Autoliv's Profits Quadruple - Analyst Blog

Autoliv Inc. (ALV) posted a profit of $140.1 million or $1.51 per share for the third quarter of 2010, which more than quadrupled from the year-ago level of $32.8 million or 37 cents per share. The profit also exceeded the Zacks Consensus Estimate of $1.22 per share during the quarter.

Consolidated sales appreciated 31% to $1.74 billion, reflecting a boost of 10% based on acquisitions, offset partially by a negative currency translation effect of 2%. Consequently, organic sales rose by 23% during the quarter.

The company's sales were highly influenced by sales to General Motors (MTLQQ) or GM, Honda Motor (HMC), Nissan Motor (NSANY) and Ford Motor (F). Meanwhile, organic sales growth was driven by sales to Mitsubishi, Honda and Hyundai/KIA.

Operating income increased by $142.1 million to $202.1 million (11.6%) from $60 million (4.5%) in the prior-year quarter. This was attributable to a $135 million rise in gross profit  and a $12 million decline in restructuring charges, offset partially by a rise in research, development and engineering expenses by $6 million.

Performance by Segments

Sales of Airbag Products escalated 37% to $1.17 billion, with a 27% rise in organic sales. This was attributable to new businesses with GM, Hyundai/KIA, Ford and Chrysler, as well as a strong recovery in sales in Japan, especially with Nissan, Honda and Mitsubishi.

Sales of Seatbelt Products grew 21% to $568 million, with a 17% growth in organic sales. This was driven by new businesses with Hyundai/KIA and GM, rejuvenated sales at Honda, Nissan, Mitsubishi and Autovaz, and strong sales gain with Chinese automakers.

Performance by Regions

Sales in Europe dipped 6% to $600 million due to a negative impact (8%) from currency translation. However, organic sales in the region grew 2% due to a favorable vehicle mix on the back of a strong demand for vehicles with high safety content such as Daimler's (DDAIF) Mercedes E-class and C-class; BMW's 5-Series and Nissan's Qashqai.

Sales in North America sprang up 70% to $528 million, with an impressive 55% growth in organic sales. This was attributable to a favorable product mix and a strong recovery in light vehicle production in the region.

Sales in Japan shot up 56% to $213 million, with a 48% rise in organic sales. This was driven by a strong recovery in the production of vehicles with high safety content, including premium cars, sports utility vehicles and other, especially for the North American and West European markets.

Sales in Rest of the World jacked up 63% to $400 million, with a 26% growth in organic sales. The strong performance reflected organic sales increases of 45% in China, where light vehicle production increased by 10%.

Financial Position

Autoliv had cash and cash equivalents of $487.2 million as of September 30, 2010 compared with $429.6 million in the year-ago period. Long-term debt reduced significantly to $680 million from $1.19 billion as of September 30, 2009.

Consequently, long-term debt-to-capitalization ratio declined to 20% as of September 30, 2010 from 34% in the year-ago period. Gross interest-bearing debt reduced by $42 million to $836 million at the end of the quarter.

Autoliv aims to maintain a leverage ratio that is significantly below 3.0x and an interest-coverage ratio that is significantly above 2.75x. At the end of the quarter, the company's leverage ratio was 0.3x, while interest coverage ratio was 11.9x.

In the first nine months of the year, the company's cash flow from operations improved to $198.3 million from $129.9 million a year ago, due primarily to an improvement in profit and an insurance reimbursement of $8 million. Capital expenditures (net) increased to $59.1 million from $23.7 million in the prior-year period.

Outlook

For the upcoming quarter, Autoliv expects consolidated sales to grow by 15%, backed by an organic sales growth of 12%. The company has upgraded its consolidated sales growth outlook to 40% for full year 2010 from 35% predicted earlier, based on the organic sales growth expectation of at least 30%. The company also expects an operating margin of at least 12% for both the fourth quarter and the full year 2010.

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 nine months of the year, its total headcount in the LCCs rose to 62% from 57% a year ago.

These factors along with a strong improvement in earnings have led the company to hold a Zacks #1 Rank on its stock, which translated to a recommendation of Strong Buy for the short term (1–3 months).

 
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