DETROIT Lear Corp (LEA.N) posted a stronger-than-expected quarterly profit on Thursday and, under pressure from two shareholders, set an accelerated $800 million stock buyback program.
The maker of auto seats and electrical power systems also raised its full-year production forecasts across all regions and affirmed its outlook for 2013 sales.
"We were surprised by the magnitude of the upside and particularly encouraged by the margin beats in each segment," Morgan Stanley analyst Ravi Shanker said in a research note. However, he said the focus was the share buybacks, which he called "another layer of icing on that very large cake."
Shanker said some investors might wonder why Lear did not raise its outlook for the year after the stronger-than-expected first-quarter results, but that conservative approach is typical of the company.
Net income attributable to Lear fell 19 percent to $108.5 million, or $1.13 a share, in the first quarter from $134.1 million, or $1.32 a share, a year earlier.
Excluding restructuring charges and other one-time items, Lear earned $1.30 a share, 20 cents above what analysts polled by Thomson Reuters I/B/E/S had expected. Shanker said a lower-than-expected tax rate added 4 cents to the profit.
Revenue rose 8 percent from last year to $3.95 billion, while analysts expected $3.71 billion.
Lear said sales rose 3 percent in the seating business and jumped 25 percent in the electrical power management systems unit.
As part of a deal with two shareholders, the Southfield, Michigan-based company said on Thursday that it had entered into an agreement with Citibank (C.N) to buy back $800 million of its stock. Lear said it would fund the deal and retire about 12 million shares within the next week.
Lear said it would acquire the shares under the previously announced repurchase program within 11 months and fund the transaction with cash on hand.
Earlier in April, Lear avoided a proxy battle with investors Marcato Capital Management LLC and Oskie Capital Management LLC by agreeing to increase and quicken the pace of its share buyback program and add a board member.
As a result of that pressure, Lear's board in April also authorized an additional $750 million in share repurchases, bringing the total available buyback authorization to $1.55 billion - about one-third of Lear's current market capitalization.
The company said it still expected 2013 full-year sales of $15 billion to $15.5 billion. It forecast adjusted earnings of $420 million to $455 million.
Analysts are expecting 2013 sales of $15.29 billion and earnings of $4.93 a share.
However, Lear raised its forecasts for industry vehicle production in each region. It now sees North American production of 16.1 million vehicles in 2013, up 3 percent from the prior outlook.
Lear forecasts production in Europe and Africa of 19.1 million vehicles, up 1 percent from before. It also raised its forecast for China production by 1 percent to 18.8 million vehicles.
The first quarter included $17 million in restructuring charges, and Lear said it expected to incur another $34 million for actions started after the end of March.
(Reporting by Ben Klayman in Detroit; Editing by Jeffrey Benkoe, Chizu Nomiyama and Lisa Von Ahn)