Lear Corporation (LEA)

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Lear (LEA)

Q1 2011 Earnings Call

April 29, 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

Raymond Scott - Senior Vice President and President of Global Electrical Power Management Systems

Analysts

Colin Langan - UBS Investment Bank

Rod Lache - Deutsche Bank AG

Brian Johnson - Barclays Capital

H. Nesvold - Jefferies & Company, Inc.

Itay Michaeli - Citigroup Inc

Aditya Oberoi - Goldman Sachs Group Inc.

Christopher Ceraso - Crédit Suisse AG

Brett Hoselton - KeyBanc Capital Markets Inc.

Himanshu Patel - JP Morgan Chase & Co

John Murphy - BofA Merrill Lynch

Presentation

Operator

Good morning. My name is Sara, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lear Corporation First Quarter 2011 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.

Ed Lowenfeld

Thank you, Sara. Good morning, and thank you for joining us for our first quarter 2011 earnings call. Review materials for our earnings call were filed this morning with the Securities and Exchange Commission, and they posted on our website, lear.com, through the Investor Relations link. Today's presenters are Bob Rossiter, CEO and President; and Matt Simoncini, Senior Vice President and Chief Financial Officer. Also participating on the call are several 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 the presentation material 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 the presentation materials. Slide #2 shows the agenda for today's review. First, Bob Rossiter will review highlights from the first quarter. Next, Matt Simoncini will cover our first quarter financial results and our 2011 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.

Robert Rossiter

Thank you, Ed, and good morning, everybody. And I'm thankful that so many us could break away from the royal wedding and attend the call this morning. It's all that's on TV and everybody's talking about, but I think we've got some good things to say.

The year started off pretty good for Lear, and we've had an outstanding first quarter. Obviously, with the events in the Middle East and the tragic events in Japan, there's great concern. But let's focus on what we've accomplished. Earnings have improved. Operating performance has improved as well. We've got strong sales growth in both of our product segments.

Seating has achieved target margins for the fourth consecutive quarter, and Electrical Power Management continues to improve its margins.

We generated positive cash flow in the quarter, strengthened our credit metrics and we ended the quarter with $1.7 billion in cash. As you're aware, we initiated cash dividend in the first quarter, authorized $400 million in share repurchase and completed 2-for-1 stock split. We continue to win new business and our backlog is growing in the areas we targeted, and it's well balanced by our customers and by our products.

If you move to Slide 4, we'll talk briefly about Japan. So far, Lear has experienced limited direct impact. We don't have any production currently in Japan, and our sales to Japan are about 1.6 of Lear's total -- 1.6%, that is. We didn't have any major damage to any of our facilities. They were all technical, but we did have -- we had no employees that were injured. We do expect some impacts in shortages resulting from the problems in Japan. It will probably happen in the second quarter, with the bulk that will happen in the second quarter. But IHS believes that it should end by mid third quarter, and we believe we can make it up by the end of the year. So overall, we feel pretty comfortable.

If you move to Slide 5. You can see the balance in our products from 2005 to 2010 as we've moved into the emerging markets. Growth in Compact business, so now we have a better balance between Mid Size, SUV and Crossover and Compact. And we're still well-positioned in the other products.

So I'd like to turn it over now to Matt.

Matthew Simoncini

Great. Thanks, Bob. Please turn to Slide #7. This slide provides financial highlights for the first quarter. Global industry production was up 5%, reflecting growth in most of the world's major markets, partially offset by a 32% decline in Japan where production was disrupted following the earthquake and tsunami. Lear sales were up 20% to $3.5 billion and core operating earnings were $205 million, up 48% from a year ago. This represents the seventh consecutive quarter of year-over-year earnings improvement. The increase in profitability from a year ago reflects improved industry production, new business and the benefit of cost saving, partially offset by customer pricing and higher costs for product development, launches and commodities.

We generated $84 million of free cash flow during the first quarter. Our reported earnings per share was $1.44, up 136% from a year ago. The impact of the disaster in Japan on our financial results was modest in the first quarter. In the next few slides, I'll cover our first quarter results and our outlook in more detail.

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