Sign in

You're signed outSign in or to get full access.

AI

AUTOLIV INC (ALV)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 was resilient in a weak auto-production backdrop: net sales fell 1.6% to $2,555M (organic -0.8%) but ALV outgrew global LVP (-4.8%) by 4pp; adjusted operating margin held essentially flat at 9.3% and diluted EPS rose 11% to $1.74 ($1.84 adjusted) .
  • Guidance tweaked: FY24 organic growth cut to “around 1%” from “around 2%,” while adjusted operating margin remains “around 9.5–10.0%” with management expecting the low-end; OCF maintained at “around $1.1B,” tax rate ~28%, capex ~5.5% of sales .
  • China mixed: domestic OEM sales +18% (2x their LVP growth), but overall China underperformed due to a negative mix shift toward lower safety content models; Europe and Asia ex-China outperformed on launches and pricing .
  • Cash: OCF $177M (down YoY on working capital), FCF $32M; leverage 1.4x; shareholder returns continued with 1.33M shares repurchased and $0.68 dividend paid in Q3 .
  • Near-term catalyst: management telegraphed a “significant increase” in Q4 profitability on higher seasonal engineering income, cost actions, customer compensations and FX, partially offset by supplier-cost inflation and a supplier settlement that tapers over ensuing quarters .

What Went Well and What Went Wrong

  • What Went Well

    • Outgrowth vs industry: organic sales -0.8% vs global LVP -4.8% (S&P Global), a 4pp outperformance; strong outgrowth in Europe (+6.3% organic) and Asia ex-China (+4.8%) on launches and pricing .
    • Margin resilience: adjusted operating margin 9.3% (vs 9.4% LY) despite lower sales, driven by cost control and commercial recoveries; diluted EPS +11% with help from lower share count and tax rate .
    • China domestic traction: sales to Chinese OEMs +18% YoY (twice their LVP growth); record product launch slate underpins 2025 outlook with premium NEV models and front center airbags supporting CPV .

  • What Went Wrong

    • China mix headwind: underperformed China LVP by 6.4pp as lower safety-content models grew faster; ALV cited an unfavorable customer/model mix as a top-line and margin headwind .
    • Working capital drag: OCF decreased YoY to $177M on higher inventories and receivables tied to call-off volatility and seasonal sales skew, trimming FCF to $32M .
    • Supplier settlement: a $14M cost in Q3 will fade gradually over the next few quarters (expected near-zero by Q3’25), representing a transitory margin headwind .

Financial Results

Headline results – sequential trend (USD Millions, except per-share and %)

MetricQ1 2024Q2 2024Q3 2024
Net Sales ($)$2,615 $2,605 $2,555
Gross Margin %16.9% 18.2% 18.0%
Operating Margin %7.4% 7.9% 8.9%
Adjusted Operating Margin %7.6% 8.5% 9.3%
Diluted EPS ($)1.52 1.71 1.74
Adjusted Diluted EPS ($)1.58 1.87 1.84

Q3 comparison (YoY and QoQ)

MetricQ3 2023Q2 2024Q3 2024
Net Sales ($)$2,596 $2,605 $2,555
Gross Margin %17.9% 18.2% 18.0%
Operating Margin %8.9% 7.9% 8.9%
Adjusted Operating Margin %9.4% 8.5% 9.3%
Diluted EPS ($)1.57 1.71 1.74
Adjusted Diluted EPS ($)1.66 1.87 1.84

Segment/product sales – Q3 2024 vs Q3 2023

SegmentQ3 2023 ($)Q3 2024 ($)Reported ChangeFX EffectOrganic Change
Airbags, Steering Wheels & Other$1,761 $1,736 (1.4)% (0.7)% (0.7)%
Seatbelt Products & Other$835 $819 (2.0)% (1.0)% (1.0)%
Total$2,596 $2,555 (1.6)% (0.8)% (0.8)%

Regional sales – Q3 2024 vs Q3 2023

RegionQ3 2023 ($)Q3 2024 ($)Reported ChangeFX EffectOrganic Change
Americas$918 $851 (7.2)% (3.5)% (3.8)%
Europe$646 $700 8.4% 2.2% 6.3%
China$538 $495 (8.1)% 1.3% (9.3)%
Asia ex-China$495 $508 2.7% (2.1)% 4.8%
Total$2,596 $2,555 (1.6)% (0.8)% (0.8)%

KPIs and cash/returns

KPIQ3 2023Q3 2024
Operating Cash Flow ($M)202 177
Free Cash Flow ($M)50 32
Capex, net (% of sales)5.8% 5.7%
Cash Conversion (FCF/NI)37% 23%
Cash & Cash Equivalents ($M)475 415
Net Debt ($M)1,375 1,787
Leverage Ratio (x)1.3 1.4
ROCE (%)24.2% 22.9%
Adjusted ROCE (%)24.5% 23.9%

Non-GAAP adjustments (Q3)

  • Adjusted operating income excludes $11M (capacity alignments, antitrust), lifting adjusted EPS by $0.10; adjusted ROCE +1.0pp vs reported .

Guidance Changes

MetricPeriodPrevious Guidance (as of Q2)Current Guidance (Q3)Change
Organic Sales GrowthFY 2024Around 2% Around 1% Lowered
FX Impact on Net SalesFY 2024Around 1% negative Around 1% negative Maintained
Adjusted Operating MarginFY 2024Around 9.5–10.0% Around 9.5–10.0%; expect low end Maintained; low end emphasized
Operating Cash FlowFY 2024Around $1.1B Around $1.1B Maintained
Tax Rate (ex unusual)FY 2024Around 28% Around 28% Maintained
Capex, net (% of sales)FY 2024Around 5.5% Around 5.5% Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Supply chain / call-off volatilityVolatility below 2023 but above pre-pandemic; no improvement vs prior quarter (Q1/Q2) Slight improvement vs Q2; still above pre-pandemic; normalization assumed in medium-term margin bridge Improving slightly
China mix and domestic OEMsUnderperformed China due to negative mix; strong traction with domestic OEMs (Q1/Q2) - -Sales to domestic OEMs +18%; overall China underperformed on low-content mix; expecting improving position into 2025 -Mixed: traction up, mix headwind persists
Pricing / inflation compensationMajority of claims settled, more in Q3; retroactive comps lower YoY with easing inflation (Q2) -Negotiations largely on track; mix of run-rate price and one-time settlements; some carryover into 2025 TBD -Ongoing; supportive
Structural cost / headcountTarget $50M 2024 savings; indirect headcount cuts underway (Q1/Q2) Continued reductions: direct headcount down ~6% YoY; efficiencies underpin margins Improving
Raw materials & supplier costsSlight raw-material headwind expected in 2H (Q2) Supplier settlement $14M in Q3 to taper; supplier-cost inflation continues but lower than Q3 -Headwind moderating
Regional trends (EU/AMER/ASIA)EU/Asia ex-China outperformance; Americas softer (Q2) - EU +6.3% organic; Asia ex-China +4.8%; Americas -3.8%; China -9.3% Similar pattern
Capex / footprintCapex ~5.5% in 2024, trending toward ~5% over time (Q2) FY24 ~5.5%; 2025 still “somewhat above” 5%, then trending down Normalizing
Shareholder returns / leverageStrong buybacks; leverage ~1.2x (Q2) Q3: 1.33M shares repurchased; leverage 1.4x; balance sheet supports high returns Ongoing returns; leverage stable range

Management Commentary

  • “Autoliv managed to outpace light vehicle production by 4 percentage points… Despite lower sales… adjusted operating profit was virtually unchanged. This was driven by effective cost reductions and cost compensations.” – Mikael Bratt, CEO .
  • “We are reiterating the adjusted operating margin guidance of around 9.5% to 10%... we expect to come in at the low end.” – Mikael Bratt, CEO .
  • “Operations contributed with $12 million driven by cost saving activities and commercial recoveries… Out-of-period cost compensation of $8 million… Costs for SG&A and RD&E net was virtually unchanged.” – Fredrik Westin, CFO .
  • “We anticipate a significant increase in profitability in the fourth quarter… supported by higher LVP, seasonality in engineering income, structural cost reduction, strategic initiatives, customer compensations, favorable currencies; partly offset by supplier cost inflation.” – Mikael Bratt, CEO .

Q&A Highlights

  • Supplier settlement cadence: $14M impact in Q3 tied to a single supplier; expected to decline linearly to ~0 by Q3’25; some Q4 and 1H25 impact remains .
  • Q4 margin step-up drivers: normal seasonal engineering income, higher volumes, completed customer compensations, structural cost savings, favorable FX; supplier-cost headwinds smaller than Q3 .
  • Call-off normalization and 12% target: management assumes call-offs normalize as an important bridge toward ~12% adjusted margin; current volatility reflects industry-specific disturbances rather than a “new normal” .
  • Pricing/compensation durability: mix of run-rate price vs lump sums; more than half could carry over into 2025 but exact split pending Q4 outcomes -.
  • Europe outperformance: driven by launches and price compensations; outlook remains challenged but in line with S&P LVP trajectory .
  • Working capital in China: longer payment terms common, mitigated through aligned terms with supply base; net does not need to be materially different from rest of business .

Estimates Context

  • S&P Global consensus (EPS, revenue, EBITDA and target price) was unavailable for this request due to a data limit at the source. As a result, vs-consensus comparisons for Q3 are not provided. Consider revisiting for explicit beat/miss analysis once access is restored.
  • Management reiterated FY adjusted operating margin “around 9.5–10.0%” (low end) and reduced FY organic growth to “around 1%,” which are the appropriate anchors for near-term estimate adjustments .

Key Takeaways for Investors

  • Margin durability in a weak LVP quarter is notable; fixed-cost and structural savings plus pricing are offsetting mix and supplier headwinds, sustaining ~9%+ adjusted margins through Q3 .
  • Q4 setup is constructive with seasonal engineering income, cost actions, and completed customer compensations expected to lift profitability; monitor settlement headwind taper and supplier inflation .
  • China remains a two-speed story: strong domestic OEM traction (+18% sales) and premium NEV launches vs. ongoing negative mix from low-content models; 2025 outgrowth potential improving as the launch slate ramps -.
  • Cash conversion was soft in Q3 on working capital, but FY OCF guidance is intact at ~$1.1B; watch inventory and receivable normalization as call-off volatility eases .
  • Capital intensity stable around 5.5% of sales near-term, trending toward ~5% over time; footprint investments (Asia, EU/AMER optimization) should support CPV growth and efficiency .
  • Shareholder returns continue (buybacks/dividends) within a leverage range (1.4x) consistent with investment-grade targets; this supports TSR while executing on structural margin initiatives .
  • Non-GAAP adjustments are modest ($11M in Q3) and transparent; reported vs adjusted spreads should narrow as capacity alignment and legal items fade, aiding comparability into 2025 .