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Revenue: USD2.6 billion, a decrease of USD42 million year over year.
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Gross Margin: Increased by 10 basis points to 18.0%.
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Adjusted Operating Income: Decreased by 2% to USD237 million.
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Adjusted Operating Margin: Decreased by 10 basis points to 9.3%.
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Earnings Per Share (EPS): Improved by 11% due to fewer outstanding shares and a lower tax rate.
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Operating Cash Flow: USD177 million, USD25 million lower than the previous year.
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Free Cash Flow: USD32 million, down from USD50 million in the prior year.
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Share Buybacks: 1.3 million shares repurchased for USD130 million.
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Headcount Reduction: Direct workforce reduced by 6%, indirect workforce reduction target of 2000 for USD50 million savings in 2024.
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Organic Sales Growth: Outperformed global light vehicle production by 4 percentage points.
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Regional Sales: China accounted for 20%, Americas for 33%, Europe for 27%.
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Debt Leverage Ratio: Virtually unchanged at 1.4x.
Release Date: October 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
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Autoliv Inc (NYSE:ALV) maintained solid sales and earnings despite significant market headwinds from weak light vehicle production.
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The company outpaced global light vehicle production by 4 percentage points, showcasing strong adaptability and customer relationships.
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Autoliv Inc (NYSE:ALV) successfully reduced its indirect workforce by up to 2000, achieving related savings of USD50 million in 2024.
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Cash flow remained strong, supporting a high level of shareholder return, with 1.3 million shares repurchased and retired for USD130 million.
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The company achieved over 50% market share with high-end and new energy vehicle manufacturers in China, highlighting its strong position in the market.
Negative Points
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Sales in the third quarter decreased by 160 basis points year over year due to unfavorable currency translation effects and lower light vehicle production.
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The adjusted operating income for Q3 decreased by 2% to USD237 million from USD243 million last year.
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Operating cash flow was USD177 million, which was USD25 million lower compared to the third quarter last year.
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The company faced a negative regional light vehicle production mix, significantly impacting top-line performance.
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Supplier settlement costs of USD40 million are expected to gradually decrease over the next few quarters, indicating ongoing financial impact.
Q & A Highlights
Q: Can you provide more details on the headcount reduction and cost takeout program? A: Fredrik Westin, CFO, explained that they have reduced the indirect headcount by more than 1,200 and direct headcount by around 6%. They are progressing in line with expectations, and the savings are coming through as expected. It’s not only headcount reductions impacting cost development; other improvements are also contributing.
Q: How do you see the growth with Chinese domestic OEMs, especially with the rise of battery electric vehicles? A: Mikael Bratt, CEO, stated that they are making good progress in increasing their share with Chinese OEMs, which is expected to contribute to their performance in 2025. They feel comfortable gaining traction with Chinese OEMs as they grow together.
Q: Regarding the USD14 million supplier settlement, is this a one-time cost or will it continue? A: Fredrik Westin, CFO, clarified that the impact from the settlement will gradually decrease to close to zero by the third quarter of next year. It was related to one supplier, but further details cannot be disclosed.
Q: What are the main drivers for the expected increase in profitability in Q4? A: Fredrik Westin, CFO, mentioned higher volumes, normal seasonality of engineering income, completion of customer compensation negotiations, continued savings from structural cost initiatives, and favorable currency effects as key drivers. Supplier cost inflation will be a headwind but to a lower magnitude than in Q3.
Q: Do you think the current customer call-off accuracy represents a new normal, and how does it impact your margin targets? A: Mikael Bratt, CEO, does not believe the current volatility is the new normal. He expects a return to predictability, which is crucial for efficiency. The normalization of call-offs is a building block for achieving their 12% margin target.
Q: How do you plan to achieve the 12% margin target, and what are the biggest moving parts? A: Fredrik Westin, CFO, outlined that closing the gap to 12% involves structural cost initiatives, normalization of call-offs, direct labor efficiency, and strategic initiatives like automation and digitalization. They are making progress on these fronts.
Q: How does the Chinese OEM market impact your working capital and profitability? A: Fredrik Westin, CFO, noted that Chinese OEMs tend to have longer payment terms, but they manage this by working closely with their supply base. The net impact on working capital is not significantly different from other regions.
Q: What changes did you make to gain traction with Chinese OEMs like Nio, and what is your CapEx outlook for next year? A: Mikael Bratt, CEO, emphasized their innovation capabilities and early investments in China as key factors. Fredrik Westin, CFO, mentioned that CapEx will trend down from 5.5% of sales but remain above 5% next year due to ongoing investments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.