Auto parts maker Lear Corp (LEA.N) beat Wall Street third-quarter profit and sales expectations on Friday as North American sales were strong and operations in Europe were profitable despite a plunge in auto production there.
Lear, which produces auto seats and electrical power systems, was "solidly profitable" in Europe despite a 10 percent drop in revenue.
Jeff Vanneste, Lear chief financial officer, said that excluding the impact of foreign exchange, Lear's European sales rose 1 percent in the quarter, despite a decline in European auto production of 7 percent.
European sales for Lear in the quarter were $1.31 billion, followed by sales of $1.25 billion in North America, where revenue rose 12 percent. Overall, Lear's sales were $3.54 billion, up 2 percent from a year earlier. Analysts had expected revenue of $3.47 billion, according to Thomson Reuters I/B/E/S.
Lear's net income was $121.4 million, or $1.23 per share, compared with $100.7 million, or 95 cents per share, a year earlier.
Adjusted earnings per share were $1.29, the company said on Friday. The earnings beat analyst expectations of $1.20 a share, according to Thomson Reuters I/B/E/S.
Shares of Lear were up 2.5 percent at $42.03 on Friday morning.
Lear, based in suburban Detroit, said it expects full-year adjusted income to be between $520 million and $560 million, up from a previous forecast of $510 million to $540 million, primarily because of lower expected tax expense.
In the quarter, Lear repurchased 1.3 million shares of its common stock for $50 million, or about $40 per share. In the first nine months of the year, Lear has bought back 4.2 million shares for $173 million.
Since the start of 2011, Lear has repurchased 10.4 million shares, or about 9.7 percent of its outstanding shares. Lear has $248 million remaining under a $700 million share repurchase authorization from its board of directors through February 2014.
SEATING MARGINS DOWN
Adjusted margins for Lear's seating business, which accounts for 75 percent of its sales, were 6.1 percent in the quarter, down from 6.7 percent a year earlier. In the first nine months of the year, seating margins were 6.5 percent.
Lear's full-year revenue outlook remained in line with previous guidance, with net sales forecast at about $14.3 billion, compared with previous guidance of between $13.9 billion and $14.4 billion.
Core operating earnings are projected in 2012 to be in a range of $745 million to $785 million, a narrowing of the previous guidance of $740 million and $790 million.
Analyst Matthew Stover of Guggenheim said a surprise in the quarterly results was the strength in the margins of Lear's electrical power management business, which rose to 7.5 percent up from 6.8 percent a year ago.
Lear's tax chief, Bill McLaughlin, said the company expects to reverse in the fourth quarter a "significant portion" of a valuation tax allowance that was $880 million at the end of 2011, which will be shown as assets on its balance sheet.
McLaughlin said that this year's global corporate average cash tax rate would be about 13 percent to 14 percent, up from 2011's rate of 11 percent to 12 percent. The company said its tax rate would return to a "more normalized" rate of about 30 percent in 2013.
(Reporting By Bernie Woodall; Editing by Gerald E. McCormick; and Peter Galloway)