Autoliv Inc. (ALV) has revealed a profit of $158.6 million or $1.73 per share (excluding the loss on extinguishing debt) in the second quarter of 2010, reversing the loss of $20.7 million or 24 cents per share in the same quarter a year ago. With this, the automotive safety components manufacturer has far exceeded the Zacks Consensus Estimate of $1.36 per share during the quarter.
Consolidated sales soared 51% to $1.8 billion, reflecting a 40% growth in organic sales. The company’s results were driven favorably by restructuring actions as well as strong sales to Chrysler, Mitsubishi, General Motors (MTLQQ), Hyundai/KIA and Nissan Motors (NSANY).
Operating income rose by $241 million to $229 million due to an increase in gross profit by $226 million and a decrease in restructuring charges by $29 million. These were partially offset by a rise in research, development and engineering expenses by $10 million and an increase in selling, general & administrative expenses by $8 million. Operating margin stood at 12.7% during the quarter.
Performance by Segments
Sales of Airbag Products shot up 60% to $1.2 billion, with a 46% rise in organic sales. This was attributable to new businesses with Chrysler, Ford Motor Co. (F), General Motors and Hyundai/KIA as well as strong sales recovery in Japan, especially with Honda Motor Co. (HMC), Mitsubishi and Nissan.
Sales of Seatbelt Products rose 36% to $595 million, with a 30% growth in organic sales. This was driven by new businesses with GM and Hyundai/KIA as well as strong sales recoveries with Chrysler, Honda, Mitsubishi, Nissan and Renault.
Performance by Regions
Sales in Europe inched up 9% to $694 million with a 13% rise in organic sales. This was attributable to new business for Renault’s Fluence and strong sales generated by Daimler AG’s Mercedes E-class and Mercedes C-class, BMW’s 5-Series and Volvo’s XC90.
Sales in North America jacked up 103% to $519 million, with an 82% growth in organic sales. This was attributable to strong recovery in light vehicle production led by Chrysler, Ford and General Motors.
Sales in Japan shot up 85% to $178 million, with an 80% rise in organic sales. This was driven by strong sales generated by Mitsubishi’s Outlander, new Mitsubishi RVR and Toyota Motor’s (TM) larger SUVs apart from the ramp up of production of Toyota’s Prius, Alphard and Mark X.
Sales in Rest of the World leaped 103% to $411 million, with a 56% growth in organic sales. The strong performance reflected organic sales increases of 75% in China and 29% in South America. This included new business for Chinese customers such as Geely’s Emgrand EC7; Great Wall’s CoolBear, Hover, I7 and Voleex C30; FAW’s Besturn; and Jianghuai’s Rein. Sales in South America were mainly driven by Volkswagen’s Gol and by Scania models.
Financial Position
Autoliv had cash and cash equivalents of $459 million as of June 30, 2010 compared to $311 million in the year-ago period. Long-term debt reduced significantly to $709 million from $1.1 billion as of June 30, 2009. Consequently, long-term debt to capitalization ratio declined to 21% as of June 30, 2010 from 32% in the year-ago period.
In the first half of the year, cash flow from operations more than tripled to $400 million from $118.5 million a year ago, due primarily to an improvement in net income. Capital expenditures (net) increased to $83 million from $66 million in the prior-year period.
Outlook
Autoliv’s anticipates consolidated sales to grow by 25% in the upcoming quarter and 35% for the full year 2010. This is based on the organic sales growth expectation of 20% for the upcoming quarter and 28% for the full year. The company also expects an operating margin of at least 10% for the third quarter and more than 11% for the full 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 continuously expanded in low-cost countries (LCCs), including Romania and China, in order to meet local demand and to consolidate manufacturing from high-cost countries. In the first half of the year, its total headcount in the LCCs rose to 60% from 55% a year ago.
However, Autoliv faces significant customer concentration risks. The company’s top three customers – Ford, Renault (including Nissan) and General Motors — account for 18%, 12% and 11% of sales, respectively. The top-5 represent about 59% of sales and the top 10 represent 74% of sales. These have led us to continue with our Hold (Zacks #3 Rank) recommendation in the short term (1–3 months) and Neutral recommendation in the long term (6+ months).
Read the full analyst report on “ALV”
Read the full analyst report on “MTLQQ”
Read the full analyst report on “F”
Read the full analyst report on “TM”
Read the full analyst report on “NSANY”
Read the full analyst report on “HMC”
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