to 8.4% from 6.3% last year, as the business continues to benefit from sales growth, market share gains and cost benefits from our improved footprint.

We continue to return cash to shareholders. In the fourth quarter, we returned $64 million to shareholders through a combination of share repurchases and dividends. Since the inception of these programs in the first quarter of 2011, we have returned $608 million to our shareholders.

Moving to the full year. 2012 marked our third consecutive year of higher revenue and earnings per share, where revenues of $14.6 billion and earnings per share of $5.49 per share.

As outlined on Slide 5, our sales are well balanced by region and by customer. We have made steady progress diversifying our sales over the last several years, with over 60% of our total sales in 2012 coming from outside of North America. The Asia Pacific region continues to grow, representing 17% of our consolidated worldwide sales. In addition, we have $1.7 billion in sales at our core nonconsolidated joint venture, further diversifying our sales profile.

Slide 6 shows our growth in key emerging markets. Our consolidated sales in China, Brazil, India and Russia have more than doubled over the past several years from $1.2 billion in 2008 to $2.7 billion in 2012. This represents an annual growth rate of 23% versus the industry growth in these markets of 17%.

Lear's total sales in China, including nonconsolidated sales of approximately $950 million, are $2.4 billion. Since 2008, total sales in China have tripled.

Slide 7 shows our 3-year sales backlog, which is unchanged from what we reported at the Detroit Auto Show last month. As a reminder, our backlog only includes awarded programs, net of loss business and programs rolling off. We do not include pursued or high-confidence new business or nonconsolidated sales. The backlog is based on specific car line volumes and foreign exchange assumptions by country.

Our backlog for the 2013 through 2015 period stands at $1.8 billion. The backlog continues to represent further diversification of our sales, as 55% is in our Seating business and 45% is in EPMS. We are growing our sales in all regions of the world. For 2015, there's still open sourcing, so we do expect that number to increase as new programs are awarded over the next several months.

Slide 8 provides an update on our share repurchase program. During the fourth quarter, we purchased 1.2 million shares of stock for a total of $50 million. We have been repurchasing shares since early 2011. Through the end of 2012, we have invested approximately $500 million to repurchase 11.5 million shares or about 11% of our shares since the program began.

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