Auto-parts supplier Lear Corp. (LEA) on Friday reported a profit for the fourth quarter compared to a loss in the year-ago period, reflecting a hefty gain related to reorganization and fresh start accounting adjustments, in addition to higher sales and fewer charges as compared to the prior year.
This was the company's first quarterly results since it emerged from bankruptcy in November 2009. For fiscal year 2010, the company forecasts higher sales and projects core operating earnings to more than double from the previous year.
Net income attributable to Lear for the fourth quarter was $1.23 billion compared to net loss of $688.2 million or $8.91 per share in the year-ago period.
Lear filed for bankruptcy in July 2009 and emerged from bankruptcy in early November with substantially lower total debt obligations and an improved credit profile.
The company's pretax income for the fourth quarter was $1.19 billion compared to pretax loss of $682.9 million a year ago.
The pretax income for the latest quarter includes a gain related to reorganization items and fresh start accounting adjustments of $1.51 billion, a goodwill impairment charge of $319.0 million and restructuring costs of $59.3 million. The pretax loss for the prior-year period includes a goodwill impairment charge of $530.0 million.
Lear's core operating earnings for the fourth quarter rose to $116 million from $22.0 million in the same period last year.
Net sales for the fourth quarter were $2.74 billion, up 5.4% from $2.60 billion in the year-ago period.
Lear's net sales in North America for the quarter dropped 16.4% to $866.3 million, while sales in Europe increased 7.8% to $1.21 billion and rest of the world sales rose 50.9% to $667.9 million.
Among Lear's peers, Johnson Controls Inc. (JCI) in mid-January reported a profit for the first quarter compared to loss in the prior-year period, aided by a 15% increase in sales in addition to cost-cutting measures. Net income attributable to Milwaukee, Wisconsin-based Johnson Controls for the first quarter was $350 million or $0.52 per share, compared to net loss of $608 million or $1.02 per share in the prior-year quarter. Net sales for the latest quarter were $8.41 billion, up 15% from $7.34 billion in the year-ago period.
In Lear's seating segment, net sales for the fourth quarter increased 5% to $2.2 billion, primarily driven by favorable foreign exchange. Operating margins improved significantly, reflecting favorable cost performance and the benefit of operational restructuring savings.
In the company's Electrical Power Management segment, net sales were up 8% to $569 million, reflecting improved production environment and favorable foreign exchange.
Operating margins for the quarter improved significantly, reflecting the increase in sales, favorable cost performance and the benefit of operational restructuring savings.
Lear's free cash flow for the quarter was $11.2 million, compared with negative $35.4 million in the same period last year. Net cash provided by operating activities was $67.3 million, compared to negative $88.0 million in the year-ago period.
For fiscal year 2009, Lear's net income attributable to the company was $814.5 million, compared to net loss of $689.9 million or $8.93 per share in the previous year. On average, five analysts polled by Thomson Reuters expected the company to report a loss of $2.98 per share for the year. Analysts estimates typically exclude special items.
The company reported a pretax income for the year of $832 million, compared to pretax loss of $578.6 million in the previous year.
The results for the latest year include a gain related to reorganization items and fresh start accounting adjustments of $1.48 billion, a goodwill impairment charge of $319.0 million and restructuring costs of $160.0 million. The prior year's results include a goodwill impairment charge of $530.0 million.
Core operating earnings for the year dropped to $106.8 million from $418.4 million last year, reflecting the decline in net sales offset in part by favorable cost performance, including the benefit of operational restructuring actions.
Net sales for the year were $9.74 billion, down 28.2% from $13.57 billion in the previous year. Analysts had a consensus revenue estimate for the year of $9.66 billion.
The decline in net sales for the year primarily reflects a significant reduction in production in North America and Europe as well as unfavorable foreign exchange.
Bob Rossiter, Lear's chairman, chief executive officer and president, said, "Business conditions in 2009 were extremely challenging in the automotive sector. In this environment, we continued to reduce our structural costs and realign our global production footprint. In addition, we completed a major financial restructuring. These very difficult actions were necessary to restore our Company to financial health and position our business for longer-term success."
Lear said it continued to make progress on its strategic priorities, including further diversification of its global sales, business development in emerging markets and the implementation of an operating improvement plan for the Electrical Power Management segment. About 70% of Lear's net sales for the year were generated outside of North America.
The company's free cash flow for the year was negative $155.6 million, compared with negative $51.3 million in the previous year. Net cash provided by operating activities was negative $175.3 million and $163.6 million in 2009 and 2008, respectively.
Cash and cash equivalents as the end of 2009 was $1.55 billion, compared to $1.59 billion a year ago. while total debt was less than $1 billion.
For fiscal year 2010, Lear anticipates core operating earnings of $250 million-$350 million.
The company forecasts operational restructuring costs of about $110 million. Pretax income before restructuring costs and other special items is projected by the company in a range of $145 million-$245 million.
Lear forecasts full-year global net sales in the range of $10.2 billion-$10.7 billion. Analysts expect the company to report revenues of $10.87 billion for the year.
The company projects capital spending for the year to be approximately $170 million, while free cash flow is expected in a range of $50 million-$100 million.
Lear's full-year outlook include expectations for industry vehicle production of about 10.5 million units in North America and 15.4 million units in Europe.
In November, brokerage Credit Suisse initiated coverage of Lear Corp. with an "Outperform" rating and a price target of $81. Analyst Christopher Ceraso noted that Lear has a strong competitive position in seating, and emergence from bankruptcy has given the company a clean balance sheet, which according to the brokerage, "sets it apart from many of its auto supplier peers."
Lear continued to get new business, in spite of the bankruptcy, the brokerage noted, adding that the company holds a 3-year backlog of $1.4 billion. The analyst said his profit forecasts for 2010-2012 show significant upside potential, compared to the company's plan-of-reorganization estimates. "We would highlight our forecast for 2011 EBITDA of $916 million vs. LEA's estimate of $703 million."
LEA closed Thursday's regular trading session at $71.22, down $2.70 on a volume of 1.01 million shares. In Friday's pre-market trading, the stock is trading at $72.60, up $1.38 or 1.94%. In the past 52 weeks, the stock has been trading in a range of $50.50-$74.15.
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