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LC

LEAR CORP (LEA)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 revenue was $5.68B (+2% YoY), GAAP EPS $2.02, adjusted EPS $2.79; operating performance was solid, but margins compressed due to a full-month JLR cyberattack disruption and lower volumes on key platforms .
  • Free cash flow improved sharply to $307M, with operating cash flow of $444M—the second-highest third-quarter operating cash flow in company history, driven by working capital improvements .
  • 2025 guidance was updated: midpoint raised for revenue and free cash flow, core operating earnings maintained; capital spending lowered and restructuring increased to accelerate margin improvement .
  • Management highlighted onshoring and automation as medium-term margin catalysts, launched a Palantir Fellowship to accelerate AI adoption, and continued buybacks ($100M in Q3; ~$300M targeted for FY25) .
  • Near-term stock reaction catalysts: improving cash conversion, buyback acceleration, and clarity on JLR ramp/other supply risks; medium-term catalysts include onshoring awards and E-Systems mix shift improving margins .

What Went Well and What Went Wrong

What Went Well

  • Operating performance and cash generation: net performance contributed ~50 bps to Seating and ~95 bps to E-Systems; operating cash flow of $444M (second-highest Q3 in history) .
  • Strong capital allocation: $100M share repurchase and $41M dividends in Q3; liquidity of $3.0B and no near-term debt maturities .
  • Strategic wins and innovation: ~$1.1B E-Systems awards YTD; multiple Seating wins (BMW, Hyundai, Chinese OEMs); Palantir Fellowship launched to scale AI use cases across functions .

Management quote: “Based on the strength of these results, we are increasing the midpoint of our full-year free cash flow outlook... Our strategic investments in automation, digital tools and restructuring are driving operational excellence and positioning us for sustainable margin improvement.” — Ray Scott .

What Went Wrong

  • JLR cyberattack impact: revenue -$111M and core operating earnings -$31M; compressed margins to 4.2% (vs 4.8% in Q2) .
  • Segment margin pressure: E-Systems adjusted margin fell to 4.2% (from 4.9% in Q2); Seating adjusted margin to 6.1% (from 6.7% in Q2), reflecting mix and lower volumes .
  • Supply chain/tariff risks and program winddowns: caution embedded for Q4 (Nexperia, Novelis, JLR ramp); E-Systems exits continue to weigh on backlog (negative in 2026) .

Financial Results

Summary vs prior periods and estimates

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$5,560.3 $6,030.4 $5,679.8
GAAP Diluted EPS ($)$1.49 $3.06 $2.02
Adjusted EPS ($)$3.12 $3.47 $2.79
Core Operating Earnings ($USD Millions)$270.4; 4.9% of sales $291.8; 4.8% of sales $241.1; 4.2% of sales
Operating Cash Flow ($USD Millions)$(127.7) $296.2 $444.4
Free Cash Flow ($USD Millions)$(231.7) $170.8 $307.0
SegmentQ1 2025 Net Sales ($MM)Q2 2025 Net Sales ($MM)Q3 2025 Net Sales ($MM)
Seating$4,151.1 $4,473.9 $4,249.6
E-Systems$1,409.2 $1,556.5 $1,430.2
Segment MarginsQ1 2025Q2 2025Q3 2025
Seating Adjusted Segment Margin %6.7% 6.7% 6.1%
E-Systems Adjusted Segment Margin %5.2% 4.9% 4.2%
JLR Cyberattack ImpactQ3 2025
Revenue Impact ($USD Millions)-$111
Core Operating Earnings Impact ($USD Millions)-$31

Actual vs S&P Global Consensus and Forward Estimates

MetricQ3 2025 ActualQ3 2025 Consensus*Q4 2025 Consensus*Q1 2026 Consensus*
Revenue ($USD Millions)$5,679.8 $5,662.96*$5,753.73*$5,758.14*
Primary EPS ($)$2.79 $2.79*$2.71*$3.48*
EBITDA ($USD Millions)$345.2 $395.48*$386.01*$429.94*

Values with asterisk (*) retrieved from S&P Global.

KPIs and Other Data

  • Regional Sales Mix (Q3): North America $2,581.0MM; Europe & Africa $1,765.5MM; Asia $1,082.8MM; South America $250.5MM .
  • Share repurchases: 968,884 shares, $100MM; remaining authorization ≈$0.9B .
  • Liquidity: Cash $1,009.6MM; total liquidity $3.0B .

Guidance Changes

MetricPeriodPrevious Guidance (July 25, 2025)Current Guidance (Oct 31, 2025)Change
Net Sales ($MM)FY 2025$22,470 – $23,070 $22,850 – $23,150 Raised midpoint
Core Operating Earnings ($MM)FY 2025$955 – $1,095 $995 – $1,055 Maintained midpoint (~$1,025B)
Adjusted EBITDA ($MM)FY 2025$1,570 – $1,710 $1,605 – $1,665 Raised midpoint
Restructuring Costs ($MM)FY 2025≈$215 ≈$235 Raised
Operating Cash Flow ($MM)FY 2025$1,010 – $1,110 $1,035 – $1,085 Slightly lowered range; midpoint similar
Capital Spending ($MM)FY 2025≈$590 ≈$560 Lowered
Free Cash Flow ($MM)FY 2025$420 – $520 $475 – $525 Raised midpoint

Management noted that excluding lower JLR production, operating income midpoint would be ~$70MM higher and full-year margin >4.7% .

Earnings Call Themes & Trends

TopicQ1 2025 (Previous Mentions)Q2 2025 (Previous Mentions)Q3 2025 (Current Period)Trend
AI/Technology (Palantir, automation)Enterprise-wide adoption; 175+ use cases; tariff recovery systems; manufacturing efficiency Extended Palantir partnership; automation projects drive $60M H1 savings Lear Fellowship with Palantir; 14,000+ Foundry users; 250+ digital tools; proprietary AI tools; $70M 2025 savings target Accelerating
Supply chain/tariffsDetailed exposure; aim for 100% recovery; Honduras wire tariff path Tariff recovery lag impacts FCF; USMCA compliance; cautious production assumptions Cautious Q4 guide for Novelis/Nexperia/JLR ramp; upside if issues ease Elevated risk but improving clarity
Onshoring (U.S. manufacturing)Positioning capabilities and footprint Automated ComfortMax facility in Michigan; strong U.S. footprint Advanced discussions with multiple OEMs; margins comparable to NA seating; automation offsets U.S. labor cost Positive catalyst
Product performance/modularityComfortFlex/Max awards; Lucid Gravity module praised 24 modular awards; efficiency drives returns 28 modular programs; continued wins with Hyundai, BMW, Seres, Leapmotor Growing
Regional trends (China)JV consolidation (BYD programs); Chinese OEM wins Wins with FAW, Leapmotor, XPeng; joint venture consolidation Additional JV control (Seres); awards with BAIC, Dongfeng, SAIC, Seres; Chinese wire awards Strengthening
Backlog outlookNot reaffirmed FY guide; visibility evolving Restored guide; E-Systems winddown headwind through 2027 Backlog $1.2B across 2026–2027 ($600M each); E-Systems 2026 negative; more balanced in 2027 Stabilizing after 2026 headwinds
Capital allocationPause buybacks pending visibility Plan $250M repurchases FY25; revolver refinanced ~$300M repurchases FY25; ongoing in quiet period; prioritize buybacks/dividend More aggressive

Management Commentary

  • “Excluding the impact of the Jaguar Land Rover disruption, total Lear third quarter core operating earnings and operating margins would have been higher than the prior year.” — Ray Scott .
  • “We are currently in advanced discussions with a North American automaker… We view this as the first of several incremental opportunities.” — Ray Scott on onshoring .
  • “Core operating earnings are expected to be approximately $1.025 billion, unchanged from our prior guidance… increasing expected net performance from $150 million to $170 million.” — Jason Cardew .
  • “Our operating cash flow of $444 million was one of the highest third quarters in Lear’s history.” — Ray Scott .
  • “We expect approximately $70 million in cost savings this year, with an additional $65–$75 million annually in 2026 and 2027.” — Lear on automation savings .

Q&A Highlights

  • Supply chain and tariff risks: Q4 guidance embeds caution for Novelis, Nexperia, and JLR ramp; ~$150M revenue cushion from high-to-midpoint, with further cushion to low end; JLR ramp nearing full production by end of November .
  • Backlog and program cadence: Consolidated backlog ~$1.2B across 2026–2027, ~50/50 split; Seating ~>$700M in 2026; E-Systems ~-$100M in 2026 due to winddowns; more balanced in 2027 .
  • Margin trajectory: 4.7% JLR-adjusted exit rate is an appropriate baseline for 2026 modeling; margins expected higher in both segments, more in E-Systems .
  • Buybacks: Target ~$300M for FY25, opportunistic beyond midpoint FCF; continued repurchases through quiet period .
  • Onshoring economics: Automation offsets U.S. labor costs; margins similar to NA seating; ROIC protected via purpose-built capital .

Estimates Context

  • Q3 2025 revenue slightly beat consensus ($5,679.8MM actual vs $5,662.96MM consensus); Primary EPS was in line (~$2.79 actual vs $2.79 consensus); EBITDA missed consensus ($345.2MM actual vs $395.48MM consensus)*, reflecting JLR disruption and mix .
  • Forward estimates: Consensus sees modest sequential revenue improvement in Q4 2025 and stronger EPS in Q1 2026 as JLR normalizes and net performance accrues; however, E-Systems winddowns and cautious macro could cap upside*.
  • Implication: Street may raise FCF and revenue modestly given Q3 execution and guidance midpoint increases; EBITDA expectations may need trimming for Q4 if supply risks persist*.
    Values with asterisk (*) retrieved from S&P Global.

Key Takeaways for Investors

  • Q3 execution was resilient with strong cash generation; margin compression is transitory, largely tied to JLR; excluding JLR, margins would have exceeded prior year .
  • Guidance midpoint moves (revenue, FCF up; COE steady, CapEx down) signal confidence in operating performance and cash conversion; watch for additional buybacks in Q4 .
  • Near-term monitor: JLR ramp completion, Novelis/Nexperia impacts, tariff implementation details and recovery timing; these are swing factors for Q4 trajectory .
  • Medium-term thesis: Onshoring plus in-house automation/digital tools should sustain margin expansion in Seating and E-Systems; backlog stabilizes post-2026 despite product winddowns .
  • E-Systems mix transition is ongoing; near-term margin pressure from winddowns should abate by 2027–2028 as new electronics and wire wins ramp (BMW zonal control, EV OEM conquest) .
  • China strategy is bearing fruit (JV consolidation, domestic OEM wins), diversifying customer mix and supporting global growth .
  • Trading setup: Acceleration in buybacks and improved FCF conversion are supports; clarity on JLR ramp and supply risks are key catalysts over the next 4–8 weeks .

Appendix: Additional Q3 Press Releases

  • Dividend: Declared $0.77 per share (payable Sept 23, 2025) .
  • J.D. Power Seat Quality: Seven top-four finishes—industry-leading recognition for third straight year .
  • Q3 Results Press Release: Full details and reconciliations (including non-GAAP definitions) .