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Why Is Lear (LEA) Up 12% Since Last Earnings Report?

A month has gone by since the last earnings report for Lear (LEA). Shares have added about 12% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Lear's Q3 Earnings & Revenues Beat Estimates, Rise Y/Y

Lear reported third-quarter 2022 adjusted earnings of $2.33 per share, surging around 340% year over year from 53 cents. The bottom line also surpassed the Zacks Consensus Estimate of $2.14 per share. Higher-than-expected sales and earnings across both business segments led to the outperformance.

In the reported quarter, revenues increased 23% year over year to $5,241 million. The top line also beat the Zacks Consensus Estimate of $5,134 million.

Segment Performance & Quarter Highlights

Sales for the Seating segment totaled $3,888 million in the reported quarter, reflecting a 22.8% increase from the year-ago quarter and surpassing the Zacks Consensus Estimate of $3,862 million. Adjusted segmental earnings came in at $255 million, surging 77% from a year ago. The reported figure topped the consensus mark of $251 million. The segment recorded adjusted margins of 6.6% of sales, up from 4.5% in the previous-year quarter.

Sales in the E-Systems segment were $1,353 million, up 22.7% year over year. The figure also crossed the consensus mark of $1,321 million. Adjusted segmental earnings amounted to $53 million, more than doubling from the corresponding quarter of 2021. The metric also beat the consensus mark of $43.86 million. For the E-Systems segment, the adjusted margin was 3.9% of sales, up from 2.1% in the year-ago quarter.

Performance by Region

Sales in the North America region increased 27.6% year over year to $2,284.2 million in the quarter and topped the consensus mark of $2,119 million.

Sales in the South America region grew nearly 23% year over year to $225.3 million in the quarter. The metric was in line with the consensus mark.  

Sales in the Europe and Africa region increased 19.2% year over year to $1,588.8 million in the quarter and topped the consensus mark of $1,436 million.

Sales in the Asia region rose 18.8% year over year to $1,143 million in the quarter but lagged the consensus mark of $1,248 million.

Financial Position

The company had $842.2 million of cash and cash equivalents at the quarter-end versus $1,318.3 million recorded as of Dec 31, 2021. Lear had long-term debt of $2,600.5 million at the quarter end, higher than a debt of $2,595.2 million as of 2021-end.

At the third quarter-end, net cash provided by operating activities totaled $252.1 million, a noticeable improvement from $4.4 million of cash outflow in the corresponding quarter of 2021. In the reported period, its capital expenditure amounted to $140.4 million, decreasing from $152.6 million. The company registered a free cash flow of $111.7 million in the quarter under review against a negative free cash flow of $157 million in the previous-year quarter.

During the quarter, LEA repurchased 187,192 shares of its common stock for a total of $25 million.  At the end of the quarter, Lear had a remaining share repurchase authorization of nearly $1.3 billion. In the third quarter of 2022, Lear returned $71 million to investors via buybacks and dividends.

2022 Guidance Reiterated

Lear projects its full-year net sales in the band of $20.55-$21.05 billion. Core operating earnings are envisioned in the band of $815-$915 million. Operating cash flow is projected within $950-$1,075 million. Lear anticipates FCF in the band of $275-$375. Capital spending forecast is now within $675-$700 million. Adjusted EBITDA is envisioned within the range of $1,405-$1,505 million.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Lear has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 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. Notably, Lear has a Zacks Rank #3 (Hold). We expect an in-line 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, Gentex (GNTX), a stock from the same industry, has gained 12.3%. The company reported its results for the quarter ended September 2022 more than a month ago.

Gentex reported revenues of $493.64 million in the last reported quarter, representing a year-over-year change of +23.5%. EPS of $0.31 for the same period compares with $0.32 a year ago.

Gentex is expected to post earnings of $0.39 per share for the current quarter, representing a year-over-year change of +11.4%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.5%.

Gentex has a Zacks Rank #5 (Strong Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.

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