The auto stocks themselves haven't done so great this year, yet there is at least one auto supplier stock that has done quite well. Enter Lear (LEA 149.04, +3.07, +2.1%), which is up 12.6% year-to-date and 30.0% over the last 52 weeks. Its relative strength makes sense, too, based on the company's latest earnings report. The question is, can LEA maintain that relative strength in the face of concerns about the U.S. auto industry hitting a cyclical sales peak?
The answer lays with the company's investor base. For the time being, that base of shareholders appears to appreciate the company's fine performance in the second quarter, which led to record sales and earnings.
Lear's sales of $5.1 billion were up 8.0% year-over-year and its reported net income of $312 million was up 10.0% from the prior year.
The earnings increase was aided by improved profit margins for both its Seating and E-Systems segments, as well as increased sales across all geographic regions in which the company operates. The commendable operating performance translated into a 20% increase in adjusted earnings per share to $4.39, which was well ahead of analysts' average expectation.
Driven by its first half performance and its April acquisition of Grupo Antolin's seating businesses, Lear said it is increasing its full-year outlook for sales, earnings and free cash flow.
Sales are now anticipated to be approximately $20 billion in 2017, with core operating earnings of about $1.65 billion and free cash flow around $1.1 billion. Previously, Lear was projecting sales of approximately $19.5 billion, core operating earnings of about $1.6 billion, and free cash flow in excess of $1.0 billion.
The revised outlook is predicated on a global industry production assumption of 93.1 million vehicles, up 2% from 2016. Lear, however, is assuming less production out of North America, where vehicle production is estimated to be 17.4 million units versus an estimate of 17.6 million units following its first quarter earnings report. Lear said its updated outlook was also based on an average exchange rate of $1.12/Euro for the remainder of the year.
With the second quarter results in the book, Lear trades at roughly 9.6x trailing twelve-month earnings.