UPDATE 3-Autoliv cuts forecast, jobs as auto market sags

(Adds CEO comments from conference call, updates share price)

By Victoria Klesty and Niklas Pollard

STOCKHOLM, July 22 (Reuters) - World number one air bag and seat belt maker Autoliv (ALV.N) (ALIVsdb.ST) cut its full-year outlook on Tuesday and said it would shed as many as 3,000 jobs in the face of weak auto markets and soaring raw material costs.

Shares in Autoliv, which reported second-quarter earnings just below expectations, extended an early slide as investors digested the news and were down 12.3 percent at 1436 GMT versus a 2.8 percent decline in the broader market .OMXSPI.

"The market outlook is deteriorating as a result of both accelerating production cuts by customers and accelerating raw material and energy costs," the company said.

Autoliv said quarterly pretax earnings rose to $135 million from $89 million a year earlier, to come in below the mean forecast of $139 million seen in a Reuters poll of 11 analysts.

Earnings at the group, which is based in Sweden but which reports in dollars, were boosted by a weaker dollar as profits accrued in Europe, its biggest market, were translated into the U.S. currency at a more favourable rate than a year earlier.

"As with many other of the firms we've seen, the second quarter is okay while the guidance is clearly the negative point in this report," Evli Bank analyst Michael Andersson said.

"Even a quality company such as Autoliv is now having to bend under a tough European and North American market. That shines through, what with them kicking off a restructuring programme, and things could get tough going forward."

The company said it would carry out a programme to push through savings of about $120 million with full effect in 2010. The scheme would cost up to $75 million to implement, most which the group hoped to book this year, it added.

"The programme is expected to start generating savings already in quarter four this year and gradually increase in 2009 with the full effect expected in 2010," Chief Executive Jan Carlson told a conference call.

Cost cuts would entail lowering production capacity and increasing sourcing from lower-cost regions, but the group would also boost investment in products for smaller, fuel-efficient cars which have been hit less by the recent market downturn.

GUIDANCE CUT

Autoliv has faced weak demand in its biggest markets in recent months, not least in the United States where a deepening financial crisis and economic slowdown has hurt car sales.

"As a result of the negative market trends, the company is changing its full-year guidance. Sales for 2008 are now expected to increase by 8 percent and an operating margin, excluding severance and other restructuring costs, is expected in the range of 7-7.5 percent," the group said.

It had previously forecast full-year sales growth of 10 percent with a margin of 8-8.5 percent.

"The low end of this range would imply earnings per share of approximately $4.50," Carlson said.

Like other other industry firms, Autoliv is also contending with steep raw material price rises and the firm doubled its estimate of an anticipated increase in material costs this year to $60 million, $40 million of which was seen consisting of higher expenses for steel.

"We have not seen the full effect of the current pricing level yet," Carlson said.

"If you look at the current pricing level for commodities it (the cost rise) could be around 100 million for full year '09. We are now talking about 60 million, so that would be an additional 40 million approximately if current prices prevail."

For the third quarter, Autoliv said it expected sales to rise 7 percent year-on-year, implying a 3 percent decline in organic sales, while it saw its operating margin in the period falling to about 5 percent.

Autoliv reported sales of $1.91 billion, up 10 percent from a year ago, but below the poll's mean forecast of $1.96 billion. Organic sales, which strips out currency translation effects and acquisitions and divestments, declined 2 percent.

The company said it expected organic sales to be down 1 percent in the full year. (Additional reporting by Johannes Hellstrom; Editing by David Cowell)