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How Did Lear’s 2Q16 Earnings Turn Out?

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Price movement

Lear (LEA) has a market cap of $8.2 billion. It fell by 5.5% to close at $110.06 per share on July 28, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -4.3%, 9.2%, and -9.9%, respectively, on the same day.

LEA is trading 1.1% above its 20-day moving average, 1.6% below its 50-day moving average, and 2.3% above its 200-day moving average.

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Related ETF and peers

The iShares Edge MSCI USA Value Factor (VLUE) invests 0.25% of its holdings in Lear. The ETF tracks an index of large-cap and mid-cap US equities. Stocks are selected and weighted using fundamental metrics (earnings, revenue, book value, and cash earnings), aiming for exposure to undervalued stocks in each sector. The YTD price movement of VLUE was 3.5% on July 28, 2016.

The market caps of Lear’s competitors are as follows:

  • Johnson Controls (JCI): $29.7 billion
  • Delphi Automotive (DLPH): $18.6 billion
  • Magna International (MGA): $14.9 billion

Performance in fiscal 2Q16

Lear reported fiscal 2Q16 net sales of $4.7 billion, a rise of 2.2% compared to net sales of $4.6 billion in fiscal 2Q15. Sales from North America and Asia fell by 2.9% and 6.7%, respectively. Sales from Europe & Africa and South America rose by 11.3% and 4.5%, respectively, in fiscal 2Q16 compared to fiscal 2Q15. The company’s cost of sales as a percentage of net sales fell by 2.1% in fiscal 2Q16 compared to the prior year period.

Its net income and EPS (earnings per share) rose to $282.4 million and $3.82, respectively, in fiscal 2Q16 compared to $181.9 million and $2.33, respectively, in fiscal 2Q15. It reported adjusted EPS of $3.66 in fiscal 2Q16, a rise of 29.8% compared to fiscal 2Q15.

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Lear’s cash and cash equivalents and inventories rose by 16.6% and 6.7%, respectively, in fiscal 2Q16 compared to fiscal 4Q15. Its current ratio and long-term debt-to-equity ratio fell to 1.3x and 0.81x, respectively, in fiscal 3Q16 compared to 1.4x and 0.84x, respectively, in fiscal 4Q15. It reported free cash flow of $435.4 million in fiscal 2Q16, a rise of 20.8% compared to fiscal 2Q15.

During fiscal 2Q16, the company repurchased ~2.3 million shares of its common stock worth of $250 million. At the end of fiscal 2Q16, it remained $595 million under its share repurchase program.

Projections

The company has made the following projections for fiscal 2016:

  • sales in the range of $18.5 billion to $18.8 billion
  • core operating earnings in the range of $1.45 billion to $1.50 billion
  • free cash flow of ~$900 million
  • effective tax rate of ~28%
  • adjusted net income in the range of $935 million to $975 million
  • pretax operational restructuring costs of ~$70 million
  • capital spending of ~$525 million

These projections are based on the following assumptions of industry vehicle production:

  • 18.0 million units in North America
  • 22.3 million units in Europe & Africa
  • 24.0 million units in China

Now we’ll take a look at Delphi Automotive.

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