Executive Summary

Q2 2024 profitability improved despite slightly lower sales: operating margin rose to 7.9% (+4.4pp YoY), adjusted operating margin to 8.5% (+0.5pp YoY), and gross margin to 18.2% (+1.3pp YoY), driven by cost reductions and higher pricing, partially offset by mix and lower-than-expected June production with certain OEMs .
Full-year 2024 guidance was lowered: organic sales growth cut to around 2% (from ~5%), adjusted operating margin to ~9.5–10.0% (from ~10.5%), and operating cash flow to ~$1.1B (from ~$1.2B), reflecting softer global LVP and adverse customer/mix dynamics; tax rate ~28% and capex ~5.5% of sales unchanged .
Management expects a significant step-up in H2 margins to ~11–12% on more stable LVP, structural cost savings, and customer compensations, partly offset by raw-material headwinds; June production weakness is viewed as temporary with normalized call-offs into Q3 .
Stock-relevant catalysts: trajectory toward ~12% adjusted operating margin, execution on indirect headcount and productivity initiatives, normalization of call-offs, and progress on customer compensation; risks include China mix headwinds, LVP downgrades, and raw-material costs .

What Went Well and What Went Wrong

What Went Well

Margin expansion on lower sales: adjusted operating margin improved to 8.5% (+50 bps YoY) with gross margin up 130 bps, driven by higher direct labor efficiency, cost reductions, and customer compensations .
Strong cash generation and balance sheet: operating cash flow of $340M (down YoY on timing), free cash flow $194M, leverage ratio improved to 1.2x, and ROCE reached 21% (adj. 22.5%) .
Strategic progress in China despite headwinds: sales to domestic Chinese OEMs rose 39% YoY and 25% QoQ; management highlighted XPENG AEROHT cooperation and record launch cadence supporting CPV content growth longer term .

Quote: “Profitability continued to improve… driven by successful execution of cost reductions and pricing… We remain fully focused on delivering on the around 12% adjusted operating margin target” — CEO Mikael Bratt .

What Went Wrong

Sales below plan and adverse mix: Q2 net sales declined 1.1% to $2.605B; organic growth was +0.7% but underperformed in Americas and China due to lower LVP at key customers and domestic China mix shift toward models with lower ALV content .
June shortfall: June sales were ~12% below internal expectations on sudden OEM inventory adjustments and high call-off volatility, pressuring operating leverage toward the high end of the 20–30% range .
Guidance reduction: FY24 organic growth cut to ~2%, adjusted operating margin to ~9.5–10.0%, and operating cash flow to ~$1.1B due to lower LVP (now ~-3% for 2024) and negative customer mix; raw materials a modest headwind vs prior assumptions .

Financial Results

Consolidated P&L and Margins (oldest → newest)

Metric	Q4 2023	Q1 2024	Q2 2024
Net Sales ($M)	$2,751	$2,615	$2,605
Diluted EPS (GAAP)	$2.71	$1.52	$1.71
Adjusted EPS (Non-GAAP)	$3.74	$1.58	$1.87
Gross Margin %	19.3%	16.9%	18.2%
Operating Margin % (GAAP)	8.6%	7.4%	7.9%
Adjusted Operating Margin %	12.1%	7.6%	8.5%
ROCE % (Reported)	24.4%	19.7%	21.0%
ROCE % (Adjusted)	32.9%	20.2%	22.5%

Notes: Adjusted figures exclude capacity alignments, antitrust matters (and 2023 Andrews settlement as applicable) .

Segment/Product and Regional Breakdown (Q2 2024 vs Q2 2023)

Category	Q2 2024 ($M)	Q2 2023 ($M)	Reported Change	Organic Change
Airbags, Steering Wheels & Other	$1,747	$1,757	-0.6%	+1.2%
Seatbelt Products & Other	$858	$878	-2.2%	-0.3%
Americas	$893	$916	-2.6%	-2.8%
Europe	$761	$751	+1.4%	+1.6%
China	$468	$497	-5.9%	-2.8%
Asia ex-China	$483	$471	+2.6%	+10%

Additional context: Global LVP declined ~0.7% in Q2; ALV outperformed by ~1.4pp overall, with strong outperformance in Asia ex-China (+13pp) and Europe (+7.7pp), but underperformance in Americas (-2.3pp) and China (-7.3pp) due to customer/mix .

Cash Flow, Balance Sheet, and Other KPIs

KPI	Q2 2024	Q2 2023
Operating Cash Flow ($M)	$340	$379
Free Cash Flow ($M)	$194	$255
Capex, net ($M)	$146	$124
Capex, net as % of Sales	5.6%	4.7%
Cash & Cash Equivalents ($M)	$408	$475
Net Debt ($M)	$1,579	$1,299
Leverage Ratio (x)	1.2x	1.3x
Trade Working Capital / Sales	11.2%	12.3%
Shares repurchased (Q2)	1.31M at $122.19 avg	0.41M (Q2’23)

Guidance Changes

Metric	Period	Previous Guidance (Apr 26, 2024)	Current Guidance (Jul 19, 2024)	Change
Organic Sales Growth	FY 2024	Around 5%	Around 2%	Lowered
FX Impact on Net Sales	FY 2024	Around 0%	Around -1%	Lowered
Adjusted Operating Margin	FY 2024	Around 10.5%	Around 9.5–10.0%	Lowered
Operating Cash Flow	FY 2024	Around $1.2B	Around $1.1B	Lowered
Tax Rate (ex-unusual)	FY 2024	Around 28%	Around 28%	Maintained
Capex, net, of Sales	FY 2024	Around 5.5%	Around 5.5%	Maintained

Management still expects H2 adjusted operating margin of ~11–12% (sequential step-up vs H1’s 8.0%) on more stable LVP, structural savings, and customer compensation, partly offset by raw-material headwinds .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2023, Q1 2024)	Current Period (Q2 2024)	Trend
Supply chain / Call-off volatility	Gradual improvement vs 2023, still > pre-COVID; Red Sea risks noted ; Q1: lower YoY but no improvement vs Q4’23	No improvement vs Q1; June call-offs weak; expect normalization into Q3	Volatility persisted in H1; expected to ease in H2
China mix & domestic OEMs	Q4 underperformed China on domestic OEM surge	Underperformed China by ~7pp; sales to domestic OEMs +39% YoY; domestic share now 38% of ALV China sales	Growing exposure to domestic OEMs offsets global OEM softness; mix still a headwind near term
Pricing / Inflation compensation	Ongoing customer compensation negotiations; offsets inflation	Majority of claims settled; out-of-period comp $6M vs $30M in Q2’23; 2024 focuses on 2024 inflation only	Process maturing; lower retroactivity as inflation moderates
Cost reduction / Workforce	Framework targets ~$50M savings in 2024; indirect reductions detailed ~75% by YE’23	On track: indirect headcount -1,100 YoY; $50M 2024 savings, ramping to $100M in 2025 and $130M fully	Execution continuing; incremental savings tailwind
Raw materials	Q4 tailwind; Q1 negligible expected for FY	Slight headwind vs prior plans in H2 (steel, nylon)	Outlook worsened modestly
LVP/Macro	Q4 robust LVP; Q1 -0.9% YoY; FY24 LVP initially ~-1%	FY24 LVP now ~-3%; Q3 down ~5.5% (S&P), Europe cautious	Macro softer; forecast reduced
Regulatory/Trade	—	EU tariffs on China EV exports: impact uncertain; OEM relocations/exports shift	Watch for supply chain/geographic shifts
Technology / Operations	—	Automation and digitalization driving labor productivity; sustainability materials (100% recycled polyester airbags)	Ongoing operational tech enablement

Management Commentary

Strategic focus and margin journey: “We remain fully focused on delivering on the around 12% adjusted operating margin target… the positive development of our cash flow and balance sheet supports our continued commitment to a high level of shareholder returns.” — CEO .
Q2 dynamics and outlook: “Lower-than-expected sales impacted our adjusted operating margin… operating leverage at the higher end of our normal 20% to 30% range… customer production plans for the third quarter are stronger, indicating that the June weakness should be temporary.” — CEO .
H2 margin drivers: “Slightly higher LVP… structural and strategic initiatives, cost control and increased customer compensations” offsetting raw material headwinds .
Cost program cadence: “Planned savings unchanged — ~$50M this year, ~$100M next year, ~$130M fully implemented… on top of normal productivity to offset LTAs” — CFO .

Q&A Highlights

Decremental margins at the high end (~30%) reflect LVP-driven volume shortfall and modest raw material headwind; MXN tailwind depends on FX path .
Mix headwind: Q2 mix ~-2pp; full-year mix assumption ~-1pp on expected H2 improvement in China customer mix (domestic/global split normalizing) .
Retroactive compensation: Q2 out-of-period comp was $6M vs $30M in Q2’23; 2024 negotiations address 2024 inflation, not prior years; lower retroactivity as inflation moderates .
H2 margin bridge: 8% H1 to 11–12% H2 from customer compensations, structural cost savings, seasonality (stronger Q4), and steadier LVP; raw materials a partial offset .
Call-off volatility expected to gradually normalize; ~1pp of the 3pp bridge from 8.8% (FY23) to 12% medium-term target tied to improved call-off stability and labor efficiency .

Estimates Context

S&P Global consensus estimates for Q2 2024 revenue and EPS could not be retrieved at this time due to data access limits; therefore, we cannot state beat/miss vs Street in this report. We will update the estimates comparison once S&P data is available. (S&P Global consensus data unavailable)

Key Takeaways for Investors

Margin resilience despite softer LVP: Q2 adjusted OPM 8.5% with YoY gross margin expansion; H2 set to step up to ~11–12% if LVP stabilizes and customer compensations materialize .
Guidance reset de-risks H2: FY24 organic growth to ~2% and adjusted OPM to ~9.5–10.0% reflect lower LVP and China/mix; risk skews to raw materials and regional production cuts .
China strategy evolving: deepening ties with domestic OEMs (now 38% of China sales), which supports growth but reduces average CPV near term; mix could improve into H2 as OEM shares normalize .
Structural savings are tangible: indirect headcount down ~1,100 YoY; $50M 2024 savings ramping to $100M in 2025, providing operating leverage as volume/mix improves .
Cash returns supported by balance sheet: leverage ~1.2x, strong FCF, ongoing buybacks and dividend ($0.68/share in Q2) provide support in volatile macro .
Near-term trading setup: watch Q3 production normalization, China mix trends, raw-materials trajectory (steel, nylon), and cadence of customer compensation settlements for confirmation of H2 margin step-up .
Medium-term thesis: path toward ~12% adjusted OPM remains intact via productivity, pricing/compensation, and footprint optimization; secular content growth (airbags, belts, steering) and launches underpin outgrowth over LVP cycles .

AUTOLIV INC (ALV)·Q2 2024 Earnings Summary