Autoliv (ALV) Posts Mixed Q2 Results; Offers Guidance

Autoliv (NYSE: ALV) reported Q2 EPS of $1.75, $0.04 better than the analyst estimate of $1.71. Revenue for the quarter came in at $2.58 billion versus the consensus estimate of $2.64 billion.

Comments from Jan Carlson, Chairman, President & CEO

The transformation of Autoliv continues and in the first six months of 2016 we saw continued strong order intake, which is likely to continue. This is a positive development for our future growth and our current longterm outlook now shows that we should surpass our end of decade sales target of 12 billion US dollars.

As preparation for the delivery of our products begins two to three years before start of production and as future growth is accelerating, we have added close to 400 engineering resources during the second quarter.

In order to be able to capture the future growth opportunities and maintain our focus on “quality first in everything we do”, we are in addition planning to add more than 1,000 engineering resources in the next twelve months.

Besides the strong developments in passive safety we also saw several positive developments in our electronics business. We secured important customer wins, Autoliv-Nissin Brake Systems had a solid start in its first quarter of operations and in active safety we grew 30% organically.

I am pleased that we are able to capture significant future business and balance further investments for growth with healthy full year operating margins within our long-term target range of 8-9%, while also delivering on our quarterly margin guidance despite slightly lower than expected organic growth, mainly from a lower global light vehicle production.

During the quarter, one of our customers experienced a quality related recall issue with one of our products and we are still investigating the cause. Quality is our first priority and we are working with our customer to resolve this issue in the best possible manner.

We continue 2016 with a clear focus on execution. Quality first, the robustness of our products and focus on operations are more important than ever as we deal with accelerating future business volumes.

Outlook:

Mainly based on our customer call-offs we expect organic sales for the third quarter of 2016 to grow by around 6% compared to the same quarter of 2015. Sales from recent M&A activities (ANBS and MACOM) are expected to have a positive effect of around 6%.

Currency translations are expected to have a negative effect of less than 1%, resulting in a consolidated sales growth of around 12%. The adjusted operating margin, excluding costs for capacity alignments and antitrust related matters, is expected to be around 7.5%.

The indication for the full year is for an organic sales growth of around 7%. Sales from recent M&A activities (ANBS and MACOM) are expected to have a positive effect of around 5%. Currency translations are expected to have a negative effect of more than 1%, resulting in a consolidated sales growth of more than 10%. The adjusted operating margin, excluding costs for capacity alignments and antitrust related matters, is expected to be more than 8.5%. This includes expected integration and purchase accounting related costs for the joint venture with Nissin Kogyo (ANBS) of $20-30 million, as well as costs related to stronger than expected mid-term growth.

Since 2015 Autoliv has agreements with several OEMs for new supply capacity for replacement airbag inflators.

Based on customer agreements and its own expectations, the Company now expects deliveries of up to 30 million units during the period 2015 to 2018. It is still too early in this evolving situation to be able to determine final delivery volumes.

The projected tax rate, excluding any discrete items, for the full year 2016, is currently expected to be around 29% and is subject to change due to any discrete or nonrecurring events that may occur.

Operational cash flow for the full year is expected to remain strong and to be around $0.8 billion excluding any discrete items.

Capital expenditures in support of our growth strategy are expected to be in a range of 5-6% of sales, including capital expenditures for additional capacity for replacement inflators.

The forward looking non-U.S. GAAP financial measures above are provided on a non-U.S. GAAP basis. Autoliv has not provided a U.S. GAAP reconciliation of these measures because items that impact these measures, such as costs related to antitrust matters and capacity alignment, cannot be reasonably predicted or determined. As a result, such reconciliation is not available without unreasonable efforts and Autoliv is unable to determine the probable significance of the unavailable information.

For earnings history and earnings-related data on Autoliv (ALV) click here.

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