LEAR CORP Q4 FY2024 earnings call

• Strategic Priorities: Innovation, building on automation and digitization via Idea by Lear, improving market share with growing customers, and delivering financial performance for shareholders.
• Headcount Reductions: Restructuring and efficiency plans reduced global headcount by 15,000, with 9% in seating and 8% in E-Systems exceeding targets.
• Growth with Chinese OEMs: Significant growth, revenue from Chinese domestic automakers grew from ~20% three years ago to ~33% in 2024, expected to reach 50% by 2027.
• Innovation: Introduced Idea by Lear, acquired WIP Automation and StoneShield Engineering, launched Comfort Flex module, and validated ComfortMax seat with Ford and GM.
• Margin Improvement: Expecting operational margins to improve to ~5% run rate by 2025, with $75M cost savings in 2025 growing to $150M annualized, and net performance improvements in seating (40 basis points) and E-Systems (80 basis points) in 2025.

Seating Segment: In 2024, sales were $17.2 billion, a decrease of $327 million or 2% from 2023. Adjusted earnings were $1.1 billion, down $76 million or 6% from 2023, with an adjusted operating margin of 6.5%. Fourth quarter sales were $4.2 billion, a decrease of $157 million or 4% from 2023, with adjusted earnings of $257 million and an adjusted operating margin of 6.1%. E-Systems Segment: In 2024, sales were $6.1 billion, an increase of $166 million or 3% from 2023. Adjusted earnings were $310 million or 5.1% of sales compared to $275 million and 4.6% of sales in 2023. Fourth quarter sales were $1.5 billion, an increase of $31 million or 2% from 2023, with adjusted earnings of $77 million or 5% of sales.

• Revenue Outlook: 2025 revenue expected to be in the range of $21.9 billion to $22.9 billion, a decrease of $931 million or 4% compared to 2024.
• Core Operating Earnings: Expected to be in the range of $915 million to $1.175 billion, a decrease of 5% compared to 2024.
• Free Cash Flow: Midpoint of guidance is $530 million, targeting 80% free cash flow conversion.
• Share Repurchases: Targeting at least $250 million in share repurchases in 2025, with remaining authorization of ~$1.1 billion.

• Supply Chain and Tariffs: Potential impact of tariffs on business, industry-wide challenges due to changing powertrain strategies and volume uncertainties.
• Volume Fluctuations: Delays and cancellations in programs affecting backlog, particularly in North America and Europe, with reassessments by OEMs on product and powertrain strategies.

Q: John Murphy from BOA asked about competition dynamics in seating, innovation, and cost actions.

A: Ray Scott responded discussing innovation, modular approaches, margin retention, and confidence in competing with innovative solutions to retain margins.

Q: Colin Langan from Wells Fargo inquired about market assumptions, margin cadence.

A: Jason Cardew noted first quarter expected to be trough margin, with improvement in second half driven by automation and restructuring.

Q: Dan Levy from Barclays asked about recoveries, pricing programs, and E-Systems margin outlook.

A: Ray Scott and Jason Cardew discussed recoveries in negotiations, conservative capital deployment, and E-Systems margin target of ~8% long term.

Q: Joe Spak from UBS asked about China JV consolidation and automation investment.

A: Ray Scott and Jason Cardew mentioned potential small impact from JV consolidation on capital allocation and continued automation investment with good paybacks.

Q: Mark Delaney from Goldman Sachs asked about return to growth over market levels and tariffs.

A: Jason Cardew stated 2026 expected to be a bigger step forward, and Ray Scott discussed tariffs as an industry issue to be solved holistically