Autoliv, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Autoliv supplies automotive safety systems, including airbags and seatbelts. Amounts are in U.S. dollars unless noted.
Financial performance
| Metric | Q3 2021 | Q3 2020 | First nine months 2021 | First nine months 2020 |
|---|---|---|---|---|
| Net sales | $1,847 million | $2,037 million | $6,111 million | $4,931 million |
| Gross margin | 16.3% | 19.6% | 18.7% | 15.1% |
| Operating income / margin | $99 million / 5.4% | $175 million / 8.6% | $500 million / 8.2% | $75 million / 1.5% |
| Adjusted operating margin | 5.6% | 10.1% | 8.3% | 3.5% |
| Net income attributable to controlling interest | $60 million | $98 million | $320 million | $(2) million |
| Diluted EPS | $0.68 | $1.12 | $3.65 | $(0.02) |
Q3 reported sales fell 9.3%; organic sales declined approximately 12%, while global light vehicle production (LVP) fell 20%. Autoliv outperformed LVP by nearly 8 percentage points, supported by launches and vehicle mix. For the first nine months, sales grew 23.9% reported and 19.8% organically.
Q3 adjusted EPS was $0.73, versus $1.48 a year earlier. Adjusted measures are non-U.S. GAAP and exclude capacity-alignment costs and, for 2020, antitrust-related matters.
Cash flow, debt and liquidity
- Q3 operating cash flow was $188 million; operating cash flow less net capital expenditure was $77 million. The comparable Q3 prior-year figures were $352 million and $276 million, respectively.
- For the first nine months, operating cash flow was $437 million versus $380 million; net capital expenditure was $301 million versus $229 million. Cash flow less net capital expenditure was $136 million versus $152 million.
- At September 30, cash was $903 million, total debt was $2,051 million and net debt was $1,165 million. Net debt was $1,573 million a year earlier and $1,214 million at December 31, 2020.
- Management reported $2.0 billion of liquidity, including committed unused loan facilities, and a 1.1x leverage ratio, within its 0.5x–1.5x target range.
- Current assets were $3,710 million and current liabilities were $2,811 million. Inventories, net, rose to $922 million from $798 million at year-end 2020.
Material changes and management commentary
- Management said semiconductor and other component shortages accelerated the downturn in Q3, causing unpredictable customer call-offs, lower production and weaker efficiency. Supply disruptions were expected to continue affecting Q4, with poor visibility and stabilization potentially not emerging until 2022.
- Higher raw-material costs pressured margins. Despite mitigation, management expected a full-year operating-margin headwind of about 130 basis points, including further pressure from magnesium and resin.
- Cost controls included headcount reductions and capacity alignments in Europe and the U.S. Headcount was 62,000, down 3,300 from a year earlier.
- For the first nine months, improved sales and productivity drove higher gross profit; prior-year capacity-alignment charges were also substantially lower. Q3 profitability nevertheless declined with lower sales and higher material costs.
- Direct COVID-related costs were about $3 million in Q3 and $11 million year to date. Government support was not material.
Outlook, risks and contingencies
- Full-year 2021 indications assumed approximately 0% global LVP growth: reported sales growth around 11%, organic sales growth around 8%, adjusted operating margin around 8%, operating cash flow around $700 million, and net capital expenditure below 6% of sales. These are management indications, not guarantees.
- Product-liability reserves were $120 million at September 30; related insurance receivables were $137 million. The company stated that most recall-related issues were insured, while noting that insurance recovery timing may differ from liability payments.
- For an unannounced potential recall, the amount by which the accrual exceeded the related insurance receivable was $26 million; the ultimate loss could differ materially. In the Volvo/ZF inflator recall involving approximately 762,000 vehicles, Autoliv recorded no accrual and estimated a possible loss range of $0–$43 million, while expecting net losses after insurance and claims against ZF to be immaterial.
- The filing describes ongoing and potential legal, antitrust, product-liability, warranty, recall and intellectual-property risks. Management believed current legal proceedings would not materially harm financial position, but could not assure future losses would not be material.
- The quarterly dividend was $0.62 per share, paid September 24, 2021. The filing cautions that future dividends are subject to board discretion and are not assured.
Important facts for investors to verify
- Whether semiconductor availability, customer call-offs and global LVP recover as anticipated, and how they affect sales and margins.
- Whether raw-material inflation, including magnesium and resin, exceeds mitigation efforts or the expected 130-basis-point full-year margin headwind.
- Actual progress against full-year sales, adjusted-margin, cash-flow and capital-expenditure indications.
- Developments in the unannounced recall and Volvo/ZF matter, including final liability estimates, insurance recoveries and timing.
- Whether working-capital needs, capital spending and dividend payments affect cash, net debt or leverage relative to management’s target.