Autoliv Inc. (ALV) announced that it has started building an extension of its airbag and seatbelt assembly facility in Guangzhou in Southern China. The near $4 million extension will enhance the floor space of the facility by 70%.
The Guangzhou plant began its operations three years ago by replacing a leased plant that started in 2005. The extension program will increase the total employee count at the plant by 150 heads to 950 heads.
The plant manufactures airbags and seatbelts both for the domestic market and for export to Japan. Its largest customers include Honda Motor Co. (HMC), Nissan Motor Co. (NSANY), Mazda and Toyota Motor Corp. (TM).
Autoliv has 10 facilities in China, including a technical center with a crash tests facility for complete vehicles. The company employs 5,500 people in the country. China accounted for 11% of the company’s sales in 2010. Last year, Autoliv’s sales grew by more than 60% in the country while light vehicle production rose by 29%.
Autoliv has continuously expanded in low-cost countries (LCCs), including Romania and China, to meet local demand and to consolidate manufacturing from high-cost countries. The rise in light vehicle production in LCCs raised demand for automobile protection products.
Furthermore, expenditure in LCCs is about 55% of that in higher-cost countries. The company increased its headcount in LCCs to 63% in 2010 from 60% in 2009.
Recently, the company announced that it would build a new plant in Changchun, China that will replace the existing plant at the same location. The existing plant manufactures seatbelts, frontal airbags and side airbags for FAW-Volkswagen Automotive Co., FAW Car Co., Great Wall Motor Co., Bejing Benz Automotive Co., BMW Brilliance Automotive Co., and Shanghai GM Norsom Co. It employs about 450 people.
The company will invest $6 million for the plant. It will more than double the floor space compared to the existing plant in order to boost production that will meet the rapid growth in demand in the Chinese market. Recently, Autoliv also announced an extension of its electronics plant in China.
Autoliv showed about threefold increase in profit of $177.5 million or $1.89 per share in the fourth quarter of 2010 from $61.3 million or 68 cents per share in the same quarter of 2009. The profit far exceeded the Zacks Consensus Estimate by 21 cents per share. The increase in profit was attributable to higher sales (especially in the Rest of the World region) and restructuring measures.
Consolidated sales grew 14% to $1.91 billion reflecting a boost of 9% due to acquisitions, offset partially by a negative currency translation effect of 1% and a negative impact of 5% related to reversal of three more production days in the first quarter. Consequently, organic sales rose by 12% during the quarter.
The company’s sales were affected by favorable vehicle mix with General Motors (GM), Ford Motor (F), Chinese manufacturers and Chrysler as well as to strong sales growth in Japan.
Operating income increased by $133 million to $243 million (12.7%) from $110 million (6.6%) in the prior-year quarter. This was attributable to a rise in gross profit by $80 million and a decline in restructuring charges by $70 million, offset partially by a rise in research, development and engineering expenses by $15 million.
Autoliv anticipates consolidated sales growth of 20% in the first quarter of 2011, backed by an organic sales growth of 10%. The company expects consolidated sales growth of more than 10% for full year 2011 based on the organic sales growth expectation of 6%. The company also expects an operating margin of at least 11.5% both for the first quarter and full year 2011.
Despite the improved results, strong financial position and promising outlook, Autoliv faces considerable customer concentration risks. Moreover, sluggish production in Western Europe may continue to adversely affect the company’s results. This caused the company to retain a Zacks #3 Rank (Hold) on its stock for the short term (1 to 3 months) and we have recommended the shares of the company as Neutral for the long term (more than 6 months).
AUTOLIV INC (ALV): Free Stock Analysis Report
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