Autoliv - Q2 2024: Sales headwinds from lower LVP

Rhea-AI Summary

Autoliv (NYSE: ALV) reported Q2 2024 results with net sales of $2,605 million, a 1.1% decrease year-over-year. The company achieved 0.7% organic sales growth, outperforming the global light vehicle production decline of 0.7%. Operating margin improved to 7.9%, with adjusted operating margin reaching 8.5%. EPS increased by 178% to $1.71, while adjusted EPS decreased by 3% to $1.87. Operating cash flow remained strong at $340 million.

Autoliv updated its full-year 2024 guidance, projecting around 2% organic sales growth and an adjusted operating margin of 9.5-10.0%. The company continues to focus on cost reductions and improving profitability, expecting a significant increase in the second half of the year with an adjusted operating margin of around 11-12%.

Positive

• 0.7% organic sales growth, outperforming global light vehicle production decline
• Operating margin improved to 7.9%, with adjusted operating margin reaching 8.5%
• EPS increased by 178% to $1.71
• Strong operating cash flow of $340 million
• Leverage ratio improved to 1.2x
• 39% sales growth to domestic Chinese OEMs in Q2 vs. previous year

Negative

• 1.1% decrease in net sales year-over-year
• Adjusted EPS decreased by 3% to $1.87
• Underperformance in Americas and China markets
• Slight downward adjustment in full-year 2024 guidance

Insights

Financial Analyst

The latest financial figures for Autoliv provide a mixed bag for investors. While net sales slightly decreased by 1.1% to $2,605 million, the company managed to improve profitability significantly. This was reflected in the operating income, which surged by 120% to $206 million and the operating margin that rose to 7.9% from 3.6% a year ago. However, the adjusted earnings per share (EPS) fell slightly by 2.9% to $1.87.

Investors should note that the company's success in driving profitability was primarily due to cost reduction efforts and increased pricing. The reduction in indirect headcount by 1,100 employees since the program's inception has evidently paid off. The operating leverage remains at the high end of the normal range, indicating the company is utilizing its fixed costs effectively. However, the negative 1% FX effect on net sales and lower-than-expected sales could be potential concerns moving forward.

For long-term investors, Autoliv’s strong operating cash flow of $340 million and a leverage ratio improvement to 1.2x signal robust financial health. The company’s strategic focus seems to be on maintaining high levels of shareholder returns, with continued dividends and share buybacks.

Market Research Analyst

Autoliv’s performance in various geographic markets provides a nuanced view of their overall business health. The company outperformed in Asia (excluding China) and Europe, mainly due to new product launches and better pricing strategies. However, underperformance in the Americas and China, driven by lower light vehicle production (LVP) and negative sales mix, raises some red flags.

The automotive sector often presents challenges with fluctuating light vehicle production volumes, influenced by economic cycles, inventory adjustments and consumer demand. According to S&P Global, the global LVP declined by 0.7% in the quarter, yet Autoliv managed an organic sales increase of 0.7%. The company’s ability to outperform the global market in certain regions is encouraging, but the underperformance in key markets like the Americas and China, particularly with major global customers, needs close monitoring.

In China, domestic OEMs accounted for 38% of Autoliv’s sales, showing a 39% increase year-on-year. This shift towards domestic players is significant given China's market dynamics. However, the overall negative LVP mix in China suggests that models with higher Autoliv content are not performing as well as those with limited Autoliv content.

STOCKHOLM, July 19, 2024 /PRNewswire/ -- 

(NYSE: ALV) and (SSE: ALIV.sdb)

Financial highlights Q2 2024	Full year 2024 guidance
$2,605 million net sales	Around 2% organic sales growth
1.1% net sales decrease	Around 1% negative FX effect on net sales
0.7% organic sales growth*	Around 9.5-10.0% adjusted operating margin
7.9% operating margin	Around $1.1 billion operating cash flow
8.5% adjusted operating margin*
$1.71 EPS, 178% increase
$1.87 adjusted EPS*, 3% decrease
All change figures in this release compare to the same period of the previous year except when stated otherwise.

 

Key business developments in the second quarter of 2024

• Second quarter sales increased organically* by 0.7%, which was 1.4pp better than global LVP decline of 0.7% (S&P Global July 2024). We outperformed in Asia excl. China and in Europe, mainly due to product launches and pricing while we underperformed in Americas and in China, mainly due to lower light vehicle production with certain key customers, as a consequence of weaker sales and inventory reductions. In China, the LVP mix was negative as several models with limited Autoliv content grew strongly.
• Profitability improved despite a slight net sales decline. Sales were lower than expected, which impacted our profitability in the quarter with an operating leverage at the high end of our normal 20%-30% range. Profits improved mainly due to the successful execution of cost reductions and increased pricing. Indirect headcount continued to decrease. Operating income was $206 million and operating margin was 7.9%. Adjusted operating income* improved to $221 million and adjusted operating margin* increased from 8.0% to 8.5%. Return on capital employed was 21.0% and adjusted return on capital employed* was 22.5%.
• Operating cash flow was strong, at $340 million, albeit slightly below last year as Q2 last year was supported by positive timing effects. Free cash flow* of $194 million was thereby also down somewhat compared to last year. The leverage ratio* improved to 1.2x. In the quarter, a dividend of $0.68 per share was paid, and 1.31 million shares were repurchased and retired.

*For non-U.S. GAAP measures see enclosed reconciliation tables.

Key Figures

(Dollars in millions, except per share data)	Q2 2024	Q2 2023	Change	6M 2024	6M 2023	Change
Net sales	$2,605	$2,635	(1.1) %	$5,220	$5,127	1.8 %
Operating income	206	94	120 %	400	221	81 %
Adjusted operating income1)	221	212	4.4 %	420	343	22 %
Operating margin	7.9 %	3.6 %	4.4pp	7.7 %	4.3 %	3.4pp
Adjusted operating margin1)	8.5 %	8.0 %	0.5pp	8.0 %	6.7 %	1.4pp
Earnings per share2)	1.71	0.61	178 %	3.23	1.47	119 %
Adjusted earnings per share1,2)	1.87	1.93	(2.9) %	3.45	2.82	22 %
Operating cash flow	340	379	(10) %	462	334	39 %
Return on capital employed3)	21.0 %	9.5 %	11.5pp	20.4 %	11.4 %	9.1pp
Adjusted return on capital employed1,3)	22.5 %	21.0 %	1.5pp	21.4 %	17.4 %	4.0pp
1) Excluding effects from capacity alignments, antitrust related matters and for FY 2023 the Andrews litigation settlement. Non-U.S. GAAP measure, see reconciliation table. 2) Assuming dilution when applicable and net of treasury shares. 3) Annualized operating income and income from equity method investments, relative to average capital employed.

                                 

Comments from Mikael Bratt, President & CEO
	In the second quarter, profitability continued to improve despite a slight decline in net sales. The improvement was driven by better pricing and successful execution of cost reductions, with indirect headcount reduced by 1,100 since the start of the program. We have settled cost compensation claims with a majority of		We continued to outperform LVP significantly in Asia excluding China and in Europe, fueled by product launches and better pricing. In Americas, we underperformed slightly, as some key customers reduced production. We continue to expand our business with domestic Chinese OEMs, positioning us well to benefit from the new structure of the Chinese market. Domestic Chinese OEMs accounted for 38% of our China sales in Q2. We grew sales to this group by 39% in Q2 vs. a year ago, and by 25% vs. the previous quarter. However, the market developed unfavorably in Q2, with sales for certain brands and models with low Autoliv content growing strongly, while some of our key global customers production declined significantly, leading to 7pp underperformance in China. We remain fully focused on delivering on the around 12% adjusted operating margin target, although we adjust our full year 2024 guidance slightly, reflecting changes in LVP and adverse customer mix. We continue to expect a significant increase in profitability in the second half year with an adjusted operating margin of around 11-12% compared to the first half year's 8.0%. The positive development of our cash flow and balance sheet supports our continued commitment to a high level of shareholder returns.
customers and target to close most of the remaining claims in Q3. Return on capital employed was good and cash flow continued to be strong, supporting a high level of shareholder returns and an improvement of the leverage ratio to 1.2x. We remain on track with our strategic and structural initiatives to sustainably strengthen our footprint and operations. However, light vehicle production with certain key customers following weaker sales and inventory adjustments were lower than expected in the quarter, especially in June. The lower than expected sales impacted our profitability with an operating leverage at the high end of our normal 20%-30% range. It is encouraging that customer production plans for the third quarter are normalizing, indicating that the June weakness should be temporary.

 

Inquiries: Investors and Analysts Anders Trapp Vice President Investor Relations Tel +46 (0)8 5872 0671 Henrik Kaar Director Investor Relations Tel +46 (0)8 5872 0614 Inquiries: Media Gabriella Etemad Senior Vice President Communications Tel +46 (0)70 612 6424 Autoliv, Inc. is obliged to make this information public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the VP of Investor Relations set out above, at 12.00 CET on July 19, 2024.

 

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ALV ER Q2 2024

 

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SOURCE Autoliv

FAQ

What was Autoliv's (ALV) organic sales growth in Q2 2024?

Autoliv's organic sales growth in Q2 2024 was 0.7%, outperforming the global light vehicle production decline of 0.7%.

How did Autoliv's (ALV) EPS change in Q2 2024 compared to the previous year?

Autoliv's EPS increased by 178% to $1.71 in Q2 2024 compared to the same period in the previous year.

What is Autoliv's (ALV) updated full-year 2024 guidance for organic sales growth?

Autoliv updated its full-year 2024 guidance, projecting around 2% organic sales growth.

What was Autoliv's (ALV) operating cash flow in Q2 2024?

Autoliv reported a strong operating cash flow of $340 million in Q2 2024.

How did Autoliv (ALV) perform in the Chinese market in Q2 2024?

Autoliv grew sales to domestic Chinese OEMs by 39% in Q2 2024 compared to the previous year, but underperformed in the overall Chinese market by 7 percentage points due to unfavorable market developments.