Lear earnings top expectations and stock rises

DETROIT Fri Jul 25, 2014 2:12pm EDT

The headquarters of Lear Corp., an auto parts maker, is seen in Southfield, Michigan February 9, 2007. REUTERS/Rebecca Cook

The headquarters of Lear Corp., an auto parts maker, is seen in Southfield, Michigan February 9, 2007.

Credit: Reuters/Rebecca Cook

DETROIT (Reuters) - Lear Corp, maker of auto seats and electrical power systems, on Friday exceeded Wall Street's earnings expectations for the second quarter and increased its full-year outlook, sending its shares up as much as 5 percent.

The stronger-than-expected results came despite weakness in South America and flat margins in the company's important seating business.

Excluding one-time items that were primarily restructuring costs, Lear earned $2.12 per share, above the $1.97 expected by analysts polled by Thomson Reuters I/B/E/S.

Standard and Poor's on Friday raised its opinion on Lear to "strong buy" from "buy." Efraim Levy, analyst with S&P, said that was because of Lear's ability to return cash to investors while investing for future growth and taking market share gains.

Revenue rose 11 percent to $4.59 billion, exceeding expectations of $4.44 billion, against the backdrop of auto industry production growth of 3 percent in the second quarter.

Profit margins for the suburban Detroit company rose to 6 percent from 5.4 percent a year earlier. Margins in the electrical systems business were 12.5 percent, up from 9.7 percent, but dipped in the larger seating business to 5.7 percent from 5.8 percent.

During a conference call with analysts, Chief Executive Officer Matt Simoncini said electrical systems business sales will slip slightly in the second half of the year, partly because of cyclical summer auto plant shutdowns in Europe.

Sales in the company's Europe and Africa business, $1.83 billion, accounted for 40 percent of the total, followed by North America at $1.74 billion, or 38 percent. Asian sales of $774.3 million accounted for 17 percent, and South America had $237.7 million, or 5 percent.

Sales rose 16 percent in Europe and Africa, 12 percent in North America and 10 percent in China but fell 13 percent in South America.

Lear joined other automotive-related companies in experiencing a fall in South American business as countries such as Brazil, Argentina and Venezuela are going through difficult economic times.

Simoncini told analysts that the company should be able to near break-even in South America for the second half of the year, provided the industry is able to correct come overcapacity issues.

Net income for the quarter rose to $148.5 million, or $1.81 per share, from $137.3 million, or $1.60 per share, a year earlier.

The company said it expected sales for the year to range from $17.6 billion to $17.9 billion. It had previously forecast $17.2 billion to $17.7 billion.

Lear said it expected core operating earnings of $975 million to $1.025 billion, up from a previous range of $935 million to $985 million.

In afternoon trading, Lear shares were up 3.2 percent to $98.82 on the New York Stock Exchange after trading as high as $100.58 in the morning.

(Reporting by Bernie Woodall; Editing by Lisa Von Ahn and Grant McCool)