On Dec 26, 2014, we issued an updated research report on Autoliv, Inc. (ALV). This Zacks Rank #3 (Hold) stock had reported a negative earnings surprise of 10.7% in the last quarter.
Autoliv reported third-quarter 2014 adjusted earnings of $1.25 per share, missing the Zacks Consensus Estimate of $1.40 per share. Earnings decreased 4.6% from $1.31 per share in the third quarter of 2013. Meanwhile, consolidated revenues rose 4.2% year over year to $2.21 billion, missing the Zacks Consensus Estimate of $2.27 billion. The weakness was due to unfavorable vehicle mix and a decline in vehicle production in China.
Autoliv actively pursues capital deployment strategies to boost shareholder value. As a result, in May 2014, the company increased its quarterly dividend by 4% to 54 cents per share. In addition, Autoliv spent $429 million to repurchase close to 4.3 million shares in the first nine months of 2014. These strategies help maintain the company’s efficient capital structure.
From Jan 1, 2015, Autoliv will change its reportable segments to Passive Safety and Electronics. The change in operating structure is expected to facilitate growth and help the company effectively manage its operations. It should also facilitate the implementation of Autoliv’s business strategies.
However, Autoliv faces stiff competition in passive safety products from Takata Corp. and TRW Automotive Holdings Corp. (TRW), which occupy one-fifth and one-sixth of the market, respectively. TRW has a strong market position in Europe and North America, while Takata has a strong market position in Japan and North America. Moreover, the market for active safety products is fragmented, leading to many competitors.
Autoliv reduced the organic sales growth guidance for full-year 2014 to 5.5% from the previous expectation of a 6% improvement. The company also projects operating margin, excluding capacity alignments and antitrust investigation costs, of around 9% for full-year 2014. Autoliv expects organic sales growth of about 2% and projects operating margin to be around 9.5% in the fourth quarter of 2014, excluding capacity alignments and antitrust investigation costs.
Key Picks from the Sector
Investors interested in the auto industry could consider better-ranked stocks like Dana Holding Corp. (DAN) and Tower International, Inc. (TOWR), both sporting a Zacks Rank #1 (Strong Buy).
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