Autoliv, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022. Autoliv supplies automotive safety products, including airbags and seatbelts, and reports one segment. Unless otherwise noted, amounts are U.S. dollars in millions.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $2,302 | $1,847 | $6,507 | $6,111 |
| Gross profit / margin | $383 / 16.7% | $301 / 16.3% | $998 / 15.3% | $1,143 / 18.7% |
| Operating income / margin | $171 / 7.4% | $99 / 5.4% | $429 / 6.6% | $500 / 8.2% |
| Adjusted operating income / margin (non-GAAP) | $173 / 7.5% | $103 / 5.6% | $365 / 5.6% | $506 / 8.3% |
| Net income | $106 | $60 | $268 | $322 |
| Net income attributable to controlling interest | $105 | $60 | $267 | $320 |
| Diluted EPS | $1.21 | $0.68 | $3.06 | $3.65 |
| Adjusted diluted EPS (non-GAAP) | $1.23 | $0.73 | $2.58 | $3.72 |
Q3 reported sales rose 24.7%; organic sales growth was 32.5%, exceeding global light-vehicle production growth of 28.8% by 3.7 percentage points. Foreign exchange reduced reported sales growth by 7.8 percentage points. For the first nine months, reported sales increased 6.5% and organic sales grew 12.1%, versus estimated global vehicle production growth of 8.3%.
Q3 operating income improved 72.4% year over year, reflecting higher sales, pricing and cost reductions. Gross profit was pressured by raw-material costs, premium freight and currency effects. Nine-month adjusted results were weaker than reported results in 2021, despite $80 million of gain on a Japanese property sale and a $21 million patent-litigation settlement included in 2022 other income. The nine-month adjusted figures exclude the property gain and capacity-alignment costs.
Cash flow, debt and liquidity
- Cash flow: Nine-month operating cash flow was $251, down from $437 in 2021. Capital expenditures, net, were $319 versus $301; free cash flow (non-GAAP) was negative $69 versus positive $136. In Q3, management reported operating cash flow of $232 and free cash flow of $68, compared with $188 and $77, respectively, a year earlier.
- Liquidity: Cash and cash equivalents were $483 at September 30, down from $969 at year-end 2021. The company reported approximately $1.6 billion of liquidity including committed, unused loan facilities.
- Debt: Balance-sheet short- and long-term debt totaled $1,729, versus $2,008 at December 31, 2021. Net debt (non-GAAP) was $1,288, up $236 from year-end. Leverage was 1.6x, compared with 1.2x at year-end and 1.1x a year earlier; the company’s long-term leverage target is 1.0x, with a stated operating range of 0.5x–1.5x.
- Working capital and distributions: Trade working capital was $1,314, down from $1,421 a year earlier. The company paid $1.92 per share in dividends during the first nine months and repurchased $60 million of stock. Q3 dividend paid was $0.64 per share; 0.26 million shares were repurchased in the quarter.
Outlook, commentary and risks
Management raised its full-year 2022 adjusted operating-margin indication to the upper end of approximately 6%–7%. Other indications were organic sales growth of approximately 15%, foreign-exchange impact on sales of approximately negative 6%, operating cash flow of $700–$750 million and net capital expenditures of approximately 5.5% of sales. These indications assume global vehicle production growth of approximately 6%, targeted cost recoveries and some market stabilization. Management expected sequential margin improvement in Q4.
Management said raw-material costs created more than four percentage points of Q3 operating-margin headwind; it expected up to five points of raw-material headwind for full-year 2022. Agreements had been reached in more than 90% of raw-material price-adjustment discussions, while negotiations on labor, logistics and utility cost recovery continued. Semiconductor shortages, supply-chain disruption, volatile customer call-offs, inflation, currency movements and China COVID-related restrictions remain material uncertainties. The direct effect of the Russia-Ukraine war was described as limited; Russian operations were idled, and Autoliv reported no operations in Ukraine.
Legal and product exposures: In the Andrews seatbelt case, the court awarded approximately $13.5 million compensatory damages, $100 million punitive damages and approximately $4.7 million prejudgment interest. Autoliv is appealing. The company accrued $19 million, representing the low end of its probable-loss range of $18–$118 million and excluding punitive damages; it stated that payment of the full award is reasonably possible. Expected insurance recoveries were recorded, but punitive-damage coverage is uncertain. Product-liability reserves were $146 million; insurance receivables were $149 million, though timing differs. A separate unannounced recall has an accrued probable loss, with the uninsured amount exceeding related insurance receivables by $26 million. For the ZF inflator recall, Autoliv disclosed a reasonably possible loss range of $0–$43 million, with no accrual, and expected net losses to be immaterial.
Management reported that disclosure controls were effective and that there were no material changes to internal control over financial reporting during the quarter. No reportable subsequent events were disclosed.
Important facts for investors to verify
- Whether pricing and other customer recoveries keep pace with raw-material, labor, logistics and utility inflation—and whether recoveries are delayed.
- Whether vehicle production and supply-chain conditions support the full-year sales, margin and cash-flow indications.
- The ultimate outcome of the Andrews litigation, insurance coverage (especially punitive damages), and potential payments beyond the $19 million accrual.
- Developments and reserve adequacy for the unannounced recall, ZF inflator recall and other product-related claims.
- Cash conversion and capital spending: nine-month free cash flow was negative despite Q3 improvement, while cash declined and leverage exceeded the company’s stated target range.
- The effect of foreign exchange, customer call-off volatility, China restrictions, and ongoing geopolitical and macroeconomic risks.