CHICAGO -- Auto interiors supplier Lear Corp. on Friday reported a quarterly net loss because of charges, lower North American vehicle output and high materials costs, but beat Wall Street estimates excluding items.
Lear, struggling under Ford Motor Co., General Motors and Chrysler group output cuts on key large North American sport-utility vehicles and pickups, forecast a third-quarter net loss and cut its 2005 outlook.
"Ugly, ugly (results), but largely Big 3 production related," UBS analyst Rob Hinchliffe said in a note, adding that output should become more stable after incentive-driven sales in June and July have cut inventories to normal levels.
Lear, which makes seats, door panels and other vehicle components, posted a net loss of $44.4 million, or 66 cents per share, for the second quarter, compared with net income of $116.1 million, or $1.58 per share, a year earlier.
Excluding restructuring, litigation and impairment charges, Lear earned 32 cents per share in the quarter, compared with an average forecast of 22 cents among analysts polled by Reuters Estimates.
Sales rose 3.2 percent to $4.42 billion.
Lear struggled in the quarter, but has numerous new vehicle launches over the next 12 months that may help it deal with the severe pressure, Morningstar analyst John Novak said.
"(Suppliers) have a ton of operating leverage, so if sales improve it doesn't take much to see an improvement in earnings, but it works both ways," Novak said.
Lear warned in June that it would lower its full year outlook and said it would cut up to 7,700 jobs, or 7 percent of its work force, in the next two years to trim costs. It also plans to shift some production to lower-cost countries.
Chief Executive Robert Rossiter told analysts on a conference call Friday that Lear has put acquisitions talks on hold while addressing the restructuring that targets the underperforming interior components business among other areas.
"While 2005 is a challenging year for us, in many ways a transition year, we clearly see things improving for the business over the next couple of years," Rossiter said.
Lear expects restructuring costs of about $130 million in 2005 and $120 million in 2006 to cut plants and workers.
"The restructuring ... highlights Lear's flexibility," said Mark Oline, Fitch Ratings managing director. "They are less hampered by some of the cost structure inflexibility shown by other auto parts manufacturers."
Delphi Corp. and Visteon Corp. have struggled under high labor costs since their spin-off from GM in 1999 and Ford in 2000 respectively.
Lear said it expects a third-quarter net loss of 70 cents to 90 cents per share, compared with net income of $1.26 per share a year earlier, with sales about flat at $3.9 billion.
For 2005, Lear expects results to range between a net loss of 25 cents a share and a net profit of 15 cents a share, with sales of about $17 billion. In April, it forecast earnings of $2.75 to $3.25 a share, with revenue of $17.5 billion to $17.7 billion.
Excluding items, the third quarter loss forecast would range from 15 cents to 35 cents a share, and the 2005 profit forecast would range from $1.50 to $1.90 per share. Analysts, on average, forecast a third-quarter profit of 29 cents per share and 2005 profit of $1.82 per share, excluding items.