STOCKHOLM -- Autoliv, the world's biggest maker of airbags and seat belts, reported second-quarter earnings below market consensus on Thursday as weak sales growth failed to offset higher raw materials costs.
Autoliv posted pretax profit of $133 million compared with $135 million in the year-ago quarter and $137 million seen in a Reuters poll of 10 analysts.
"It was a weak report. More than anything else, organic growth was below expectation," said one analyst.
Quarterly sales rose 5 percent to $1.65 billion to come in below market expectations of $1.73 billion. The company had guided for a sales increase of about 10 percent in the quarter, but exchange rates and changes in the mix of European car production were less favorable than expected.
Organic sales growth -- sales excluding currency impact and acquisitions or divestments -- came in at only 1 percent versus the 3 percent expected by the firm.
Autoliv, which unlike most Swedish blue chips reports its earnings in dollars, has seen earnings lifted by a weaker U.S. currency in recent quarters, but over the past few months the greenback has rallied amid a tightening of U.S. monetary policy.
Autoliv said it expected negative currency effects to hit third-quarter sales by 1 percent, if exchange rates remained steady at mid-July levels.
Total sales for the third quarter 2005 were expected to remain flat, despite an anticipated sharp fall in car output in western Europe, where it generates about half of its revenues.
"It looks like western Europe will do poorly in the third quarter as well and forecasts show a drop of about 6 percent," Autoliv Chief Executive Lars Westerberg told Reuters. "The U.S. came in slightly better than we had expected in the second quarter ... Now it looks like we will be seeing weak growth in the coming two quarters."
Autoliv also forecast a third-quarter operating margin at the same level as in the corresponding year-ago quarter, adjusted for plant closures. "We believe the margin in the third quarter will be at about 7.5 percent," Westerberg said.
The company has been moving plants from North America and Europe to lower cost nations, mainly in eastern Europe and Asia, to offset fierce price pressure from carmakers. Last month it unveiled plans to cut more than 500 jobs in Australia.
It said costs for closing plants during the third quarter would lower its operating margin by 0.3 percentage points.
Suppliers to the auto industry have also been squeezed by higher raw-material costs. Autoliv expected a hit of $25 million in the third quarter due to this.
Credit rating agency Standard & Poor's said in a report on Thursday that conditions for automotive suppliers remained tough, but noted that European firms had so far managed to avoid the same credit deterioration seen in the United States.
The rating agency said they were more resilient to harsh market conditions due to greater geographical spread and less exposure to troubled giants Ford Motor Co. and General Motors.