Lear Corporation (LEA) Earnings

Management highlights

Strategic priorities focus on extending global leadership in Seating, expanding E-Systems margins, growing operational excellence through Idea by Lear, and disciplined capital allocation. Won key awards in both Seating and E-Systems, including a major GM full-size SUV wire harness award, power distribution module wins, and growth with Chinese automakers. Accelerating capabilities under Idea by Lear framework, with progress at Rochester Hills Advanced Manufacturing Center. Seating secured complete seat awards in China and saw acceleration in thermal comfort modularity awards. E-Systems validated and launched differentiated wire automation solutions from recent acquisition.

Guidance

Maintained full-year outlook due to uncertainty around global macro environment and potential impacts from Middle East conflict. First quarter results strong, second quarter trending favorably, on track to deliver results between midpoint and high end of guidance range. Targeting free cash flow conversion of more than 80% in 2026 to buy back at least $300 million worth of stock.

Segment performance

Seating: First quarter sales were $4.4 billion, an increase of $253 million, or 6%, from 2025. Organic sales were up 3%, reflecting higher volumes on Lear Corporation platforms. Adjusted earnings were $305 million, up $25 million, or 9%, compared to 2025, with adjusted operating margins of 6.9%. E-Systems: First quarter sales were $1.4 billion, an increase of $9 million, or 1%, from 2025. Organic sales were flat as higher volumes on Lear Corporation platforms were offset by the build-out of certain programs. Adjusted earnings were $86 million, or 6.1% of sales, compared to $74 million and 5.2% of sales in 2025.

Risks & headwinds

Uncertainty around overall global macro environment and potential impacts from the conflict in the Middle East, which could impact global industry production in the second half of the year.

Analyst Q&A

• Q: Hi. Good morning. Thanks for taking the questions. I wanted to first start with a question on the revenue outlook. You are cutting—there is a negative impact from tariffs, there is a lower LVP outlook, there is a little bit of positive offset for FX. I think you are talking about some positive backlog. Maybe walk through the moving pieces that allow you to maintain outlook? And in fact, I think you sort of gave some implied commentary that there is potentially even some upside on that piece. I interpreted that correctly. So if you could just focus on the moving pieces on the revenue side. Thank you.

  A: Sure, Dan. Just from a revenue perspective, you have highlighted the key drivers pretty well. We have the reduction in revenue due to the changes in tariff policy, which is $385 million. That is largely been offset by two things. One, foreign exchange—so the change in assumptions around the euro and the RMB, among others. And then also the impact of commodity and other pass-throughs to customers, and the most notable change there is around copper. We have also seen commodity increases with foam chemicals, with steel, and so there is a pretty meaningful increase in revenue with no corresponding earnings impact as we pass through those adjustments, mostly on a one-quarter lag. So there is a small leakage from an earnings perspective. And then in terms of the industry volume assumptions, first of all, we recognize S&P adjusted the overall industry, but we obviously do not sell to every program in the industry. If we look at our mix of programs, there were actually some programs that S&P increased their full-year outlook on, so we have favorable mix that is offsetting a portion of that lower industry volume. And then we also have the benefit of the new business awards that launch starting in the second half of the year. So there is a small incremental revenue from the backlog that also helps offset that industry volume.

• Q: Second, if we could just double click on the margins, please. You just did your best quarterly margin, I think, in something like five years. I know that there are some nuances there that are going on with tariffs and what is happening there. But the guidance does imply a decrease in margins for the subsequent quarters. Maybe you could just walk us through the margin dynamics—what would drive this implied decline in margins? Or is that some form of conservatism?

  A: Why do I not go first here, Dan, and Jason can talk a little bit about it. I think one is, Jason in his narrative talked a little bit about it. Given the uncertainty around how we are looking at the second half of the year—and that can go in a lot of different directions—we are probably conservative if things play out differently. And I will tell you right now, I talked about the momentum and how I felt about this year. Now we have the actual facts in front of us as to how we are performing. Think about E-Systems—E-Systems has done a great job. We had some operational issues. We had some issues relative to the decrease in volume here in North America around the EV market. I feel really good that the majority of that is behind us. The operations are running significantly better. So from a sustainability and durability perspective, the margins in E-Systems are at a better place. In Seating, we are doing a really good job, particularly in Europe, around some very similar situations around volume, cleaning that up. We started the year off strong. I think we are just looking at the second half, and I think there is a lot of narrative around—not just us—but what the second half brings with the situation that is going on with Iran, and inflation, and what demand is. But I feel really good about the things that we can control. I think it would have been an absolute beat and raise, but we are just being a little bit cautious given some of the things that we are being faced with that are outside of our control. But the things we are controlling—we crushed it. I talk about momentum, now to be able to back it up. What we did in Seating with the truck award, the conquest wins validated our modularity and our technology around automation and the digital changes within our manufacturing plants. And then right behind that, with this major conquest win on a mid-cycle program—that is very rare—opening that door on the T1 platform mid-cycle, putting us in great position for the next generation T2 on a very popular product line. And the wins that we saw in China were exceptional. I feel the momentum. I feel really good operationally how we are performing in both segments. And the wins were exceptional. That is where my head is at. I think we are just being a little bit mindful of what we are being faced with outside of our control. Jason M. Cardew: And, Dan, I will give you a couple of data points to help round that out as well. It is important to note that the first quarter margins benefited from this change in tariff policy, so that reduction in revenue creates a little bit of an artificial boost to the margins in the quarter. It was about 20 basis points in Seating and 40 basis points in E-Systems. We also had a little bit of a benefit from commodities in E-Systems in the first quarter, just the way we account for copper revaluation as copper prices have come up, and then that kind of unwinds itself through the balance of the year. So, very strong first quarter, but there are a couple of nuances there that are important to highlight. Looking at the second quarter, we have a pretty good line of sight now on production schedules and our operating plans, and we feel like the second quarter is going to be strong as well. We expect revenue of $6.1 billion to $6.2 billion in the second quarter. As I look at that year over year, we would be up about 2%—so roughly $100 million year over year—in the second quarter. Looking at each of the business segments, we expect Seating margins to be in the mid-6s and E-Systems to be in the low 5s. E-Systems would be up a little bit from last year, and Seating would be down to flat compared to last year. We also see strong net performance in both business segments in the second quarter. Forty and eighty basis points is our full-year guidance, and that is similar to how we see the second quarter playing out. We also expect very strong free cash flow in the second quarter—likely $150 million or maybe a bit more than that. So the second quarter is set up pretty nicely. That leads to the obvious question: why are you not raising full-year guidance? And Raymond explained it pretty effectively. It is really a bit of conservatism on our part. You may recall on the fourth quarter earnings call, when we talked about the full year, we said that the high end of our guidance range effectively represents what our customers’ production schedules are and how we see the year playing out. Then at the midpoint, we had $400 million of revenue protection, and another $400 million at the low end of the guidance range for the unexpected or deterioration in the market that we are not currently seeing, but we protected for that nonetheless. We have not used really any of that protection through the first half of the year. So if things hold together, we are tracking between the midpoint and the high end of the guidance range for the full year. I think that would help smooth out the progression of operating margins throughout the balance of the year and would make a little bit more sense overall. I just want to reinforce one point that Raymond made around execution. I have been here for 34 years. I have seen good performance and bad performance over that time period. I would say, right now, what we are seeing in both Seating and E-Systems is the best execution operationally probably in ten years, and I think it is not just in the segments overall, but it is in every region and every subsegment. We have not had that in quite some time. We are not happy with where operating margins are today—there is lots of room for improvement, particularly on the E-Systems side—but that consistent execution and operational discipline really is a key enabler to achieving not just the 40 and 80 basis points of net performance that we see this year in Seating and E-Systems respectively, but into 2027 and beyond. It is important to highlight that the performance of the team is at another level today than where it was a year ago, two years ago, five years ago. It is really a strong performance across the board. That is what really gave us mixed feelings about whether to adjust the full-year outlook. We have so much confidence and so much momentum, we really wanted to raise—sort of take the low end of that guidance range out—but with all that is happening with the uncertainty around Iran, as Raymond mentioned, we thought it was prudent just to hold serve for now and provide an update. We will have a chance at the end of the second quarter and at a couple of public investor events to provide an update on how Q2 is playing out, and we hope to provide a little more color again on the full year at that point.