Autoliv Inc. (ALV) posted a 43% rise in profit to $181.5 million in the first quarter of 2011 from $126.5 million in the same quarter of 2010. On earnings per share basis, the company recorded a profit of $1.93, up 39% from $1.39 a year ago and exceeding the Zacks Consensus Estimate by 19 cents per share.
The increase in profit was attributable to higher sales in all the regions, except Japan and restructuring actions initiated in July 2008. Consolidated sales appreciated 23% to $2.11 billion reflecting a boost of 6% due to acquisitions and 3% due to currency translation effect. It was higher than the Zacks Consensus Estimate of $1.97 billion. Organic sales rose by 14% during the quarter, which was in line with the company’s guidance.
Operating income rose 30% to $255 million (12.1%) due to an $82 million improvement in gross profit, $9 million decrease in operating expense on the back of lower restructuring needs. These favorable effects were offset partially by $23 million higher Research, Development and Engineering expenses (net) and a $10 million higher Selling, General & Administrative expenses, partially due to currency effects and acquisitions.
Performance by Segments
Sales of airbag products (including steering wheels and passive safety electronics) escalated 23% to $1.39 billion. Organic sales of airbag products grew 15%. The segment sales were driven by strong demand for side airbags and electronics for passive safety. Some of its frequent customers were Chrysler, General Motors Co. (GM) and Ford Motor Co. (F), Hyundai, Daimler’s (DDAIF) Mercedes Benz, Great Wall and Wuling.
Sales of seatbelt products zoomed 19% to $686 million, driven by new business, mainly in Europe, China and North America. Organic sales increased over 10%. Sales of active safety products (automotive radar and night vision systems) surged 93% to $37 million and organically by 92%, mainly due to new radar business with Chrysler, higher take rates at Mercedes and higher take rates for night vision systems at BMW and Audi.
Performance by Regions
Sales in Europe scaled up 12% to $826 million including a positive impact (1%) from currency translation. Organic sales grew 11% with an 8% increase in European light vehicle production (LVP). The region’s performance was driven by several new business contracts and vehicle launches (such as the new Ford C-max and Focus; and the Audi A8, A7 and A1), as well by volume increases for BMW’s 5-series and Mini Countryman; Opel’s Astra and the Mercedes C-class.
Sales in The Americas swelled 29% to $671 million including favorable currency effects of 2%. Organic sales grew 27% due to a favorable LVP mix and strong performance of several new models with high safety content introduced with Ford’s Edge and new Focus; Chrysler’s 200 and 300; Dodge’s Charger; Chevrolet’s Cruze, Volt and Impala and Fiat’s launch of the 500 US.
Sales in China soared 31% to $230 million. Acquisitions had favorable impact of about 5% and currency effects had about 4% contribution. Organic sales increased 23%, driven by several vehicle models such as Nissan’s Qashqai and Teana; Great Wall’s Voleex C30; Geely’s Emgrand EC7 and EC8; BMW’s 5-series, Mercedes’ E-class; Peugeot’s 206+ and 308; Hyundai’s ix35 and Verna; Chevrolet’s Cruze; Buick’s Excel; Toyota Motor’s (TM) Reiz and Land-Cruiser Prado; and the recently launched Wuling Hongguang.
Sales in Japan dipped 5% to $185 million, despite a favorable effect of 10% due to currency movements. Organic sales declined 15% on the back of earthquake and tsunami on March 11.
Sales in Rest of the World jumped up 107% to $197 million, primarily due to acquisitions that boosted sales by 94%. The strong performance reflected organic sales increases of 10%, driven by strong sales in the South Korean market, offset partially by unfavorable LVP mix in India, Thailand and Indonesia- where LVP is heavily skewed towards low-end vehicles with low safety content.
Financial Position
Autoliv had cash and cash equivalents of $605.2 million as of March 31, 2011 compared with $302.3 million in the year-ago period. Long-term debt reduced to $639.9 million from $792.5 billion as of March 31, 2010.
Consequently, long-term debt-to-capitalization ratio declined to 17% as of March 31, 2011 from 24% in the year-ago period. However, gross interest-bearing debt increased by $22 million to $747million during the quarter due to currency translation.
Autoliv’s policy is to maintain a leverage ratio (adjusted net debt in relation to EBITDA- Earnings before Interest, Taxes, Depreciation and Amortization) significantly below 3.0X and an interest-coverage ratio (operating income, excluding amortization of intangibles, in relation to net interest expense) significantly above 2.75X.
During the quarter, the company’s leverage ratio remained unchanged at 0.1X compared with the same as of December 31, 2010, while the interest coverage ratio increased to 14.8X from 14.1X as of the same comparable date.
In the quarter, the company’s cash flow from operations decreased to $141.4 million from $148.9 million a year ago, despite an improvement in profit. The decline in cash flow was attributable to unfavorable changes in operating assets and liabilities. Capital expenditures (net) increased to $80.1 million from $36.1 million in the prior-year period.
Guidance
For the full year 2011, Autoliv expects consolidated sales to grow by 15%, backed by an organic sales growth of 8%. Acquisitions are expected to add 2% to the overall sales growth. Operating margin is expected to reach 11.5% in the year.
Our Take
Autoliv has a stable market share in both airbag modules and seat belts in North America, Europe and Asia. The company has been continuously expanding 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) and we have reiterated a “Neutral” recommendation on the stock for the long term (more than 6 months).
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