Lear Corporation · NYSE:LEA
Lear — Q3 2004 Earnings Presentation
31 slides from Lear's earnings presentation, Oct 21, 2004
Slide 1: Third Quarter 2004 Results and Fourth Quarter Guidance
R Third Quarter 2004 Results and Fourth Quarter Guidance October 21, 2004 world’s leading automotive interior supplier fast forward advance relentlessly 1
Slide 2: Agenda
Agenda Lear’s Game Plan – Bob Rossiter, Chairman and CEO Operating Review – Jim Vandenberghe, Vice Chairman Financial Review and Guidance – Dave Wajsgras, SVP and CFO Q&A 2
Slide 3: Lear's Game Plan
CORPORATION Lear’s Game Plan
Slide 4: Lear's Game Plan
Lear’s Game Plan Our #1 priority is delivering superior value to our customers We are also continuously working to improve our operating fundamentals Relentless customer focus and our drive for operational excellence will support profitable growth for Lear going forward 4
Slide 5: Third Quarter Highlights
Third Quarter Highlights We achieved record sales and improved earnings, but our operating margin was down Solid financial results in Europe; on-track for continued improvement Integration of terminals and connectors acquisition proceeding well Steel and other raw material prices continued to escala
Slide 6: Business Outlook and Lear's Response
Business Outlook and Lear’s Response Fourth Quarter 2004 Unfavorable vehicle production mix Rising raw material costs Infrastructure realignment costs Full Year 2005 Continue to improve our cost structure Deliver record sales backlog Lear Team Fully Engaged with Customers/Suppliers to Offset Challen
Slide 7: Operating Review
CORPORATION Operating Review
Slide 8: Second Half External Factors
Second Half External Factors Overall vehicle demand and production in our major markets relatively stable Key vehicle platforms have experienced weaker demand / lower production Continued pressure from our customers to reduce costs Rapid escalation of raw material and energy prices since the first q
Slide 9: Major Commodities – Impact of Price Increases
Major Commodities – Impact of Price Increases Unprecedented increases in key commodity prices Financial impact to Lear varies by commodity: Commodity Impact Product Seat frames, tracks, Steel Most significant mechanisms Partially mitigated Instrument panels, door Resins/Plastics near-term panels, tr
Slide 10: Strategy to Mitigate Higher Material Costs
Strategy to Mitigate Higher Material Costs Aggressively pursue value-based solutions with all customers and suppliers Continue to consolidate supply base Selectively in-source components where we have available capacity Consolidate administrative functions and reduce costs Accelerate low-cost countr
Slide 11: Cost Technology Optimization (CTO) Centers
Cost Technology Optimization (CTO) Centers Munich, Germany Dearborn, MI Southfield, MI Barcelona, Spain Sao Paulo, Brazil Cebu, Philippines CTO Evaluates All Areas for Cost Reduction 11
Slide 12: Low Cost Manufacturing Capabilities and Engineering Centers
Low Cost Manufacturing Capabilities and Engineering Centers Poland – 4 Hungary – 4 Czech Republic – 3 Turkey – 1 Mexico – 24 Slovakia – 1 Romania – 1 India – 1 China – 2 L Thailand – 1 L LL LL L L L L L L L L L Philippines – 4 Honduras – 3 China – 1 India – 1 Korea – 1 Africa – 7 Philippines – 1 12
Slide 13: Lear's Terminals and Connectors Business
Lear’s Terminals and Connectors Business Evaluated manufacturing footprint – consolidation actions underway Leveraging acquired technical expertise throughout Lear’s electronics division Seeking to expand relationships with customers Assessing in-sourcing of current terminals & connectors buy, in pr
Slide 14: Operating Factors in Perspective for the First Nine Months of 2004
Operating Factors in Perspective for the First Nine Months of 2004 Lear has performed well, despite rising raw material and energy prices Quality and customer satisfaction continue to improve Aggressively working to minimize adverse impact of external factors Continuing to invest in growth strategy
Slide 15: Financial Review and Guidance
Financial Review and Guidance 15
Slide 16: Production Environment – 3Q04 vs. 3Q03
Production Environment – 3Q04 vs. 3Q03 North America Europe Industry production Industry production up 3% down 1% Western Europe Big Three production production flat down 4% Key Lear platforms down more than average Production Mix Remains Challenging 16
Slide 17: Financial Highlights – Third Quarter 2004
Financial Highlights – Third Quarter 2004 Third Third 3Q ‘04 Quarter 2004 Quarter 2003 B/(W) 3Q ‘03 (millions, except net income per share) Net Sales $3,897.8 9 $3,491.5 $406.3 Income before Interest, Other Expense & Income Taxes (core operating earnings)* $159.1 $163.1 $(4.0) Margin 4.1% 4.7% (60)b
Slide 18: 3Q04 vs. 3Q03 Change in Net Sales and Core Operating Earnings
3Q04 vs. 3Q03 Change in Net Sales and Core Operating Earnings Net Sales (up $406 million) Addition of new business globally Impact of foreign currency, primarily stronger Euro Acquisitions offset in part by Global vehicle production mix Core Operating Earnings* (down $4 million) Net operating perfor
Slide 19: Free Cash Flow
Free Cash Flow Three Nine (millions) Months Months Net NetIncome Income $$ 92 92 $$ 299 299 Depreciation Depreciation 87 87 257 257 Working WorkingCapital Capital//Other Other ((47 47)) ((41 41)) Cash Cashfrom fromOperations* Operations* $$ 132 132 $$ 515 515 Capital CapitalExpenditures Expenditures
Slide 20: Changes in Fourth Quarter Outlook
Changes in Fourth Quarter Outlook* Volume and Mix Prior Present North NorthAmerica AmericaProduction Production 4.1 m units 3.9 m units Selectiveproduction Selective productioncuts cuts totoadjust adjustinventory inventorylevels levels Europe EuropeProduction Production 4.7 m units 4.7 m units Jagua
Slide 21: Sales and Net Income Guidance
Sales and Net Income Guidance* Production 4Q04 Full Year Production(units) (units) •• North NorthAmerica America ≈3.9 ≈3.9million million ≈15.8 ≈15.8million million •• Europe Europe ≈4.7 ≈4.7million million ≈18.5 ≈18.5million million Sales Sales ≈$4.1 ≈$4.1billion billion ≈$16.8 ≈$16.8billion billio
Slide 22: Other 2004 Guidance
Other 2004 Guidance* Full Year Capital CapitalSpending Spending ≈$400 ≈$400million million Depreciation Depreciation ≈$365 ≈$365million million Free FreeCash CashFlow * Flow* ≈$300 ≈$300million million Interest InterestExpense Expense ≈$165 ≈$165million million * Please see slides titled “Use of Non
Slide 23: Factors Impacting 2005 Financials
Factors Impacting 2005 Financials* Industry / External High Highenergy energyand andraw rawmaterial materialprices prices Aggressive Aggressivecustomer customerdemands demandsforforcost costreduction reductionto tocontinue continue Several Severalmajor majorautomakers automakershave havechanged chan
Slide 24: Directional 2005 Outlook
Directional 2005 Outlook* Record backlog supports a sales increase of 5% to 7% Operating earnings are expected to increase 5% to 10% Additional details of 2005 financial guidance to be reviewed in January * Please see slide titled “Forward-Looking Statements” at the end of this presentation for furt
Slide 25: Alternative Uses of Cash Flow
Alternative Uses of Cash Flow. . . Where We See Value Creation Invest internally Repurchase in high return Shares programs Pursue strategic Increase acquisitions the dividend . . . While Maintaining a Strong Balance Sheet 25
Slide 26: Summary
Summary The hallmark of the Lear team is to pro-actively meet industry challenges and to work hand-in-hand with our customers to deliver superior value Despite the challenges of higher raw material and energy prices, the Lear team remains focused on serving our customers and profitably growing our b
Slide 27: Advance Relentlessly
R R ADVANCE RELENTLESSLY™ LEA Listed NYSE www.lear.com 27 27
Slide 28: Use of Non-GAAP Financial Information
Use of Non-GAAP Financial Information In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”) included throughout this presentation, the Company has provided information regarding certain non-GAAP financial measures. These measure
Slide 29: Use of Non-GAAP Financial Information: Core Operating Earnings
Use of Non-GAAP Financial Information Core Operating Earnings (millions) Q3 2004 Q3 2003 Income before interest, other expense and income taxes Income before income taxes $ 105.8 $ 105.7 Interest expense 43.3 44.0 Other expense, net 10.0 13.4 Income before interest, other expense and income taxes $
Slide 30: Use of Non-GAAP Financial Information: Free Cash Flow
Use of Non-GAAP Financial Information Free Cash Flow (millions) Nine Months Q3 2004 2004 Free cash flow Net cash provided by operating activities $ 131.9 $ 444.0 Net change in sold accounts receivable - 70.4 Net cash provided by operating activities before net change in sold accounts receivable 131.
Slide 31: Forward-Looking Statements
Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding anticipated financial results. Actual results may differ materially from anticipated results as a result of cert