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Autoliv, Inc. (ALV)

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Autoliv, Inc. (ALV)

Q3 2018 Earnings Conference Call

October 26, 2018 8:00 AM ET

Executives

Anders Trapp - Vice President of Investor Relations

Mikael Bratt - Chief Executive Officer

Mats Backman - Chief Financial Officer

Analysts

Hampus Engellaut - Handelsbanken

Rich Kwas - Wells Fargo

Brian Johnson - Barclays Capital

Erik Golrang - SEB

Chris McNally - Evercore

Thomas Besson - Kepler Cheuvreux

Victoria Greer - Morgan Stanley

Viktor Lindeberg - Carnegie

Julian Radlinger - UBS

Ashik Kurian - Jefferies

David Leiker - Baird

Agnieszka Vilela - Nordea

Presentation

Operator

Good day, and welcome to the Autoliv Inc. Q3 2018 Earnings Call. Today's conference is being recorded.

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

Anders Trapp

Thank you, Cicilia. Welcome everyone to our third quarter 2018 earnings presentation. Here at Stockholm, we have our 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 third quarter results and outlook, as well as provide an update of our general business and market conditions. Following Mikael, our CFO, Mats Backman will provide further details and commentary around the Q3 '18 financial results and outlook for the full year 2018.

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 website.

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

The result herein presents the performance of Autoliv giving effect to the Veoneer spin-off historical financial results of Veoneer are reflected of discontinued operations, with the exception of cash flows, which are presented on a consolidated basis of 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 will now turn it over to our CEO Mikael Bratt.

Mikael Bratt

Thank you, Anders. Looking now into Q3 2018 highlights on the next slide. First, I would like to say that I'm pleased that our growth momentum continued despite the increasing challenging market conditions we've faced in the third quarter. I also would like to acknowledge and offer my sincere thank you to the entire Autoliv team for delivering a quarter of strong growth. The team is fully focused on delivering increasing value to our stakeholders through our focus on quality and operational excellence.

Our growth momentum continued in the third quarter driven mainly by a large number of product launches in North America. Autoliv grow organically by more than 6% despite light vehicle production declined by about 2% according to HIS as unfavorable market fundamentals took the toll on global outdoor demand and production.

We have a solid operating cash flow in the quarter supporting our indication of reaching around last year's level for continuing operations. I'm also pleased that our order intake continued on a higher level in the quarter, supporting our growth opportunities for the long term.

In the third quarter the industry has faced substantial reduction in volumes from our customers, especially in Europe, impacted by the WLTP and in China due to lower demand for new vehicles.

Our recent product launches are on track and we outpace global light vehicle production by 8.5 percentage points in the quarter. However, we are experienced continued headwinds from raw material pricing and currency movements in the quarter, which together, with the volatility of market demand and launch-related costs tempered the operating leverage on the strong sales growth. The volatility of market demand in the quarter resulted in our supply chain production and logistic system having to manage significant, and laid changes to OEM production plans which corresponding to uneven utilization of our assets, while at the same time managing the different challenges of the many launches and the high growth in North America.

We see similar environments for the rest of the year with continued uncertainty for light vehicle production, especially in China and Europe, leading to continued challenges with uneven utilization. We are closely following the market development and are ready to act if we necessary. We have a high number of temporary employees both in Europe and China, providing flexibility to flex production volumes down or up.

We are implementing actions to reduce costs related to product launches. This includes production line redesign to improve product flows, new methods for on-boarding new employees, and reorganization of our supplier support to help our suppliers to meet the growing demand.

Looking now at the recap of our third quarter financial performance on the next slide. Executing on a strong order book, this quarter marks the second quarter of a step up in growth. Our consolidated net sales increased by more than 4% compared to the same quarter of 2017 with organic sales increasing 6%. Adjusted operating income excluding costs for capacity alignments and antitrust-related matters and separation costs decreased by around 5% from $205 million to $194 million, impacted by uneven utilization of our assets and elevated launch-related costs, raw material pricing and currency movements. While the adjusted operating margin decreased by 100 basis points to 9.5% compared to the same quarter of 2017. EPS diluted increased by 11% to $1.34 as compared to the same quarter of 2017, as a result of lower costs of capacity alignments and anti-trust related matters.

Read the rest of this transcript on seekingalpha.com