Lear Corporation (LEA)

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Lear (LEA)

Q4 2010 Earnings Call

February 01, 2011 9:00 am ET

Executives

Ed Lowenfeld -

Matthew Simoncini - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Robert Rossiter - Chief Executive Officer, President, Director and Member of Executive Committee

William Mclaughlin -

Analysts

Rod Lache - Deutsche Bank AG

Brian Johnson - Barclays Capital

Itay Michaeli - Citigroup Inc

Aditya Oberoi - Goldman Sachs Group Inc.

Christopher Ceraso - Crédit Suisse AG

Ravi Shanker - Morgan Stanley

Brett Hoselton - KeyBanc Capital Markets Inc.

John Murphy - BofA Merrill Lynch

Himanshu Patel - JP Morgan Chase & Co

Presentation

Operator

Good morning. My name is Sarah, 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 2010 Earnings Call. [Operator Instructions] I would now like to turn the call over to Mr. Ed Lowenfeld, Vice President of Investor Relations. Mr. Lowenfeld, you may begin your conference.

Ed Lowenfeld

Thank you, Sarah. Good morning, everyone. And thank you for joining us for our fourth quarter and full year 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, lear.com, through the Investor Relations link.

Today's presenters our Bob Rossiter, CEO and President; and Matt Simoncini, our Chief Financial Officer. Also participating on the call are other members of Lear's 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 SEC filings.

In addition, we will be referring to certain non-GAAP financial measures. Additional information regarding these measures can be found in the slide labeled Non-GAAP Financial Information, also at the end of this presentation.

Slide 2 shows the agenda for today's review. First, Bob Rossiter will review highlights from our fourth quarter. Next, Matt Simoncini will cover our fourth quarter and full year 2010 financial results and our 2011 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.

Robert Rossiter

Thank you, Ed. Obviously, 2010 was a recovery year for the industry and the Lear Corporation, as our positive momentum continued through the fourth quarter.

We achieved our sixth consecutive quarters of year-over-year improvement in earnings in both of our segments. We're seeing achieving target markets, sub-margins and our Electrical business returning to profitability. And it looks good for the future.

The company continues to generate significant free cash flow. And in 2010, we refinanced our capital structure. Our balance sheet and liquidity position are in the best shape since I've been in the company 40 years.

In addition to the growth, we had a significant year of new business wins with our backlog growing to $2.2 billion, up $800 million from a year ago, and we continue to receive industry and customer recognition. We have three finalists in the PACE Award.

Turn to Slide 4. You can see sales by region. Today at Lear, 66% of our business is outside of North America, with 60% coming from Asia, which is our fastest growing market. And that's up since 2005 from 5%.

Turn to Slide 5, summarizes our new business backlog, $2.2 billion. It's well balanced between Seating and Electrical, well balanced in each of the regions of the world. And as I said, our Asia-Pacific region is growing fast, and all the positive signs are there for.

We move to Slide 6, the Electrical business. Several key drivers enable [indiscernible] profitability by almost $200 million in 2009. the EPMS business segments was negatively impacted because it was under scale relative to the fixed cost structure. And in 2010, Sales segment grew faster than the overall industry. Sales increases which reflect the industry recovery in addition to new business and growth in the emerging markets were the major reasons for returning this business to profitability.

This segment also benefited from our restructuring efforts. In the past five years, we closed 14 plants. Now 27 of our 33 total plants are in low-cost countries, where over 90% of our headcount is there as well. We expect this to continue, positive momentum, as we launch $1 billion new business over the next few years.

Now I'd like to turn it over to Matt.

Matthew Simoncini

Thanks, Bob. Please turn to Slide #8, please. This slide provides financial highlights for the fourth quarter and full year 2010.

For the fourth quarter, Lear sales were up 15% to $3.2 billion, and core operating earnings were $150 million, up 30% from a year ago.

This represents the sixth consecutive quarter of year-over-year earnings improvement. The increase in profitability from the year ago reflects improved industry production, new business and the benefit of cost reductions and restructuring actions.

Our adjusted EPS was $2.38 in the fourth quarter, and free cash flow was $160 million. For the full year 2010, net sales were up 23% to $12 billion, and core operating earnings increased over $500 million to $627 million, reflecting the increased vehicle production, new business and the benefit of cost savings and restructuring actions.

Our adjusted EPS was $8.83 in 2010, and we generated $429 million in free cash flow. We finished the year with cash balance of approximately $1.7 billion after paying down about $275 million of debt. On the next few slides, I'll cover these results in more detail.

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