Lear Corporation (LEA)

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Lear Corp., (LEA)

Q3 2010 Earnings Call

October 28, 2010 05:00 pm ET

Executives

Bob Rossiter – Chief Executive Officer and President

Matt Simoncini – Senior Vice President and Chief Financial Officer

Terry Larkin – Senior Vice President, General Counsel and Corporate Secretary

Mel Stephens – Senior Vice President of Human Resources and Communications

Bill McLaughlin – Vice President of Tax

Ed Lowenfeld – Assistant Treasurer

Analysts

Himanshu Patel – JP Morganley

Ravi Shanker – Morgan Stanley

Chris Ceraso – Credit Suisse

Rod Lesh – Deutsche Bank

John Murphy – Bank of America/Merrill Lynch

Brian Johnson – Barclays Capital

Itay Michaeli – Citigroup

Colin Langan – UBS

Bret Hoselton – Keybanc Capital Markets

Presentation

Operator

Good morning. My name is Simon and I will be your conference operator for today. At this time I would like to welcome everyone to the Lear Corporation Q3 2010 Earnings Conference Call. (Operator instructions.) Mr. Lowenfeld, you may begin your conference.

Ed Lowenfeld

Thank you, Simon. Good morning and thank you for joining us for our Q3 2010 earnings call. Review materials for our earnings call will be filed with the Securities and Exchange Commission, and they were posted today on our website, www.lear.com, through the investor relations link. Today’s presenters are Bob Rossiter, CEO and President, and Matt Simoncini, Chief Financial Officer. Also participating on the call are Terry Larkin, Senior Vice President and General Counsel, and Mel Stephens, Senior Vice President of Human Resources and Communications, as well as others on the Lear finance leadership team.

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 last slide of this deck, and also in our FCC filings. In addition we will be referring to some non-GAAP financial measures. Additional information regarding these measures can be found in the slides labeled “Non-GAAP Financial Information,” also at the end of this presentation.

Slide 2 shows the agenda for today’s review. Bob Rossiter will review highlights from our Q3. Next Matt Simoncini will review our Q3 financial results and update our full year financial outlook. Then Bob Rossiter will have some wrap up comments. Following the formal presentation we will be happy to take your questions. Now please turn to slide #3, and I’ll hand it over to Bob.

Bob Rossiter

Thank you, Ed, and good morning, everybody. Well, the positive momentum has continued in the Q3. The company has had its fifth consecutive quarter of improvement in cooperating earnings. We continue to win new business globally in both our key products, and we continue to report positive cash flow. For the Q3 we generated $79 million of cash. The balance sheet is strong and Standard & Poor’s and Moody’s recently upgraded our credit rating. Because of our improved operating performance and industry outlook, we are increasing our full year guidance. Matt will share that with you later.

Please turn now to slide 4. This slide provides an update on our geographic mix of sales. We are well diversified, with 66% of our sales outside of North America. The Asia Pacific region, our major area of focus and effort, is growing and accounts for 15% of our sales globally. On the right side you can see Brazil, Russia, India and China have grown significantly in the past five years, from $600 million in 2005 to $1.9 billion this year. And our new business is growing at a faster rate in these countries than our traditional market. Does that make you happy, Mo?

We’ve been growing in these markets since 2005 at a compounded annual rate of 28% versus the industry growth of 18%. In addition, our sales at our non-consolidated joint ventures in the BRIC markets are also growing faster than the industry. We now have $650 million annually in joint ventures.

Please turn to slide 5. This slide provides an update on our balance sheet at quarter end. We have one of the industry’s strongest balance sheets. We finished the quarter with $1.5 billion in cash, in debt under $700 million with no significant debt maturities until 2018. Our credit metrics continue to improve, and the ratings agencies recently upgraded our credit rating. Also we have a modest pension liability; substantially all of our US plants are either frozen or have no future benefit accruals. Our capital structure provides us with significant financial strength and flexibility and gives Lear a competitive advantage. Now I’d like to turn it over to Matt.

Matt Simoncini

Thanks, Bob. Please turn to slide #7. This slide provides financial highlights for the Q3. Global vehicle production improved 13% in the quarter reflecting industry recovery in North America and continued growth in the emerging markets. Lear sales were up 11% to $2.8 billion and cooperating earnings were $150 million, up 35% from a year ago. The increase in profitability from a year ago reflects the improved production environment, the addition of new business, favorable cost performance and the benefit of operational restructuring actions.

Adjusted earnings per share was $2.28 in the Q3, and $6.44 year to date. Free cash flow was $79 million, continuing our trend of positive free cash flow generation since mid 2009. We finished the quarter with $1.5 billion on cash and total debt of $699 million. As Bob mentioned, during the quarter both S&P and Moody’s upgraded our credit ratings in recognition of our improving credit metrics and outlook.

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