Autoliv (ALV) Misses Q3 Earnings on Weakness in China

Autoliv, Inc. (ALV) reported third-quarter 2014 adjusted earnings of $1.25 per share, missing the Zacks Consensus Estimate of $1.40 per share. Earnings decreased 4.6% from $1.31 per share reported in the third quarter of 2013.
Including costs for capacity alignment and antitrust matters, earnings per share amounted to $1.16 in the third quarter of 2014 compared with $1.29 in the same quarter of 2013.

Consolidated revenues rose 4.2% year over year to $2.21 billion, missing the Zacks Consensus Estimate of $2.27 billion. The weakness was due to unfavorable vehicle mix and decline in vehicle production in China.
Operating income declined 4.1% to $174.8 million (or 7.9% of sales) from $182.3 million (or 8.6% of sales) in the year-ago quarter. Excluding capacity alignment and antitrust investigation costs, operating margin stood at 8.5%, in line with the company’s guidance.

Segment Results

Sales of Airbag products (including steering wheels and passive safety electronics) rose 4% year over year to $1.42 billion on the back of high sales of inflatable curtains, knee airbags, steering wheels and safety electronics. Excluding negative currency effects, Airbag sales improved 4.4%.

Revenues from Seatbelt products improved 1% to $666 million, driven by higher sales in North America. Rising demand for more advanced and higher value added seatbelt systems globally boosted the segment’s revenues. However, model transitions and lower volumes for certain models in Asia partially marred the results. Excluding positive currency effects, organic sales improved 1.5%.

Sales of Active Safety products (automotive radar, night vision systems and vision camera with driver assist systems) surged 28.4% to $123.4 million year over year. Excluding positive currency effects, organic sales improved 29.2%. The increase can be attributed to strong sales of all products. Strong demand for radar and night vision products by Daimler AG (DDAIF) for Mercedes as well as for radar products by Honda Motor Co., Ltd.’s (HMC) Acura and Fiat S.p.A.’s (FIATY) Chrysler helped. There was also strong demand for vision products by BMW.

Financial Position

Autoliv had cash and cash equivalents of $1.85 billion as of Sep 30, 2014, up from $1.13 billion as of Sep 30, 2013. Long-term debt increased to $1.52 billion from $423.5 million as of Sep 30, 2013.

In the first nine months of 2014, Autoliv’s cash flow from operations decreased to $483 million from $539 million a year ago. Net capital expenditures increased to $326 million from $267 million in the year-ago period.

Share Buyback

Autoliv spent $239 million to repurchase about 2.3 million shares at an average price of $102.48 during the quarter.

Dividend Update

The company announced a quarterly dividend of 54 cents per share for the fourth quarter of 2014. The dividend will be paid on Dec 4, 2014 to shareholders of record as of Nov 19, 2014.

Guidance

Autoliv expects organic sales growth of about 2% and projects adjusted operating margin to be around 9.5% in fourth-quarter 2014, excluding capacity alignments and antitrust investigation costs.

For full-year 2014, the company reduced the organic sales growth guidance to 5.5% from 6%. Autoliv also projects operating margin of around 9%, excluding capacity alignments and antitrust investigation costs.

Expenses related to the ongoing capacity alignment program are expected to be $40 million in 2014, while tax rate should be around 30%. Operating cash flows are anticipated to be at least $700 million and capital expenses are projected to be at the higher end of the guidance range of 4.5–5% of sales due to rising expenditure required to support growth plans.

Currently, Autoliv carries a Zacks Rank #3 (Hold).

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