Autoliv, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Autoliv supplies automotive safety systems, including airbags and seatbelts, and reports as one segment. Unless otherwise noted, amounts are in U.S. dollars.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $2,242 million | $1,846 million | +21.5% reported; +17.9% organic |
| Gross profit / margin | $458 million / 20.4% | $331 million / 17.9% | Margin +2.5 percentage points |
| Operating income / margin | $237 million / 10.6% | $134 million / 7.3% | Income +77%; margin +3.3 points |
| Net income | $157 million | $75 million | +110% |
| Diluted EPS | $1.79 | $0.86 | +108% |
| Operating cash flow | $186 million | $156 million | +$30 million |
| Operating cash flow less net capital expenditures | $93 million | $68 million | +$25 million |
Adjusted operating margin, a non-U.S. GAAP measure, was 10.6% versus 7.4%; adjusted diluted EPS was $1.79 versus $0.88. Q1 2021 had no capacity-alignment adjustment, compared with $2 million in Q1 2020. Management attributed the margin improvement mainly to higher sales and direct-material efficiency. The effective tax rate declined to 27.7% from 32.7%, with the prior-year rate affected by unfavorable country mix.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $1,254 million at March 31, 2021, up from $1,178 million at December 31, 2020. Cash plus committed unused loan facilities provided reported liquidity of $2.4 billion.
- Total debt was $2,330 million; net debt, a non-U.S. GAAP measure, was $1,115 million, down $100 million from year-end and $515 million year over year.
- The leverage ratio was 1.4x, within the company’s 0.5x–1.5x target range. Total equity was $2,521 million, versus $2,423 million at year-end.
- Capital expenditures, net, were $93 million. No dividends were declared or paid in Q1 2021; no stock repurchases were made.
Business developments and outlook
Organic sales increased 17.9%, exceeding global light vehicle production growth of 13.6% by more than four percentage points. Growth was broad-based; Asia sales rose 46.8% reported, including China sales growth of 110%. Autoliv said new launches and favorable vehicle mix supported outperformance across regions.
Management reiterated 2021 indications: reported net sales growth of around 23%, organic sales growth of around 20%, adjusted operating margin of around 10%, R,D&E expense of around 4.5% of sales, tax rate of around 30% (excluding unusual items), operating cash flow similar to 2020 (excluding unusual items), and net capital expenditures below 6% of sales. The company expects to outgrow light vehicle production by mid-single digits in 2021 and cited 2022–24 targets for growth above production and higher adjusted margins.
Risks, contingencies and unusual items
- COVID-19-related semiconductor and other supply disruptions limited vehicle production, particularly in North America and Europe. Management expected industry shortages to affect production into the second half of 2021, with supply stabilization potentially not emerging until Q4. Direct COVID-related costs were about $5 million in Q1.
- Management expected rising raw-material prices to pressure costs through 2021. It said supply-chain effects were expected to be balanced by sales mix and cost-reduction actions, but this outlook remains exposed to uncertain production schedules and input availability.
- Product-related liability reserves were $328 million, while related insurance receivables were $321 million; the filing notes that timing of recoveries differs from liability payments. The Toyota Recall and an unannounced potential recall were identified as probable-loss matters. Disclosed accruals exceeded related insurance receivables by $25 million and $26 million, respectively; ultimate losses may differ materially. The company expected the Toyota matter to be resolved in 2021.
- Restructuring reserves were $113 million at quarter-end. The 2020 structural-efficiency program was expected to conclude in 2021; European footprint optimization was expected to conclude in 2023.
- The filing reports a $58 million loss on foreign-exchange swaps not designated as hedges in Q1 2021, recognized in other non-operating items. Review the related disclosure and its relationship to reported non-operating results.
- Management said ongoing litigation and investigations were not expected to have a material adverse effect on the company’s consolidated financial position, but warned that future product-liability, recall, warranty, antitrust, intellectual-property, or other claims could result in material losses. No material changes to previously disclosed risk factors or market-risk disclosures were reported.
Most important facts for investors to verify
- Whether semiconductor availability, vehicle-production schedules, and rising material costs affect the reiterated 2021 growth and margin indications.
- The adequacy and timing of insurance recoveries for the $328 million product-liability reserve, especially the Toyota and unannounced recall matters.
- The reported $58 million foreign-exchange-swap loss and its accounting impact on non-operating results.
- Whether cash generation, net debt, and the 1.4x leverage ratio remain within management’s targets as production and working-capital needs change.
- Whether restructuring charges and the planned completion dates for efficiency and footprint programs remain on track.