Autoliv exalts on a threefold jump - Analyst Blog

Autoliv Inc. (ALV) 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.

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.

Segments' Contribution

Sales of Airbag Products appreciated 17% to $1.28 billion, with a 13% rise in organic sales. This was attributable to favorable vehicle mix with General Motors (GM), Ford Motor (F), Chinese manufacturers and Chrysler as well as strong sales growth in Japan.

Sales of Seatbelt Products grew 9% to $626 million, with a 9% growth in organic sales. This was driven by businesses with GM, Honda Motor (HMC), Mercedes and the Chinese customers.

Regional Sales

Sales in Europe fell 6% to $717 million due to a negative impact from currency translation. However, organic sales in the region rose 5% due to strong demand for vehicles with high safety content such as Mercedes' C-class, BMW's 5-series and Opel's new Astra.

Sales in North America escalated 24% to $522 million with a 19% growth in organic sales. This was attributable to a favorable product mix in the region.

Sales in Japan went up 13% to $206 million, with an 11% rise in organic sales. This was driven by new programs for Daewoo and Hyundai-Kia in Korea, as well as by sports utility vehicles, premium cars and other vehicles for the North American and West European export markets.

Sales in Rest of the World shot up 49% to $462 million, with a 19% growth in organic sales. The strong performance reflected organic sales increases of 43% in China where light vehicle production (LVP) grew by 17%.

Annual Results

Autoliv reported a whopping $580.6 million increase in profit to $590.6 million in 2010 compared with 2009. Sales in the year surged 40% to $7.17 billion. Consequently, organic sales grew 31%, which was 6 percentage points higher than the growth in global LVP.

Dividend Raised

Autoliv raised its quarterly dividend payment by 14%, on top of an increase of 17% recently. The company will pay a dividend of 40 cents per share presently, which will be paid on March 3, 2011 to shareholders of record as on February 3, 2011. Consequently, the total dividend paid is expected to be $36 million, 16% higher than the highest amount paid before the global economic crisis.

Financial Position

Autoliv had cash and cash equivalents of $587.7 million as of December 31, 2010 compared with $472.7 million in the year-ago period. Long-term debt reduced significantly to $637.7 million from $820.7 million as of December 31, 2009.

Consequently, long-term debt to capitalization ratio declined to 18% as of December 31, 2010 from 26% in the year-ago period. Gross interest-bearing debt reduced by $414 million at the end of the quarter.

In the year, the company's cash flow from operations improved to $924.4 million from $492.6 million a year ago, due primarily to an improvement in profit. Capital expenditures (net) increased to $224.4 million from $130.4 million in the prior-year period.

Outlook

For the upcoming quarter, Autoliv expects consolidated sales to grow by 20%, 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 for the full year 2011.

Our Take

Autoliv has a stable market share in both airbag modules and seat belts in North America, Europe and Asia. The company has been continuously expanding into low-cost countries (LCCs), including Romania and China, in order to meet local demand and to consolidate manufacturing from high-cost countries.

However, light vehicles that require high-safety content have seen weak production in Autoliv's largest markets – North America and Western Europe. Further, the company faces significant customer concentration risks as its top-5 customers represent about 59% of sales.

Due to these factors, the company retains a Zacks #3 Rank on its stock, which translated to a recommendation of ‘Hold' for the short term (1–3 months).

 
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