Lear lost $170M due to UAW strike, but financial outlook is brighter

Lear Corp. achieved increased sales and margins — and a brighter financial outlook — in the third quarter, despite a $170 million hit from the UAW strike and electric vehicle launch delays from customers.

The seating supplier saw adjusted net income increase 21 percent to $170 million on $5.8 billion of revenue, up 10 percent year over year. It also increased its full-year financial guidance to the pleasure of Wall Street, with shares rising 3 percent to close Thursday at $133.43.

Lear lost $25 million of revenue in the third quarter, and is losing $60 million a week because of the UAW strike against the Detroit 3. Ford Motor Co. and the union came to a tentative agreement Wednesday, ending the strike against the Dearborn, Mich., automaker. With Ford back in full production, Lear's weekly losses will fall to $35 million a week, CFO Jason Cardew said on a call with investment analysts Thursday.

The supplier, whose other product line is e-systems, also sees headwinds for its EV business as consumer demand for battery-electric cars wanes and automakers push production goals further out. Its biggest win to date in that category is a deal to supply battery disconnect units to General Motors for all full-size SUVs and trucks built on the Ultium platform.

GM announced earlier this month it was delaying output of the Chevrolet Silverado EV and GMC Sierra EV from its Orion Assembly Plant in Oakland County in Michigan by a year. Prior to that announcement, Crain's Detroit Business reported that Lear's $80 million investment in nearby Independence Township to support the plant was put on hold. The company has declined to provide further detail.

Cardew told investors that the company reduced its outlook for capital expenses by $25 million because of slower EV ramp-ups and that its backlog of EV business projected for 2024 will be smaller.

"As we looked at our $1.3 billion revenue target for electrification products generally, we are in line with our previous expectations," Cardew said. "We've had new business awards with other customers ... that have offset the impact of lower expected revenue" from GM.

On the seating side, Lear recorded new business with Chinese giant BYD, BMW in Europe and Stellantis. Lear took over supply of seats to the Jeep Wagoneer and Grand Wagoneer after Forvia scrapped the business this summer and closed its Highland Park plant in Michigan.

"I don't think everyone appreciates it, except for the team that's been working on it nonstop, the incredible, unprecedented launch that we had with the Wagoneer and Grand Wagoneer," Lear CEO Ray Scott said on the call with analysts. "The team did a great job … industry-first, never been done."

The company's core operating earnings were up 14 percent for the quarter to $267 million, while its adjusted earnings per share of $2.87 was 23% better than the year prior.

"Our strategy to streamline our product portfolio and improve our financial performance in e-systems is on track, as the division reported its highest operating margins in more than two years," Scott said.

Assuming a $350 million sales hit as a result of the strike, Lear expects net sales of between $23.1 billion and $23.3 billion and earnings before interest, taxes, depreciation and amortization of around $1.7 billion, up from the midpoint of its prior outlook.