Autoliv, Inc. Q2 FY2025 earnings call

Key managerial messages include:

• Record second quarter sales and earnings, with adjusted operating income up 14% and adjusted operating margin at 9.3%.
• Outperformed global light vehicle production in July despite mix shifts, with China showing improved sales growth relative to light vehicle production.
• Successfully recovered approximately 80% of tariff costs in Q2, expecting to recover most remaining portion later in the year, though tariffs had a negative 35 basis points impact on operating margin.
• Increased third quarter dividend to $0.85 per share.
• Generated broad-based improvements through direct labor productivity trends, reducing direct production personnel by 3,200 year over year with automation and digitalization.
• High number of model launches in Asia, including China, with Autoliv content per vehicle ranging from close to $100 to over $500.

Second quarter sales increased by 4% year over year to over $2.7 billion. China accounted for 18% of group sales, Asia excluding China 19%, Americas 33%, and Europe slightly more than 30%. Adjusted operating income for Q2 increased by 14% to $251 million from $221 million in the prior year, with an adjusted operating margin of 9.3%, an 80 basis points improvement from the same quarter last year. Gross margin was 18.5%, a 30 basis points increase year over year, driven by direct labor efficiency and headcount reductions.

Full-year 2025 organic sales growth is expected to be around 3%, with an adjusted operating margin of around 10-10.5% and operating cash flow of approximately $1.2 billion. The second half of 2025 is expected to be challenging for the automotive industry with lower light vehicle production, and Q3 is anticipated to be the weakest quarter due to a projected 5% drop in global light vehicle production, while the fourth quarter is expected to be the strongest.

Risks include uncertainty around tariffs and their impact on operating margin (approximately 20 basis points dilution), regional and customer mix shifts affecting performance, and economic factors and geopolitical challenges impacting market dynamics and cost structure.

Q: Just on tariff again, just a quick part of maybe housekeeping or clarification. It be your expectation that in the third quarter, you will therefore over recover cash. So, like, you'll have the 20% under recover from Q2 and then the full Q3 tariffs or that every single quarter will likely have a little bit of a lag and therefore you could also, you know, end the year not fully recovered.

A: Yeah. I think and as Fredrik already mentioned here, when it comes to full year here, that we expect, of course, there'll be some calendar effects there. That you have spillover, so to speak, from what is not in a timely fashion being able to conclude before you close the book. So, I mean, the size of it, I wouldn't like to speculate, but, for today, you had some calendar effect there as well.

Q: Just to some clarification on China. How given the price competition with the larger domestic OEMs, has that in any way changed your pricing situation as it become tougher for you guys? In terms of negotiations?

A: Yeah. I can talk with China and then Fredrik can jump in on India there. But I mean, first, as you know, the automotive industry is very focused on cost and has always been. And I think we have shown that we have the capability to be price competitive wherever we are operating, also in China where we are the market leader in the China local market. What we have talked about here is the mix effect that we have been impacted by, but we're regaining that. So I would say my view here and feeling here is that we are able to meet the cost pressure that you have in the China market and also elsewhere here. So hence our focus here on continuing to drive efficiency and also cost out in the whole system.

Q: If you look at mobile IP, you mentioned you can have, you know, maybe some risk with the tariff and pull-ins. Do you still expect to see the same seasonality?

A: So sorry. Could you repeat that the line was a bit better. Could you Just given the given the risk second half risk in LVP with the pull-ins and tariffs, you still expect the same seasonality in the December quarter? For orderly?

A: Yeah. I mean so we do expect that the second half will be weaker in relation to the first half. When you saw LVP in the first half was up 3.1% year over year, and S&P thinks it or says it will be down 2.3% year over year. So yeah, the impact on so the end consumer has been limited in the first half. And expectations of that will increase in the second half of the year. But then it's also and then in terms of, I'll say, that impact on us is then, as I explained before, that leads to a lower Q3 volume LVP by roughly one million sequentially quarter over quarter. And with that, we would expect the third quarter to be our weakest in the year in terms of profitability. And then the fourth quarter will have also due to seasonality, the highest LVP support, and then on top of that, the regular cadence of the higher engineering income in the fourth quarter.

Q: Just a kind of follow-up on tariffs, can you give us some context as to the competitive positioning some of the other safety providers in terms of production in the US?

A: No. I think we are well I would say, well positioned to navigate through this. I mean, first of all, we are very regionalized. So the different regions are taking care of its own value chain to a very large extent. Of course, America is one region here. So for us, it's then primarily a question about the US-Mexico tariffs that's just in place there. Also there, we have a very strong industrial footprint relative to our industry and competition here. With our five plants in Utah. And in all this, we're working with our customer support to see how we can leverage and optimize our footprint in the best possible way there in the short term. So, yeah, I think we're in a good position there.

Q: Just a quick follow-up on the 10% to 10.5% margin guidance in the context of the 20 bps tariff dilution. Should we think of the underlying performance as absorbing this tariff headwind? In other words, there is some underlying improvement and that the tariff drag is what's effectively holding back, you know, what would be a very small upgrade.

A: No. I think I mean, you're absolutely right. The tariff impact that Fredrik mentioned before is included in our guidance, and we are working as I said, here very hard to improve and take out cost, etcetera, to manage the headwind that we see, and this is definitely a headwind that we have to absorb within the guidance here.

Q: Just a question on the comments regarding an expectation of getting into outperformance in China during the second half. I understand this is fully including, you know, both the effect of volume, but despite then negative mix headwinds. So the question is, if you expect this outperformance, how for how long do you think that the mix will still be a headwind?

A: I mean, that's very difficult to have a very clear answer on. I think so far, we have seen, of course, that you have the low-end vehicles, if we call them that, being the main driver of the volume in China. So far. I think it goes hand in hand also a little bit with the overall economic situation as such. But I think the important thing here is that we are gaining market share with that segment where we maybe have been a little bit underrepresented in the past, and that gap is closing and we expect to outperform going forward. Can be discussed, but that depends on the more model mix effect, which is very hard to have a clear opinion about more speculation in that case.