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Lear Partners With Tempronics

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Price movement

Lear (LEA) has a market cap of $8.5 billion. It fell by 1.2% to close at $115.58 per share on September 8, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -0.61%, 1.6%, and -5.1%, respectively, on the same day. LEA is trading 0.54% above its 20-day moving average, 3.6% above its 50-day moving average, and 3.7% above its 200-day moving average.

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Related ETF and peers

The iShares Edge MSCI USA Value Factor ETF (VLUE) invests 0.25% of its holdings in Lear. The ETF tracks an index of large 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 5.5% on September 8.

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

  • Johnson Controls (JCI) — $30.9 billion
  • Delphi Automotive (DLPH) — $19.3 billion
  • Magna International (MGA) — $15.6 billion

Latest news on Lear

In a press release on September 8, 2016, Lear “announced that it has entered into a strategic partnership with Tempronics, pursuant to which Lear obtained a minority equity interest in Tempronics and also secured exclusive rights to its thermoelectric seat heating and cooling technology for automotive applications.”

According to Ray Scott, Lear’s executive vice president and president of Seating, “this partnership will provide Lear with the ability to heat and cool seats faster utilizing less energy than any other system available today.”

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Performance in fiscal 2Q16

Lear reported fiscal 2Q16 net sales of $4.7 billion, a rise of 2.2% from the 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 and Africa rose by 11.3%, and sales from South America rose by 4.5% between fiscal 2Q15 and fiscal 2Q16. The company’s cost of sales as a percentage of net sales fell by 2.1%.

Lear’s net income and EPS (earnings per share) rose to $282.4 million and $3.82, respectively, in fiscal 2Q16, compared with $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% from fiscal 2Q15.

Lear’s cash and cash equivalents and inventories rose by 16.6% and 6.7%, respectively, between fiscal 2Q15 and fiscal 2Q16. Its current ratio and long-term debt-to-equity ratio fell to 1.3x and 0.81x, respectively, in fiscal 3Q16, compared with 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% from 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 retained $595 million under its share repurchase program.

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Quarterly dividend

Lear declared a quarterly cash dividend of $0.30 per share on its common stock. The dividend will be paid on September 22, 2016, to shareholders of record at the close of business on September 1, 2016.

Projections

Lear made the following projections for fiscal 2016:

  • sales of $18.5 billion–$18.8 billion
  • core operating earnings of $1.45 billion–$1.5 billion
  • free cash flow of $900 million
  • effective tax rate of 28%
  • adjusted net income of $935 million–$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 and Africa
  • 24.0 million units in China

In the next part, we’ll take a look at Spectrum Brands (SPB).

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