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Lear (LEA) Up 1.5% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Lear (LEA). Shares have added about 1.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Lear due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Lear's Q1 Earnings Beat Estimates But Fall Y/Y

Lear reported first-quarter 2022 adjusted earnings of $1.80 per share, plunging around 51.7% year over year. The bottom line, however, surpassed the Zacks Consensus Estimate of $1.56 per share. Higher-than-expected sales from both the company’s segments led to the upside.

In the reported quarter, revenues declined around 2.7% year over year to $5,208.4 million. The top line beat the Zacks Consensus Estimate of $4,957.8 million.

Segment Performances

Sales for the Seating segment totaled $3,912.5 million in first-quarter 2022, reflecting a 2.1% decline from the year-ago quarter’s $3,996 million. Nonetheless, the metric surpassed the Zacks Consensus Estimate of $3,696 million. Adjusted segmental earnings came in at $217.7 million, declining 29.1% from a year ago but matching the consensus mark. The segment recorded adjusted margins of 5.6% of sales, a decline from 7.7% in the previous-year quarter.

Sales in the E-Systems segment summed $1,295.9 million, down around 4.6% year over year. The figure, however, topped the consensus mark of $1,267 million. Adjusted segmental earnings amounted to $41.9 million, plummeting 56%. The metric, however, surpassed the consensus mark of $34.09 million. For the E-Systems segment, the adjusted margin was 3.2% of sales, down from 7% in the year-ago quarter.

Financial Position

The company had $1,162 million of cash and cash equivalents at the quarter-end, compared with $1,318.3 million recorded at the end of 2021. It had long-term debt of $2,595.8 in the quarter, almost flat with the 2021-end level.

At the first quarter-end, net cash used in operating activities totaled around $221 million, down from $247.5 million a year ago. In the reported period, its capital expenditure amounted to $130.3 million, increasing from $112.9 million. Free cash flow (FCF) was $90.4 million, declining from $134.6 million in the previous-year quarter.

2022 Guidance

Lear has brought down its full-year net sales to the band of $20.4-$21.2 billion from the previous range of $20.8-$22.3 billion. Core operating earnings are now envisioned in the band of $765-$965 million from the earlier range of $900-$1200 million. Lear’s anticipated FCF has been lowered to the band of $225-$425 million from $300-$600 million. Capital spending forecast remains constant within $650-$700 million. Adjusted EBITDA estimation has been lowered to $1,365-$1,565 million from $1,500-$1,800 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -26.18% due to these changes.

VGM Scores

At this time, Lear has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Lear has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Lear is part of the Zacks Automotive - Original Equipment industry. Over the past month, Autoliv, Inc. (ALV), a stock from the same industry, has gained 5.5%. The company reported its results for the quarter ended March 2022 more than a month ago.

Autoliv, Inc. reported revenues of $2.12 billion in the last reported quarter, representing a year-over-year change of -5.3%. EPS of $0.45 for the same period compares with $1.79 a year ago.

Autoliv, Inc. is expected to post earnings of $0.50 per share for the current quarter, representing a year-over-year change of -58.3%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #5 (Strong Sell) for Autoliv, Inc. Also, the stock has a VGM Score of A.


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