Q2 2023 Lear Corp Earnings Call
Good morning and welcome to the Lear Corporation second quarter 2023 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
Please note this event is being recorded. I would now like to turn the conference over to Mr. Adloenfeld. Vice President of Investor Relations, please go ahead, sir. Thanks, Jeff. Good morning, everyone. And thank you for joining us for a leader's second quarter, 2023 earnings call. Presenting today our race got, Leo President and CEO .
and Jason Cardew, Senior Vice President and CFO . Other members of LEAR senior management teams have also joined us on the call. Following prepared remarks, we will open the call for Q&A.
You can find a copy of the presentation that accompanies these remarks at ir.lyr.com.
Before we begin, I'd like to give this opportunity to remind you that if we conduct this call, we will be making forward-looking statements to assist you in understanding the expectations for the future.
As detailed in our safe harbor statement on slide 2, our actual results could differ materially from these forward-looking statements due to many factors discussed in our latest 10Q and other periodic reports.
I also want to remind you that during today's presentation, we will refer to non-GAAP financial measures. You are directed to the slides in the appendix of our presentation for the reconciliation of non-GAAP items to the most directly comparable GAAP measures.
The agenda for today's call is on slide three. First, Ray will review highlights from the quarter and provide a business update. Jason will then review our second quarter financial results. Finally, Ray will offer some concluding remarks. Following the formal presentation, we would be happy to take your questions.
Now I'd like to invite Ray to the panel.
Thanks Ed. Now please turn to slide five, which highlights key financial metrics for the second quarter. There's positive momentum accelerating the quarter. Six billion dollars of total company revenue was a quarterly record, and 18% increase compared to last year.
Core operating earnings were the highest in over two years, increasing by 61% from last year.
Adjusted earnings per share increased 86%.
And operating cash flow improved significantly to $311 million for the quarter. Slide 6 summarizes key highlights from the quarter.
Both Seeding and eSystems continued their positive momentum, with significant improvements in operating results for the quarter.
Sales growth outperformed global industry production, driven by strong growth in these systems.
The pace of new business awards continues to accelerate in these systems.
The average annual revenue of awards we have won to date is over 50% more than last year.
In seeding, we continue to build our thermal comfort capabilities. Today we announced we are working with Vallejo to explore opportunities to integrate Vallejo's HVAC expertise with LIRS thermal comfort technologies to optimize heating and cooling within a vehicle. This energy efficient solution is expected to improve comfort.
for the occupants while extending the range for electric vehicles.
As announced during our Seeding Product Day, we entered into a partnership with Bentley to provide the first commercial application for our N2 Comfort and Wellness Technology.
And we continue to return cash to shareholders. Year to date, we have repurchased over $63 million worth of stock in addition to our quarterly dividend. In early July , we published our 2022 Sustainability Report.
which highlights the progress we have made towards achieving our goals for climate, sustainable product development, and DEI initiatives. We continue to be recognized for our focus on our employees. We were named one of the top 200 best companies for work for by US News and World Report. In late June , we were named the top 100 best companies for work for by US News and World Report.
we are excited to hold our first ever Seeding Product Day, where we outline the steps we are taking to extend our leadership position in seeding.
During the event, we highlighted innovative technologies and strategic initiatives that will enable us to continue to grow market share and expand our segment leading margins. Slide 7 highlights the major announcements made at our seating product day.
During that event, we described our plan to deepen and widen our competitive mode in seeding. If we change the source model for thermal comfort components by offering a better value proposition to our customers, we increased the layer's 2023 outlook along with our long-term market share and margin targets in seeding. We highlighted new business awards supporting the significant opportunities we have at Dell.
to market. N2 is our intuitive seeding system and FlexAir is our sustainable foam alternative that is 100% recyclable and delivers a CO2 emissions improvement of 50% over traditional foam.
Turning to slide 8, I will provide some more details on the progress we have made in these systems.
The second quarter's results marked our fourth consecutive quarter of year-over-year margin improvements in these systems.
and the business is on track for further improvements in the second half of this year. Our focus on core products where we can provide our customers with unique solutions has resulted in an acceleration of business awards. In wiring, we have won new contracts for both high voltage and low voltage harnesses with several OEMs.
including our first wiring award with BMW. Consistent with our strategy, we continue to diversify our customer base, and this award is another example of leveraging strong OEM relationships across business segments.
A significant driver of the year over year growth in business awards is our electronics portfolio.
with an award from Stellanus. During the quarter, we also began shipping pre-production parts for our ICBs to General Motors to support their planned ramp of the Ultium battery production. In total, 50% of our year-to-date awards are for electrification. We continue to execute our strategy to grow connection systems. During the quarter, we expanded our global engineered component capabilities by opening a plant in Morocco.
We're also increasing our capabilities and capacity in China. These awards, along with the opportunities we are pursuing in the second half, put us on track to achieve our third straight year of $1 billion of sales backlog for e-systems. I'd like to turn the call over to Jason for the financial review.
Thanks, Ray. Slide 10 shows vehicle production and key exchange rates for the second quarter. Global production increased 15% compared to the same period last year and was also up 15% on a later sales weighted basis. Volumes were higher in each of our key markets with North America and Europe up 15% and China up 19%.
From a currency standpoint, the US dollar weakened against the Euro, but strengthened against the RMB compared to 2022. The US dollar weakened against the RMB compared to 2022.
revenues in the quarter were also negatively impacted by other currencies which weakened against the dollar, including the South African Rand and Korean one. Slide 11 highlights, leaders growth over market.
For the second quarter, total company growth over market was 2% points driven by strong growth over market in these systems of 11 points.
growth over market was particularly strong in Europe and China.
In Europe , sales outperformed the industry production by six points, with both business segments benefiting from higher volumes on the Land Rover, Range Rover, and Defender. New programs such as the BMW 5 and 7 series and seating, and new wiring and electronics content on the Volvo XC40 and XC40 recharge systems.
contributed to the strong growth in the region as well. In China, growth of a market of 10 points was driven by strong growth in both business segments.
The growth in seeding resulted from the new Geely Zieker program and leather sales to BYD.
In these systems, growth was driven by a strong production on the Bogo XC40, XC40 recharge, and the Pulse R2.
In North America, total revenue grew more than 11% excluding FX, commodity, and acquisitions due to volume increases and new business in both segments.
While CDN revenue increased by almost 9%, consistent with our expectations, unfavorable platform mix on several key programs resulted in total company growth that was 4 points lower than the industry. For the first half of the year, total company growth over market was 3 percentage points, with CDN growing 3 points above market.
and these systems growing six points above market. Turning to slide 12, I will highlight our financial results for the second quarter of 2023.
Sales increased 18% year over year to a record $6 billion.
Excluding the impact of foreign exchange, commodities and acquisitions, sales were up by 17%.
reflecting increased production on key Lear platforms in the addition of new business in both segments.
for operating earnings for $302 million compared to $187 million last year.
The increase in earnings resulted from the impact of higher production on their platforms and the addition of new business.
Adjusted earnings per share improved significantly to $3.33 as compared to $1.79 a year ago.
operating cash flow generated in the quarter with $311 million compared to $11 million in 2022.
The increase in operating cash flow was due to higher earnings and an improvement in working capital relative to last year.
The improved working capital is driven primarily by the timing of customer and supplier payments.
as well as improve performance in both businesses with inventory management.
Slide 13 explains the variance in sales and adjusted operating margins in the seating segment.
Sales for the second quarter were $4.5 billion, an increase of 594 million or 15% from 2022.
driven primarily by an increase in volumes on their platforms and our strong backlog.
feedback on programs include the BMW 5 and 7 series in Europe , the Chevrolet Colorado, GMC Canyon, and Mercedes EQE and EQS SUVs in North America, as well as the Geely Zieker and Neo ES8s in China.
Excluding the impact of commodities, foreign exchange and acquisitions, sales are up 14%.
Core operating earnings improved to $322 million, up 89 million or 38% from 2022, with adjusted operating margins of 7.2%. The improvement in margins reflected higher volumes on LIR platforms and our margin-accreted backlog.
Favorable net performance was partially offset by higher engineering spending and launch costs to support conquest and other new business alerts.
Slide 14 explains the variance in sales and adjusted operating margins in the E-Systems segment.
Sales for the second quarter were $1.5 billion, an increase of $334 million, or 28%, from 2022. Excluding the impact of foreign exchange and commodities, sales were up 26%, driven primarily by higher volumes on key platforms and our strong backlog.
Heat backlog programs include the Volvo XC40 recharge in Europe , new wiring programs with a global EV OEM in North America and Europe , the Buick Electra E5 in China, and the Ford Super Duty in North America.
The improvement in margins reflected higher volumes on their platforms and a margin-accretive backlog partially offset by the dilutive impact of passing through higher commodity costs to our customers, increased engineering and launch costs to support new programs, and the impact of foreign exchange. Looking ahead, net performance is expected to improve due to lower launch costs as well as efficiency improvements that started to deliver results late in the second quarter and will have a larger impact in the second half of the year.
Now shifting to our 2023 outlook, which was updated at our seeding product day on June 27th. Slide 15 provides global vehicle production volumes and currency assumptions that form the basis of our full year outlook.
We base our production assumptions on several sources including internal estimates, customer production schedules and SMT forecasts.
At the midpoint of our guidance range, we assume that global industry production will be 4% higher than in 2022 or 5% higher on a Lear sales weighted basis.
At the high end of our guidance range, our global production assumptions are generally aligned with the S&P forecast. From a currency perspective, our 2023 outlook assumes an average Euro exchange rate of $1.07 per Euro and an average Chinese RMB exchange rate of 6.96 RMB to the dollar.
On June 27, we increased our 2023 outlook for net sales, core operating earnings, and free cash flow. As I will describe in more detail in the next two slides, the midpoint of our sales guidance includes $350 million of contingency for potential downtime from customer labor contract negotiations. To the extent customer production disruptions are minimal, we would expect sales, earnings, and cash flow to be closer to the high end of our guidance range. In the next two slides, I'll provide more details on the key assumptions reflected in our second half outlook for both seating and assistance. Slide 17 compares our second half.
from our first half actual results, reflecting lower volumes due to seasonal shutdowns in the third quarter in North America and Europe , as well as the impact of foreign exchange.
The midpoint of our revenue guidance and seeding protects for approximately $300 million for potential effects of customer labor negotiations.
The midpoint of our second half operating income outlook is $522 million or 6.4%.
At the high end of our guidance range we expect seeding margins at 6.9% compared to 7% in the first half of the year.
The reduction in operating income reflects the expected impact from lower volumes on our seating platforms.
reflecting lower volumes and the impact of foreign exchange. The midpoint of our revenue guidance in these systems protects for approximately $50 million for potential effects of customer labor negotiations. The midpoint of our second half operating income outlook is approximately $148 million or 5.4%, an increase of $36 million from our first half actual results. At the high end of our guidance range, we expect these systems margins of 5.8% compared to 3.8% in the first half of the year. We expect to offset the impact of reduced volumes through a combination of lower engineering launch costs, performance improvements, and additional commercial recoveries.
In addition, our wiring business was impacted by supply issues during the first half of the year, particularly in North America. We saw improvements in plant productivity and efficiencies in late June that carried into July .
We expect improvements to continue through the second half of the year.
The acquisition of IGB was largely financed with a three-year fully prepayable term loan. We do not have any near-term debt maturities. Our earliest bond maturity is in 2027 and our debt structure has a weighted average life of approximately 14 years. Our cost of debt is low, averaging approximately 4%. In addition, we have $2.9 billion of available liquidity. We remain committed to returning excess cash to our shareholders, having repurchased $63 million worth of stock in the first half of the year, and we continue to repurchase shares in the third quarter.
Our current share repurchase authorization has approximately $1.2 billion remaining, which allows us to repurchase shares through December 31, 2024.
Now I'll turn it back to Ray for some closing thoughts.
Thanks, Jason. Please turn to slide 21.
The second quarter results illustrate why I am more confident in the opportunities for Lear and our industry than I have been in several years.
We are focusing on areas we can control while continuing to monitor industry and economic conditions that could impact our operations.
In seeding, we are executing phase one of our thermal comfort strategy while continuing to develop modular solutions.
Working with Vallejo, we are exploring innovative ways to optimize occupant comfort while extending EV range.
These unique solutions add value for our customers and increase the penetration rates of our thermal comfort components.
In these systems, our focused product portfolio allows us to optimize our resources and improve margins.
This quarter was a key inflection point to accelerate margin improvements through the second half of this year.
I'd like to thank the team for a great first half, and I am confident we will continue to deliver on our goals going forward. Now we'd be happy to take your questions. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then 2, and at this time we'll pause momentarily to assemble our roster.
And the first question will come from James Pickarello with B&P Parabus. Please go ahead. Hi, good morning guys. Good morning.
Just with respect to the guide, based on the midpoint to high end swing factors, and Jason, I know you called this out, but I just want to confirm, what is baked into the midpoint of the guide with respect to the UAW labor disruptions potential?
James, we included $350 million at the midpoint of the guidance, so that's $300 million in seeding and $50 million in e-systems. So our seeding revenue is more weighted to North America than our e-systems revenue. It's about 45% of sales in seeding, about 30% in e-systems.
Okay, and that's already rolled into the LVP, the global LVP assumption of up four.
Yes. And then just, I appreciate the first half to second half bridges that have provided, but on a year of a year basis, how should we be thinking about the commodities impact by segment and to what extent are recoveries already negotiated for the back app? And could this number move around, depending upon the UAW outcome, or the commercial negotiations,
basis points in these systems and 45 basis points in seating. The bigger factors that are really going to drive that second half for us particularly in these systems are you know somewhat in our control and we talked about specifically the efficiencies
that we're expecting to see in North America, primarily in wire, but also impacting our electronics business. And we really had an inflection point here in the second quarter that gives us a lot more confidence in the outlook for the balance of the year. We saw improvements in June . We saw those improvements in efficiencies continue.
in July and so we're on a good trajectory as we head through the balance of the year any systems to deliver that sort of 200 plus basis points of margin improvement in the performance categories that we outlined on the slide. In terms of commodities specifically, really that's...
reflected in the additional commercial negotiations that we expect to benefit the second half of the year. That's really all we see with commodities. We don't see a lot of movement in raw material prices at this stage. Steel in North America seems to have stabilized. It's come down a little bit here in the third quarter so far.
and towards the end of the second quarter, copper has been pretty stable as well. So we have seen a lot of movement on raw materials. We are seeing a little bit of benefit on lower ocean freight rates and some of those things sort of on the periphery, but that has not had a real meaningful impact as we think about the balance of the year.
Thanks. Thanks. You're welcome.
The next question will come from Immanuel Rosner with Deutsche Bank. Please go ahead.
Thank you so much. Just first to follow up on this topic of supply issues in wiring and electronics and the efficiencies that you're starting to see. Can you just provide a little bit more color on what the issues basically where and...
what you're currently seeing in terms of that situation? Yeah, I mean I know the first half was
more challenged with some of these called non-recurring events or cost events that we're struggling with. There was a fire with one of our major suppliers that impacted
production at our facilities just because of the ability to get material. We are staffing up and launching the challenges of getting labor in an efficient manner within our facilities and just the training of that labor.
The ability for us to get the headcount in was at a higher level than what the production volumes were. And then there's just some premium costs that got associated with the transportation costs because when you're running in an inefficient environment like that, you're running your plants intermittently and then shipping out and then having to catch up and shipping those parts.
to premium transportation. A lot of that, if not most of it is dissipated, it's gone. And so the challenges that we saw in the first half were due to those type of circumstances. Well, we're seeing right now and why I couldn't be more excited Jason.
said it again, it was a flexion point. The second quarter exceeded our own internal expectations despite those challenges.
And what we're seeing right now, early indications, is we're on track, on target for these improvements of inefficiencies within our plants. We had, if you think through from last to the early part of this year, we've already achieved 50% of the improvements required with already a good momentum heading into this quarter. crowds negotiators and people that are up to speed.
of seeing the trajectory of the improvement and trajectory of efficiency of our plants. And so we're very optimistic about the second half. We have work to do, but what's nice about this, Emmanuel, is that it's in our control. There for a period of time, there was a lot of things that we're working and working with suppliers or transportation companies or downtime with our customers.
These are things that we can control and we're good at. And so I feel very positive and optimistic about the second half because it's in our backyard. It's things that we're good at. And so we did manage through those things, but we are seeing a much brighter future in some of those challenges that we had in the first half.
I don't know if you want to say anything else. That's great. Great to be here. Then my second question is on the...
On the ceiling margin outlook for this year and then your longer-term targets I think this year's margin if we went for net commodities and inflation I think would be something like Maybe eight point three percent in the outlook in 2023 I think at the same time
You know, at the sitting there, I think you're targeting, you know, better than 8.5%, you know, 4 years out. And so, what is the outlook for, you know, recovering over time some of these commodities and inflation inefficiencies? Is there sort of like a pass for that? And if that's the case, you know, I think you're targeting, you know, 5 years out. And so, what is the outlook for, you know, recovering over time some of these commodities and inflation inefficiencies?
combined with a lot of volume and growth of the market over the next three to four years or so. Why would the target just be similar to what you'd be earning this year if you went for the headwind?
Yeah, I think maybe just take a step back as I look out to 2024 and 2025, you know, obviously we've got to finish up this year and there's a lot of work to do to deliver the guidance that we've outlined today. You know, if you look at the high end of the guidance range, seating is at 6.7%.
for this year. And as we communicated in the seating product day, we have a line of sight, 8% plus in 2025. A portion of that is we outlined during that discussion, it's driven by a volume of backlog of about 50 basis points.
similar amount on performance. And that performance, the manual includes client back, continued to quad back some of the wage inflation that we've absorbed, some of the commodity costs that we've absorbed, the portion of that is attributed to that. And then the balance of that is really...
just executing on our restructuring plans and other improvements plans that we have in place operationally on components that we buy, DABE or cost technology optimization, cost reduction activities that we do, year in and year out.
And then the last piece of that margin improvement is 20 basis points that we attributed to improvements in the thermal comfort systems business which is going to come through a combination of insourcing business to ourselves that is currently purchased on the outside, new business growth in that segment.
the restructuring benefit of shifting work from higher cost Eastern European plants to North Africa, which we are in the middle of doing right now, and then other synergies as we fully combine the Kongsberg and IGB organizations. So there is a pretty clear line of sight to that 20 basis points as well. So as I think about, you know –
this year and next year, you know, it's not necessarily linear from 6.7% to 8% in 2025, but I would expect to see a step up and a step towards achieving that medium-term target of 8% in seating.
And I misspoke, the 6.7% is the midpoint of the guidance range, not 6 points.
6.9% of the high end of the guidance range. Just to clarify that.
Thanks for the comment.
Again, if you have a question, please press star then one. Our next question will come from Dan Levy with Barclays. Please go ahead.
Hi, good morning. Thank you. Good morning, Dan. Good morning. I wanted to start first just with a question on EV broadly. We've seen, I guess, some commentary on pullback and spend.
slower ramps from Ford and GM just in a variety of areas on the EV front.
We've talked about Altium in the past and that seems to be, there seems to be some signs that that's going a little more slowly. Bolt is being... Sonic Crew
included now in their targets when I was supposed to be discontinued. So to what extent does this maybe slow down in a pace of easy from some of your customers impact you?
Well, a couple things. One, we have really strong relationships with our customers and committed longer term contracts with some of these awards. And I think it's important to note that if there are changes or shifts that we work in a very collaborative way, we're
with our customers on any type of changes to their current strategies. And so I'm confident if there are shifts or changes within volume or ramp up or product lines that we've been able to work with our customers to really...
balance those type of expectations out in regards to revenue. And so there have been changes. We've been very selective and very specific on what customers were quoting and how we're positioning our own business for a longer term success like.
the battery disconnect unit or the ICBs, where we can scale across multiple platforms, multiple car lines, and multiple solutions. And so we continue to work with our customers as they work through their own strategies. But I would say that it starts with a very good relationship with our customers.
and understanding where they're going longer term. Yeah, the only thing I would add, Dan, is that we are being very cautious with our investments and capitalizing these facilities for the ramp up and just building on Ray's comments. I think that the
The collaboration and communication with customers is essential here and that's what we've been focused on being clear with them on our expectations and and then being cautious on putting that new capital in place until we're confident that the volume will materialize and having a backstaff of a commercial discussion with them.
once we put the capacity in place that the volumes don't materialize. We have seen a bit of an impact on revenue this year from the ramp up of the battery electric truck platform. It wasn't meaningful in the backlog, but the volumes are a little bit lower as GM suggested on their earnings call. A little bit lower in the first half than we originally expected, a little bit lower in their projections for the second half.
We'll be spending a lot of time with customers, making sure that we're aligned on the capacity we put in place so that it mirrors what they intend to produce. Thank you. That's helpful commentary. And as a follow up.
You provided some encouraging commentary on the eSystems backlog and winning a lot of awards. Sometimes what we see with some suppliers is that an inflecting backlog can maybe limit the ability to achieve commercial recoveries. Right now, obviously, you have a significant path of commercial recovery to head on to
you can also get your commercial recoveries fully intact.
Well, you know, I tell you, I'm encouraged by the way the customers are working with us and we typically separated backlog growth. We're not in any respect buying business for the ability to offset a commercial claim today. We need to get recovery.
and I'm absolutely confident that working with our customers, we will get a fair settlement. And so we tend to separate those issues relative to growth. I think the last three years is kind of indicative and represents the relationship, the good relationships we have with our customers. We've been challenged now with, you know, chip.
situations and inflationary costs and labor costs, increases, transportation costs, etc. And next year, and even the business we've been rolling on in seeding has been accretive to our margins. I think representative of our ability to negotiate in a fair way, get a reasonable settlement that's fair for Lear Corporation.
and still be able to win new business. Next year will be the largest growth, revenue growth, in a single year at Lear Corporation. And so we've been able to manage those commercial negotiations and continue to win healthy business that we get at an expected return for Lear Corporation. So.
Doesn't go without challenges, but I do think the customers are much more open and willing to negotiate these things than they have in the past. I think initially it was probably more transitory in some respects, but now we're really working on fixed contracts and selling issues that are more sticky or longer term and bucketing those separately. So.
We have great relationships with our customers. We solve problems for them, and if you do that and continue to deliver at the best possible quality and expectations, they're going to work with you. Great, thank you.
Yep, thank you. The next question will come from Colin Langen with Wells Fargo. Please go ahead. Oh, great. Thanks for making my questions. Just to follow up on the 350, I think you said it's in the midpoint of your sales guidance, how should we think about if there is a strike and an optimistic scenario? I mean, what is sort of the decaramentals on those sales that are better than guidance as well as that sort of the normal, high teen, decaramental on those sales, or is it maybe a bit worse because of maybe delayed recovery or anything, and is that embedded in the guidance? Yeah, I think it depends on which customers impacted in the level of vertical integration and underlying profitability.
in particular was the most vertically integrated of all the customers that we have. It's a little less so with Ford and Stellata, so it depends on the customer that's impacted. And just to give you kind of a frame of reference, each week of downtime, if all three customers were to go down.
bit higher, a little bit lower, depending on the mix of programs and customers that are impacted.
And what is embedded in the guidance now around the 25 on the law sales done?
Yes, so if you do the math on the high end of the midpoint, we have embedded a little bit less than 20% on the downside conversion. So we've got both Carl and Frank's teams have the playbook outlined on what we will do if a strike takes place. The reason we autonomy both core goals is the period of Photoshop INAUDIBLE General phenomena
things that we can control on discretionary spending, certainly some customer negotiations or discussions. And so we believe between the actions that will take and the impact of the loss variable margin on the lower volume would not, you know, into that sort of 20% range.
That's the target that we're working towards. Got it.
And if I look at the first half, the second half, while particularly in seeding, it implies a pretty large underperformance. So I mean, so I think the market, if you're thinking four, is maybe down to first half, second half, and your seeding would be down around eight.
Why why would you expect that should take underperformance? Because you've been growing above market in the second into the second half. So it's So me if I just give you some of the assumptions you know by region to help explain it. But you know we have assumed that there would be about a 20% reduction in the T one PL for platform from the first half the second half. You know there was downtime associated with the normal kind of summer.
basis in the tail end of the year compared to what they ran in the first part of the year. That's kind of the biggest driver. In Europe , we do assume that there's a bit of a slowdown in the strong growth. We've seen from JLR on the Range Rover and the Defender programs both are down north to 20%. Again, partially driven by just normal seasonality, you have...
you know production downtime in August as those customers take their summer holiday. So it's partially a result of that. And a little bit of conservatism, ultimately embedded in the forecast. We debated this for some time over the last couple of weeks. We updated our guidance and conjunction with our seating product day on June 27th and we really made it.
And that's why we spent so much time sort of articulating the assumptions in the guidance and what the high end would look like, just to give investors and the analysts that are modeling this a sense of what could be possible in the second half of the year. It may look very different than what we've guided to at the midpoint.
All right, thanks for taking my question. The final question will come from Itai Micalle with the City. Please go ahead.
Great thanks. Good morning, everyone. Good morning. Good morning. I just had two questions. One, I was hoping you could maybe just help us a little bit with the cadence of e-systems margin in Q3 and Q4, just given the ramp of efficiencies. And then just secondly, just hoping you could go back just to the comments on the assumption for T1 production second half of the year.
So let me start with the second part of that question first. So we have assumed effectively 2 ½ weeks of strike for all GM, Stellantis, and Ford business. That's what comprises the 350 million.
That's the portion of the volume reduction on that platform that you would attribute to the strike. In terms of the E-Systems margin ramp.
There's a negative in the third quarter on the seasonality of lower volumes and then that's partially offset by the traction we have on both the water efficiency improvements in Mexico as well as are expected.
commercial negotiations. So, you know, we're not gonna provide third quarter guidance at this point in time. There's a fairly wide range of outcomes there. I'd say kind of anywhere from flat to as high as 5%, depending on both those negotiations and the continued performance.
in our Mexico facilities. And then the fourth quarter would be a step up from that to get to sort of that 5.4 to 5.8% range that we outlined for the second half overall.
That's very helpful, thank you.
very helpful. Thank you.
Okay, well, that's it.
I assume that the Lear team's on the phone, and I just, again, want to thank everyone for their incredible hard work. It was a very good quarter. Everyone came together, as always. Great effort by the great employees of Lear Corporation, and look forward to really the second half and what we're going to accomplish. So thank you for a great, great.