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Lear (LEA) Down 20.2% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Lear (LEA). Shares have lost about 20.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lear due for a breakout? 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 Lags Q2 Earnings & Revenue Estimates, Down Y/Y

Lear Corporation reported second-quarter 2019 adjusted earnings per share of $3.78 compared with $4.95 recorded in the prior-year quarter. Also, the bottom line missed the Zacks Consensus Estimate of $3.82. At the end of second-quarter 2019, adjusted net income was $236 million compared with $330 million in the prior-year quarter.

During the reported quarter, revenues declined 10% year over year to $5 billion. Also, the Zacks Consensus Estimate was pegged at $5.03 billion. The downside was caused by lower production on key Lear platforms, which were partly offset by the addition of new business.

Moreover, the company’s core operating earnings declined to $352 million from $471 million in second-quarter 2018.

Segment Performances

In the reported quarter, margins and adjusted margins in the Seating segment were 7.4% and 8.2% of sales, respectively.

In the E-Systems segment, margins and adjusted margins were 7.3% and 8% of sales, respectively.

Financials

Lear had $1.27 billion of cash and cash equivalents as of Jun 30, 2019 compared with $1.49 billion recorded on Dec 31, 2018. The company had long-term debt of $2.30 billion as of Jun 30 compared with $1.94 billion recorded as of Dec 31, 2018.

At the end of the quarter under review, Lear’s net operating cash inflow was $404.3 million compared with $516.9 million as of Jun 30, 2018. During the period, its capital expenditure amounted to $136.5 million, down from $169.4 million recorded in the prior-year quarter.

Capital Deployment

During the reported quarter, Lear repurchased 1,182,976 shares for $162 million. At the end of the quarter, the company had remaining share repurchase authorization of $1.3 billion, which expires on December 31, 2021. The figure represents approximately 16% of the company’s total market capitalization at current market prices.

2019 Outlook

Lear reiterated its 2019 guidance. The company currently expects net sales in the range of $19.8-$20.3 billion and adjusted net income in the band of $885-$965 million. Further, it projects capital spending of roughly $650 million compared with the prior outlook of $700 million.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -11.39% due to these changes.

VGM Scores

Currently, Lear has a nice Growth Score of B, though it is lagging a lot 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 quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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 #5 (Strong Sell). We expect a below average return from the stock in the next few months.



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