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Autoliv, Inc. (ALV)

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Autoliv, Inc. (ALV)

Q2 2018 Earnings Conference Call

July 27, 2018 8:00 AM ET

Executives

Anders Trapp - IR

Mikael Bratt - President and CEO

Mats Backman - CFO

Analysts

Rich Kwas - Wells Fargo Securities

Hampus Engellaut - Handelsbanken

Victoria Greer - Morgan Stanley

Chris McNally - Evercore ISI

Brian Johnson - Barclays Capital

Erik Karlsson - Industrial Equity Partners

Vijay Rakesh - Mizuho Securities

David Leiker - Robert W. Baird

Joseph Spak - RBC Capital Markets

Viktor Lindeberg - Carnegie Investment Bank

Presentation

Operator

Good day, and welcome to the Autoliv Second Quarter 2018 Financial Results Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Anders Trapp, Vice President, Investor Relations. Please go ahead, sir.

Anders Trapp

Thank you, Varghai [ph]. Welcome everyone to our second quarter 2018 earnings presentation. Here in Stockholm, we have our new President and CEO, Mikael Bratt; our Chief Financial Officer, Mats Backman; and myself, Anders Trapp, Vice President of Investor Relations.

During today's earnings call, our CEO will provide a brief overview of our second quarter results and outlook as well as provide an update on our general business and market conditions. Following, Mikael, our CFO, Mr. Mats Backman will provide further details and commentary around the Q2 '18 financial results and outlook for full-year '18. At the end of our presentation, we will remain available to respond to your questions, and as usual, the slides are available through a link on the homepage of our corporate Web site.

Turning the next page, we have the Safe Harbor statement, which is an integrated part of this presentation and includes the Q&A that follows.

The result herein presents the performance of Autoliv continuing operations, meaning that the historical financial results of Veoneer are reflected as discontinued operations. The exception to this is cash flows, which are presented on the consolidated basis or both continuing and discontinued operations.

During the presentation, we will reference some non-U. S. GAAP measures. The reconciliations of historical U.S. GAAP to non-U.S. GAAP measures are disclosed in our quarterly press release and the 10-Q that will be filed with the SEC. Lastly I should mention that this call is intended to conclude at 3:00 PM Central European time. So please follow a limit of two questions per person.

I now hand it over to our Chief Executive Officer, Mikael Bratt.

Mikael Bratt

Thank you, Anders. Looking now into the Q2 2018 highlights on the next slide; but first, I would like to say that I'm very happy to talk with you here today. Last time, many of us [ph] was at the Investor Day and on the following road shows when we talked about the road ahead for Autoliv following the spin-off. Now, we are for the first time presenting the new Autoliv marking the beginning of a new exciting year [ph] towards our 2020 financial target.

I would also like to acknowledge and offer my sincere thank you to the entire Autoliv team for delivering a quarter of strong growth in the midst [ph] of all the extra efforts to complete the Veoneer spin-off. With the Veoneer spin-off now successfully executed, the Autoliv team is fully focused on -- the occupant and pedestrian safety products. We managed new [ph] product launches and delivered increasing value to our stakeholders. The product launches are on track, but with some delays in rounds up in the first quarter of 2018 of certain models and have somewhat elevated levels of launch-related costs.

We have experienced some headwinds from raw material pricing and currency movements in the quarter, which together with the launch-related costs tampered the operating leverage of the strong sales growth. The management team is fully focused on delivering on the 2020 target. Our 2018 full-year indication for growth and margins together with the continued strong order intake show that we are on track towards our 2020 targets of more than 10 billion in sales and around 13% adjusted operating margins.

Favorable industry fundamentals continue to drive higher global auto demand and production in the quarter. Looking forward, we will continue to carefully monitor the development of issues fundamental to our business such as the potential impact of trade renegotiations and tariffs on raw materials in the automotive industry.

Looking now at the recap of our second quarter financial performance on the next slide; built on previous year's strong order intake, the second quarter marks the beginning of the step-up in growth that we have been discussing. Our consolidated net sales for continuing operation increased more than 11% compared to the same quarter of 2017. Adjusted operating income increased by more than 6% from $216 million to $213 million. Adjusted operating margin for continuing operation, excluding costs for capacity alignments and antitrust-related matters decreased by 50 basis points to 10.4%, compared to the same quarter of 2017.

Adjusted EPS for continuing operations diluted increased by 48% to $2.22 as compared to the same quarter of 2017, mainly due to higher gross profit and lower tax, which was mostly offset by increased R&D&E net.

Looking to our sales growth on the next slide; consolidated net sales for continuing operation in the quarter increased year-over-year by 11.5% to $2.2 billion with an organic growth of 7.3% and a positive currency translation effect of 4.2%. Sales outperformed LVP according to IHS in all markets, except Europe and South Korea.

In the quarter, 60% of the organic growth came from the growth market: China, India, Japan [ph], and South America, with China leading the way by growing organically by 18%. Compared to last year, these growth markets increased the overall share of our sales by three percentage points to 24%.

Read the rest of this transcript on seekingalpha.com