Autoliv, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are to Q1 2021 unless otherwise noted. Autoliv supplies automotive safety products, including airbags and seatbelts, and reports one operating segment. Dollar figures are in millions unless stated otherwise.
Financial performance
- Revenue: $2,124, down 5.3% reported and approximately 1.1% organically. Foreign exchange reduced sales by 4.2%. Sales outperformed estimated global light vehicle production (LVP), which fell about 4%, by roughly 3 percentage points.
- Profitability: Gross profit was $288, down 37.1%; gross margin fell to 13.6% from 20.4%. Operating income was $134 and reported operating margin was 6.3%, versus $237 and 10.6%. Adjusted operating income, a non-U.S. GAAP measure, was $68; adjusted margin was 3.2%, down from 10.6%.
- Unusual operating items: Reported operating income included an approximately $80 gain on a Japanese property sale and was partly offset by capacity-alignment charges. The company’s adjusted results exclude these items; the filing reconciles reported operating income to adjusted operating income with a net $66 adjustment.
- Net income and EPS: Net income was $83, down 47.1%. Diluted EPS was $0.94 versus $1.79; adjusted diluted EPS was $0.45 versus $1.79.
- Cash flow and investment: Operating cash flow was $70, down from $186. Capital expenditures were $112, with $95 of property-sale proceeds; net capital expenditures were $17. Operating cash flow less net capital expenditures was $53, versus $93 a year ago.
- Debt and liquidity: Total debt was $1,994 and cash was $938, producing net debt of $1,057 under the company’s non-U.S. GAAP definition. Leverage was 1.4x, within the stated target range of 0.5x–1.5x. Cash plus committed, unused facilities provided approximately $2.0 billion of liquidity.
- Balance sheet and distributions: Inventories rose to $913 from $777 at year-end 2021; accounts payable rose to $1,385 from $1,144. Autoliv paid a $0.64 per-share dividend and repurchased approximately 0.26 million shares during the quarter.
Changes and management commentary
- Raw-material inflation reduced operating margin by more than 5 percentage points; premium freight, transportation and supply-chain disruption contributed to a total margin headwind exceeding 7 percentage points.
- Customer call-off volatility, semiconductor shortages and China lockdowns reduced production efficiency and visibility. Management said China lockdowns in March caused significant lost production.
- Autoliv tightened cost controls, instituted a hiring freeze, adjusted direct labor and accelerated savings and footprint measures. It divested a Japanese property and closed a plant in South Korea; restructuring actions also involve Europe and the Americas.
- Management said customer discussions on price increases and other cost recoveries were ongoing, with benefits expected to begin around mid-year. It expected Q2 adjusted margin to be weaker than Q1 because cost inflation was expected to outpace customer compensation.
- Russia represented less than 1% of 2021 sales; the company reported limited direct exposure and no operations in Ukraine, but identified Ukrainian sub-suppliers and noted broader effects on European production and supply chains.
Outlook and key risks
- 2022 indications: Organic sales growth of approximately 12%–17%; adjusted operating margin of 5.5%–7%; operating cash flow of $750–$850; net capex around 5.5% of sales; and tax rate around 30%. These indications assume global LVP growth of 0%–5%, targeted customer cost recoveries and some market stabilization. The filing does not provide a U.S. GAAP reconciliation for this forward-looking guidance.
- Management estimated raw-material costs could create up to a 6-percentage-point operating-margin headwind for full-year 2022. Semiconductor shortages, inflation, transportation costs, volatile customer schedules, China restrictions and the war in Ukraine could further affect results; customer price recoveries may be delayed or incomplete.
- Product liability, recall, warranty and antitrust matters remain risks. In the Andrews litigation, a court awarded $13.5 in compensatory damages against Autoliv and $100 in punitive damages. The company is challenging the verdict; it accrued $14, representing the low end of a probable-loss range of $14–$114, and says insurance coverage—particularly for punitive damages—is uncertain.
- For a potential unannounced recall, Autoliv reported a $26 excess of product-liability accrual over related insurance receivables. A separate ZF inflator recall was assessed as a reasonably possible loss, estimated at $0–$43 before anticipated insurance and claims against ZF; no accrual was recorded.
Important facts for investors to verify
- Whether customer price increases and other recoveries arrive on schedule and offset inflation, premium freight and other cost pressures.
- Whether global LVP, China production and supply-chain availability support the assumptions underlying 2022 guidance.
- The final outcome and insurance recovery in the Andrews case, and changes in recall reserves, claims and related insurance receivables.
- Cash conversion and inventory trends, given lower operating cash flow and the increase in inventories since year-end.
- The basis and comparability of non-U.S. GAAP measures, especially adjusted operating margin, adjusted EPS, net debt and leverage.