It has been about a month since the last earnings report for Lear (LEA). Shares have lost about 11.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Lear due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Lear’s Q2 Earnings Beat Estimates But Fall Y/Y
Lear reported second-quarter 2022 adjusted earnings of $1.79 per share, plunging around 27% year over year from $2.45. The bottom line, however, surpassed the Zacks Consensus Estimate of $1.34 per share. Higher-than-expected sales and earnings from the Seating segment led to the upside.
In the reported quarter, revenues inched up 6.5% year over year to $5,071 million. The top line beat the Zacks Consensus Estimate of $5,001 million.
Segment Performance & Quarter Highlights
Sales for the Seating segment totaled $3,874.1 million in the reported quarter, reflecting a 7.4% increase from the year-ago quarter and surpassing the Zacks Consensus Estimate of $3,749 million. Adjusted segmental earnings came in at $233.4 million, declining 11% from a year ago. Nonetheless, the reported figure topped the consensus mark of $205 million. The segment recorded adjusted margins of 6% of sales, down from 7.3% in the previous-year quarter.
Sales in the E-Systems segment summed $1,196.9 million, up 3.9% year over year. The figure, however, lagged the consensus mark of $1,224 million. Adjusted segmental earnings amounted to $24.30 million, plummeting 40%. The metric lagged the consensus mark of $24.49 million. For the E-Systems segment, the adjusted margin was 2% of sales, down from 3.5% in the year-ago quarter.
In May, Lear announced that it entered into a definitive agreement to acquire IGB, a Germany-based supplier of automotive seat heating, ventilation, active cooling, steering wheel heating, seat sensors and electronic control modules. The acquisition, valued at €140 million, will expand Lear’s product capabilities into active cooling and be in sync with existing offerings.
Performance by Region
Sales in the North America region increased 18.1% year over year to $2,193.5 million in the quarter and topped the consensus mark of $2,114 million.
Sales in the South America region increased nearly 21% year over year to $216.8 million in the quarter and topped the consensus mark of $182 million.
Sales in the Europe and Africa region increased 1% year over year to $1,744.7 million in the quarter and topped the consensus mark of $1,723 million.
Sales in the Asia region decreased 8.1% year over year to $916 million in the quarter and lagged the consensus mark of $991 million.
Financial Position
The company had $828 million of cash and cash equivalents at the quarter-end, a sharp fall from $1,401.7 million recorded a year ago. It had long-term debt of $2,595.2 in the quarter end, higher than a debt of $2,301.3 million in the year-ago quarter end.
At the second quarter-end, net cash provided by operating activities totaled $11.4 million, a steep fall from $260.1 million a year ago. In the reported period, its capital expenditure amounted to $172.2 million, increasing from $140 million. It registered a negative free cash flow of $160.8 million against a positive cash flow of $120.1 million in the previous-year quarter. Selling, general and administrative expenses remained almost flat at $171.2 million compared with $170.8 million a year ago.
During the quarter, it repurchased 380,220 shares of its common stock for a total of $50.2 million. At the end of the quarter, Lear had a remaining share repurchase authorization of nearly $1.3 billion.
2022 Guidance
Lear revised its financial outlook for 2022. It now projects its full-year net sales in the band of $20.55-$21.05 billion instead of the previous range of $20.4-$21.2 billion. Core operating earnings are now envisioned in the band of $815-$915 million compared with the earlier range of $765-$965 million. Operating cash flow is now projected within $950-$1,075 million instead of $875-$1,125 million. Lear’s anticipated FCF has been changed to the band of $275-$375 million from $225-$425 million. Capital spending forecast is now within $675-$700 million from the earlier range of $650-$700 million. Adjusted EBITDA estimation has been changed to $1,405-$1,505 million from $1,365-$1,565 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -11.94% due to these changes.
VGM Scores
Currently, Lear has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lear has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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