Lear Corporation (LEA)

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Lear (LEA)

Q2 2011 Earnings Call

August 04, 2011 9:00 am ET


Terrence Larkin - Senior Vice President, Corporate Secretary and General Counsel

Ed Lowenfeld -

Jason Cardew -

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

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


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.

Ravi Shanker - Morgan Stanley

Himanshu Patel - JP Morgan Chase & Co

John Murphy - BofA Merrill Lynch



Good morning. My name is Steve, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lear Corporation Second Quarter Earnings Conference Call. [Operator Instructions] I'll now turn the call over to Ed Lowenfeld, Vice President of Investor Relations. Please go ahead.

Ed Lowenfeld

Thank you, Steve. Good morning, and thank you for joining us for our second quarter 2011 earnings call. The materials for our earnings call were filed this morning with the Securities and Exchange Commission and 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 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 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 second quarter. Next, Matt Simoncini will cover our second quarter financial results and provide an update of our 2011 outlook and sales backlog, 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. Lear's positive momentum continued in the second quarter. Sales and core operating earnings were both up about 20%. We achieved our eighth consecutive quarter of year-over-year improvement of core operating earnings. Our Electrical business continues to benefit from increasing scale, and our margins improved significantly. We continue to report positive free cash flow with $121 million in the second quarter and over $200 million in the first half of 2011, and we're winning new business globally in both our business segments. The balance sheet continues to remain strong as we increase our revolving credit facility to $500 million in June. We also continued to return cash to our shareholders through share repurchase and dividends. As a result of our improved operating performance and industry outlook, we are increasing our full year guidance, and Matt will provide details later.

Now go to Slide 4. This Slide shows vehicle production in key automotive markets for the second quarter. Global vehicle production was 17.9 million units, down 1% from a year ago, reflecting a significant reduction in Japan due to the earthquake and tsunami, offset in part by growth in the emerging markets. Now I'd like to turn it over to Matt for the second quarter financial results.

Matthew Simoncini

Thanks, Bob. Please turn to Slide #6. This slide provides financial highlights for the second quarter. Lear sales were $3.7 billion up 21% from a year ago, reflecting the strong sales backlog, the positive impact of foreign exchange and increased production on Lear platforms. Core operating earnings were $228 million, up 20% from a year ago. The increase in earnings reflects the increase in sales and operating performance improvements partially offset by customer pricing and higher costs for product development, launches and commodities. This represents our eighth conservative quarter of year-over-year earnings improvement. We generated $121 million of free cash flow during the quarter and finished the quarter with $1.8 billion of cash. Our reported earnings per share was $1.65. On the next few slides, I'll cover our second quarter results in more detail and update our full year outlook.

Slide 7 provides a summary of our financial results for the second quarter of 2011. As previously mentioned, sales were up 21% to $3.7 billion. Pretax income before interest and other was $220 million, up $47 million from a year ago, and net income was $178 million up $18 million. SG&A as a percentage of sales was 3.2% compared with 3.7% a year ago. The lower SG&A rate reflects the increase in sales. Interest expense was $11 million, down $3 million primarily reflecting higher interest income. Other expense was $4 million compared with an income of $23 million a year ago, primarily reflecting a year-over-year reduction of profitability of our international automotive components joint venture and unfavorable foreign exchange. Our non-consolidated joint venture in Asia remain profitable, however. Depreciation and amortization was $64 million, up $7 million from a year ago, reflecting higher capital spending over the last several quarters.

Slide #8 shows the impact of nonoperating items on our second quarter results. As I mentioned on a previous slide, our reported pretax income before interest and other was $220 million. Excluding the impact of operational restructuring cost to special items, we have core operating earnings of $228 million, an increase of $38 million or 20% from a year ago.

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