DETROIT - Lear Corp. suffers from digestive trouble.
After 11 acquisitions in four years, the supplier plans to cut 2,800 jobs and take a larger-than-expected restructuring charge of $133 million in the fourth quarter. It will close or consolidate 18 plants worldwide.
The restructuring was long overdue, analysts said. Years of acquisitions left duplications of employees, administration and manufacturing. Now, analysts said, Lear faces growing competition for seating business, and pricing pressure from its largest customer, General Motors.
Analyst Jesse Levine said Europe has become a tougher market for Lear, where 15 of the targeted 18 plants are located. Two are in North America and one is in South America.
Lear's European business grew quickly from acquisitions of the seating business of Fiat, Saab and Volvo. Lear also acquired European suppliers Borealis Industrier AB, Dunlop Cox Ltd. and A.W. Chapman Ltd. as well as two Italian suppliers, among others.
Now Lear needs to close the gap between profit margins in Europe and North America. That has been difficult because European car companies dictate pricing and sourcing, analysts said.
'Lear's goal is to have their plants and machinery in the right place to be a low-cost provider,' Levine said.
Lear warned of the restructuring in a statement reporting disappointing third-quarter results. Sales climbed to $1.9 billion for the quarter, up from $1.6 billion for the year-ago period. But profit margins were just 1.1 percent, compared with 2.2 percent for the year-ago period. That suggests pricing or production problems, or both, said Levine, of the Ann Arbor, Mich., office of Seidman & Co.
Despite Lear's cuts, analyst Gregory Kagay said the company may not be able to earn the 11 to 12 percent return on capital it has long enjoyed. With lower financial returns, investors may not be willing to pay the high price to earning multiple they did in the past, said Kagay, an analyst with McDonald & Co.
Lear's future plans were not helped by its failure earlier this year to land the North American seating contracts for GM's Delta compact car line. The program includes new versions of the Chevrolet Cavalier, Pontiac Sunfire and Saturn sedan, expected for 2002. The contract went to Magna Inter-national Inc., according to the automotive forecasting firm CSM Corp. in Okemos, Mich. The European Delta program also went to a competitor, CSM said.
Lear has the current seat contract for the Cavalier and Sunfire in North America. The company, based in Southfield, Mich., is the world's sixth-largest supplier of original equipment parts to the auto industry, according to Automotive News' rankings.
Levine said Lear is moving to streamline operations as automakers struggle with overcapacity. 'We will continue to see rationalizations like Lear's, and profit margins under pressure.'
Asked if Lear anticipates more restructuring next year, Lear CEO Ken Way said, 'If we do, I don't know anything about it.'