Autoliv, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Autoliv supplies automotive safety systems, including airbags and seatbelts, and reports as one segment. Amounts are in U.S. dollars unless noted.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $2,022 million | $1,048 million | $4,265 million | $2,893 million |
| Gross profit / margin | $384 million / 19.0% | $14 million / 1.4% | $843 million / 19.8% | $345 million / 11.9% |
| Operating income (loss) / margin | $164 million / 8.1% | $(234) million / (22.3)% | $401 million / 9.4% | $(99) million / (3.4)% |
| Net income (loss) | $105 million | $(174) million | $262 million | $(99) million |
| Diluted EPS | $1.19 | $(2.00) | $2.98 | $(1.14) |
| Operating cash flow | $63 million | $(128) million | $249 million | $28 million |
| Cash flow less net capital expenditures | $(33) million | $(192) million | $60 million | $(124) million |
Q2 organic sales growth was 85%, versus 52% global light vehicle production (LVP) growth; reported sales rose 93%, including 8.1 percentage points from currency. Adjusted operating margin, a non-U.S. GAAP measure excluding capacity-alignment costs, was 8.2% in Q2 and 9.4% for the first half. Adjusted diluted EPS was $1.20 and $2.99, respectively.
Liquidity, debt and capital
- June 30 cash was $893 million, down from $1,178 million at year-end 2020. The company reported total available liquidity of $2.0 billion, including committed unused facilities.
- Total debt was $2,075 million; net debt, a non-U.S. GAAP measure, was $1,200 million, versus $1,214 million at year-end and $1,838 million a year earlier. Leverage ratio was 1.1x, compared with 1.7x at year-end and 2.8x a year earlier.
- Capital expenditures were $191 million for the first half. The balance sheet showed current assets of $3,804 million and current liabilities of $2,852 million.
- Autoliv reinstated its quarterly dividend and declared $0.62 per share for Q2. No shares were repurchased in the first half.
Changes and management commentary
- Results improved sharply against Q2 2020, when pandemic-related production disruption and $62 million of capacity-alignment charges weighed on results. Q2 2021 capacity-alignment charges were $1 million. Higher sales and direct material and labor productivity supported improved gross margin and operating income.
- Management said semiconductor shortages and other supply-chain disruptions caused Q2 global LVP to be 8% below expectations at the start of the quarter; short-notice customer call-off changes also reduced production efficiency. The company expects disruptions to continue to affect LVP in Q3, with some improvement in Q4.
- Rising raw-material prices were expected to create an approximately 130-basis-point operating-margin headwind for full-year 2021, despite mitigation efforts. Direct COVID-related costs were about $3 million in Q2.
- Management cited strong sales growth, outperformance versus LVP, order intake and improved leverage. It also announced plans for a new steering-wheel plant in Mexico and climate targets: carbon-neutral own operations by 2030 and net-zero supply-chain emissions by 2040.
Outlook, risks and contingencies
For full-year 2021, based on assumed global LVP growth of 9–11%, management indicated reported sales growth of about 20–22%, organic sales growth of about 16–18%, adjusted operating margin of about 9–9.5%, operating cash flow similar to 2020, and net capital expenditures below 6% of sales. It also reiterated 2022–24 targets of average annual growth 4–5 percentage points above LVP and a 12% adjusted operating margin. These are forward-looking indications, not guarantees.
- Key risks include semiconductor and other supply interruptions, volatile customer production schedules, COVID-19 effects, higher raw-material costs, customer and supplier dependency, competition, currency movements, and product liability, warranty, recall and litigation exposure.
- The Toyota Recall was settled and closed on April 27, 2021; the final amount by which the related accrual exceeded insurance receivables was $26 million. A separate customer “Unannounced Recall” remained under evaluation; the company accrued a $26 million net amount, but the ultimate loss could differ materially.
- Product-related liability reserves were $103 million at June 30, while recall-related insurance receivables were $126 million; recovery timing does not match liability timing. Autoliv also disclosed ongoing antitrust investigations in the industry and stated that ordinary-course proceedings were not expected to materially affect its financial position, while noting future losses cannot be assured against.
- The board’s future dividend decisions remain discretionary. The filing reported no material changes to previously disclosed market risks or other risk factors, except the dividend-related risk disclosure.
Investor verification priorities
- Track semiconductor availability, customer call-offs and LVP assumptions, particularly the expected Q3 disruption and Q4 improvement.
- Assess whether sales growth and adjusted margins meet management’s full-year indications, including the raw-material cost headwind.
- Monitor operating cash conversion, capital spending, net debt, leverage and the sustainability of the reinstated dividend.
- Follow the Unannounced Recall, its ultimate cost and insurance recoveries, and any new product-liability or antitrust developments.
- Review non-U.S. GAAP reconciliations and definitions when comparing adjusted margins, adjusted EPS, organic growth and leverage with other companies.