Autoliv Inc. (ALV) recorded a decline in profit to $138.4 million or $1.48 per share in the third quarter of 2011 from $140.1 million or $1.51 per share in the same quarter of 2010. The company has missed the Zacks Consensus Estimate by a penny.
Consolidated sales appreciated 16% to $2.02 billion reflecting a boost of 6% due to currency translation. Organic sales rose by 9% during the quarter.
The company’s sales were highly influenced by recent vehicle launches and a favorable vehicle mix, particularly with Hyundai/KIA and General Motors (GM), Ford Motor (F) and Chrysler. These apart, strong demand for side airbags for chest protection as well as for electronics (both passive electronics and active safety systems), and the continued global trend of upgrading seatbelt systems with pretensioners led to the sales growth.
Gross profit increased 10% to $411 million. However, gross margin declined to 20.4% from 21.5% due to higher raw material prices and negative currency revaluation effects.
Operating income increased by $3 million to $205 million. However, operating margin decreased to 10.2% from 11.6% due to antitrust investigations.
Performance by Segments
Sales of Airbag Products escalated 15% to $1.32 billion, with an 8% rise in organic sales. The increase in sales was attributable to strong demand for side airbags for chest protection, passenger airbags and for passive safety electronics, particularly by Hyundai/KIA, Chrysler, GM, and Ford.
Sales of Seatbelt Products grew 16% to $659 million, with a 9% growth in organic sales. The growth was driven by new business, mainly in Europe and China, especially from GM, Ford, Hyundai/KIA and Nissan.
Sales of Active Safety Products went up 78% to $40 million, with a 75% growth in organic sales. The increase was attributable to new radar business with Chrysler and higher optional take-rates at Daimler‘s (DDAIF) Mercedes.
Financial Position
Autoliv had cash and cash equivalents of $630.7 million as of September 30, 2011 compared with $487.2 million in the corresponding period a year ago. Total debt reduced to $702 million from $836.2 million as of September 30, 2010.
Consequently, long-term debt to capitalization ratio declined to 17.6% as of September 30, 2011 from 23% in the year-ago period. Gross interest-bearing debt increased by $8 million to $702 million during the quarter.
Autoliv aims to maintain a leverage ratio that is significantly below 3.0X and an interest-coverage ratio that is significantly above 2.75X. At the end of the quarter, the company’s leverage ratio was 0.1X, while interest coverage ratio was 14.9X.
In the first nine months of the year, the company’s cash flow from operations decreased to $465.1 million from $598.1 million a year ago, due to unfavorable changes in operating assets and liabilities. Capital expenditures (net) increased to $256.6 million from $142.1 million in the prior-year period.
Guidance
For full year 2011, Autoliv expects consolidated sales to grow more than 15% to $8.3 billion, backed by an organic sales growth of more than 9%. However, given the uncertainties due to the flooding in Thailand, the company has slightly lowered its operating margin guidance to 11% from over 11%.
Our Take
Autoliv has a stable market share in both airbag modules and seat belts in North America, Europe and Asia. The company has continuously expanded in low-cost countries, including Romania and China, in order to meet local demand and to consolidate manufacturing from high-cost countries.
However, it faces significant customer concentration risks. The company’s top-5 represent about 59% of sales and the top 10 represent 74% of sales.
Due to these factors, the company retains a Zacks #3 Rank on its stock, which translates to a Hold rating for the short term (1 to 3 months). We have reiterated a Neutral recommendation on the stock for the long term (more than 6 months).
