Q2 2024 Lear Corp Earnings Call
Operator: Good morning, everyone. And welcome to the Lear Corporation second quarter 2024 earnings conference call. All participants will be in a listen-only mode.
Go Nick, tough questions are coming your way.
Speaker Change: Good morning everyone and welcome to the Lear Corporation second quarter 2024 earnings conference call.
Operator: Should you need assistance, please send a message to a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Dan Brumbaugh, Vice President, Investor Relations. Please go ahead.
Speaker Change: All participants will be in a listen-only mode. Should you need assistance, please send to a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions.
Please also note today's event is being recorded.
Unknown Executive: At this time, I'd like to turn the floor over to Dan Brumbach, Vice President, Investor Relations. Please go ahead.
Dan Brumbaugh: Thanks, Jamie. Good morning, everyone, and thank you for joining us for Lear's second quarter 2024 earnings call. Presenting today are Ray Scott, Lear President and CEO, and Jason Cardew, Senior Vice President and CFO. Other members of Lear's senior management team have also joined us on the call.
Unknown Executive: Thanks, Jamie. Good morning, everyone, and thank you for joining us for Lear's second quarter 2024 earnings call.
Speaker Change: Presenting today are Ray Scott, Lear President and CEO , and Jason Cardew, Senior Vice President and CFO . Other members of Lear's senior management team have also joined us on the call.
Dan Brumbaugh: 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.lear.com. Before Ray begins, I'd like to take this opportunity to remind you that as we conduct this call, we will be making forward-looking statements to assist you in understanding Lear's expectations for the future. However, 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.
Speaker Change: Following prepared remarks, we will open the call for Q&A.
Speaker Change: You can find a copy of the presentation that accompanies these remarks at ir.lear.com.
Speaker Change: Before Ray begins I'd like to take this opportunity to remind you that as we conduct this call we will be making forward-looking statements to assist you in understanding Lear's expectations for the future.
Ray: 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.
Dan Brumbaugh: I also want to remind you that, during today's presentation, we will refer to non-GAAP financial metrics. 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.
Ray: I also want to remind you that, during today's presentation, we will refer to non-GAAP financial metrics. 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.
Dan Brumbaugh: 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 and full year financial guidance. 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 begin. Thanks, Tim.
Ray: 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 and full year financial guidance. Finally, Ray will offer some concluding remarks.
Ray: Following the formal presentation, we would be happy to take your questions. Now I'd like to invite Ray to begin. Thanks, Tim. Nice job.
Raymond E. Scott: Thanks Tim. Nice job. Now, please turn to slide five, which highlights key financial metrics for the second quarter of 2024. There continued its positive momentum, delivering modestly higher revenue in the second quarter compared to last year, exceeding $6 billion. Core operating earnings were flat at $302 million.
Jason: Please turn to slide 5, which highlights key financial metrics for the second quarter of 2024.
Ray: Lear continued its positive momentum, delivering modestly higher revenue in the second quarter compared to last year, exceeding $6 billion.
Ray: Co-operating earnings were flat at $302 million. Adjusted earnings per share was $3.60, an increase of 8% driven by higher adjusted net income and the benefit of our share repurchase program.
Raymond E. Scott: Adjusted earnings per share was $3.60, an increase of 8% driven by higher adjusted net income and the benefit of our share repurchase program. Operating cash flow was $291 million in the second quarter, and free cash flow was $170 million, an increase of 8% compared to last year. Slide six summarizes key business and financial highlights from the quarter. We generated a quarterly record revenue of over $6 billion in the second quarter. Growth over market for the total company was three percentage points, with sales in both segments outgrowing the industry. The system's growth over market was 7%, and seeding growth over market was 2%. During the quarter, we repurchased $60 million of shares and paid $44 million in dividends.
Ray: Operating cash flow was $291 million in the second quarter and free cash flow was $170 million, an increase of 8% compared to last year.
Ray: Slide 6 summarizes key business and financial highlights from the quarter. We generated a quarterly record revenue of over $6 billion in the second quarter.
Ray: Growth over market for the total company was 3 percentage points, with sales in both segments outgrowing the industry.
Ray: The system's growth over market was 7 percentage points.
Unknown Executive: During the quarter, we repurchased $60 million of shares and paid $44 million in dividends.
Ray: And seeding growth over market was two percentage points.
Ray: During the quarter we repurchased 60 million dollars of shares and paid 44 million dollars in dividends.
Raymond E. Scott: We continue to repurchase additional shares throughout our quiet period and have repurchased over $110 million of shares year to date. Adjusted earnings per share grew by 8% in the second quarter, driven in part by the benefits of our share repurchase program. In these systems, we delivered our eighth consecutive quarter of higher year-over-year margins by executing our focused product portfolio strategy and improving operational efficiency. In seeding, we continue to see strong demand for innovative solutions in thermal comfort.
Unknown Executive: We continued to repurchase additional shares throughout our quiet period and have repurchased over $110 million of shares here today. Adjusted earnings per share grew by 8% in the second quarter, driven in part by the benefits of our share repurchased program.
Ray: We continued to repurchase additional shares throughout our quiet period and have repurchased over $110 million of shares year-to-date.
Ray: Adjusted earnings per share grew by 8% in the second quarter, driven in part by the benefits of our share repurchase program.
Unknown Executive: In these systems, we delivered our 8 consecutive quarters of higher year-over-year margins by executing our focus product portfolio strategy and improving operational efficiency. In seeding, we continue to see strong demand for innovative solutions in thermal comfort. Given the rapid commercial adoption of our new products today, we are introducing our Comfort Flex by Lear modular designs as well as our Comfort Max Seed by Lear. Comfort Flex, and our Comfort Max seed will showcase the various thermal comfort solutions that only Lear can bring to automotive seeding. We continue to diversify our customer base in both seeding and these systems. In seeding, we are rewarded the complete seed for a new variant of the Julie Zir.
Ray: In these systems, we delivered our eighth consecutive quarter of higher year-over-year margins by executing our focused product portfolio strategy and improving operational efficiency.
Speaker Change: In seeding, we continue to see strong demand for innovative solutions in thermal comfort.
Raymond E. Scott: Given the rapid commercial adoption of our new products, today we're introducing our ComfortFlex by Lear modular designs, as well as our ComfortMax seat by Lear. ComfortFlex and our ComfortMax seat will showcase the various thermal comfort solutions that only Lear can bring to automotive seating. We continue to diversify our customer base in both seeding and e-systems. In seeding, we were awarded the complete seedling for a new variant of the Geely Zeric.
Speaker Change: In seeding, we are awarded the complete seeds for a new variant of the Geely-Zurich.
Unknown Executive: Highlighting our continued growth with Chinese domestic brands. In these systems, we are rewarded the low voltage wiring for the Volvo EX30 in Europe. The smart junction box award for Volkswagen and Audi will support the initial volume for their scalable system platform of bad vehicles. Additional volume will be awarded in the near future.
Raymond E. Scott: Highlighting our continued growth with Chinese domestic brands. In each system, we are awarded the low voltage wiring for the Volvo EX30 in Europe. The Smart Junction Box Award for Volkswagen and Audi will support the initial volume for their scalable system platform of BevVehicles. Additional volumes will be awarded in the near future. Last week, we closed on the acquisition of WIPP Industrial Automation, which we announced during our first quarter earnings. WIPP leverages robotics, artificial intelligence, and vision systems to design turnkey solutions for complex industrial challenges that will help accelerate our automation initiatives globally.
Speaker Change: Highlighting our continued growth with Chinese domestic brands.
Speaker Change: The Smart Junction Box Award for Volkswagen and Audi will support the initial volume for their scalable system platform of BEV vehicles.
Unknown Executive: Last week we closed on the acquisition of with industrial automation, which we announced during our first quarter earnings call. With leverages, robotics, artificial intelligence, and vision systems to design turn key solutions for complex industrial challenges that will help accelerate our automation initiatives globally.
Speaker Change: Additional volume will be awarded in the near future.
Unknown Executive: Turning to slide seven, I will provide more detail on the progress of our thermal comfort strategy. We remain on pace to meet or exceed our total revenue target of $1 billion from thermal comfort by 2027. The combined capabilities of Lear and the companies we have acquired are leading to an acceleration of new business opportunities in awards. And we are winning 80% of the programs we are quoting. We continue to innovate our thermal comfort product offering. Comfort Flex by Lears is a brand architecture of modular designs which combine two or more thermal comfort functions. These designs reduce the number of parts, resulting in less weight and complexity while improving performance and comfort at a lower cost.
Raymond E. Scott: Turning to slide 7, I will provide more detail on the progress of our Thermal Comfort Strategy. We remain on pace to meet or exceed our total revenue target of $1 billion from thermal comfort by 2027. The combined capabilities of Lear and the companies we have acquired are leading to an acceleration of new business opportunities and awards. And we are winning 80% of the programs we are quoting.
Speaker Change: We remain on pace to meet or exceed our total revenue target of $1 billion from thermal comfort by 2027.
Speaker Change: The combined capabilities of Lear and the companies we have acquired are leading to an acceleration of new business opportunities and awards, and we are winning 80% of the programs we are quoting.
Raymond E. Scott: We continue to innovate our thermal comfort product offer. ComfortFlex by Lear is a brand architecture of modular designs which combine two or more thermal comfort functions. These designs reduce the number of parts, resulting in less weight and complexity, while improving performance and comfort at a lower cost. For instance, our solution for Volvo, launching later this year, combines heat, ventilation, and massage functions. Our solution for Lucid includes ventilation and massage.
Speaker Change: We continue to innovate our thermal comfort product offering.
Speaker Change: ComfortFlex by Lear is a brand architecture of modular designs which combine two or more thermal comfort functions.
Speaker Change: These designs reduce the number of parts resulting in less weight and complexity, while improving performance and comfort at a lower cost.
Unknown Executive: For instance, our solution for Volvo launching later this year combined seat ventilation and massage functions. Our solution for Lucid includes ventilation and massage. Similar to our product for Volvo and adds lumber functionality. Our third upcoming comfort flex design is for a European OEM, includes four capabilities: cheap ventilation, numbar, and massage. Lear's experts' expertise in complete seed applications allows us to design and deliver a combination of thermal comfort functions for our customers. Our vertical us to integrate our comfort flex modules into the trim covers to develop our comfort max seed by Lear. Our first iteration of the Comfort Max seed technology is currently in validation with four motor companies.
Speaker Change: For instance, our solution for Volvo, launching later this year, combines heat, ventilation, and massage functions.
Raymond E. Scott: Similar to our product for Volvo and adds lumbar functionality. Our third upcoming ComfortFlex design is for a European OEM and includes four capabilities: heat, ventilation, lumbar, and muscle. Lear's expertise in complete seed application allows us to design and deliver a combination of thermal comfort functions for our customers. Our vertical integration and complete seat leadership enable us to integrate our ComfortFlex modules into the trim covers to develop our ComfortMax seat by Lear. Our first iteration of the Comfort Max seat technology is currently in validation with Ford Motor Company.
Speaker Change: Our solution for LUCID includes ventilation and massage.
Raymond E. Scott: The Comfort Max seat for Ford includes thermal comfort content that was previously supplied by a competitor and will now be manufactured by Lear. This is one of the first examples of our innovative solutions driving conquest opportunities. Initial test results are confirming our estimates that these integrated solutions improve the performance of our thermal comfort components. As expected, the ventilation, airflow, and massage intensity in the Comfort Max seat are outperforming the traditional design currently in production.
Unknown Executive: The Comfort Max seed for forward includes thermal comfort content that was previously supplied by a competitor, and will now be manufactured by Lear. This is one of the first examples of our innovative solutions driving conquest opportunities. An initial test results are confirming our estimates that these integrated solutions improved the performance of our thermal comfort components. As expected, the ventilation airflow in the size and density in the Comfort Max seed is outperforming the traditional design currently in production. Full validation is expected by the end of this year.
Raymond E. Scott: Full validation is expected by the end of this year, which will enable our Comfort Max seat to go into production for the first program starting in 2026. Once validated, it can be used in an additional Ford program.
Unknown Executive: Which will enable our Comfort Max seed to go into production for the first program starting in 2020-26. Once validated, our comfort max seed can be used in additional forward programs. Whether or not Lear is the complete seed provider. Or just the first customer to begin this validation. We're in the late stage discussions with three other key customers for our Comfort Max seed. Our Comfort Max seed provides several opportunities to long-term growth. The improved performance and reduced complexity deliver a better value proposition for our customers at a very critical time when they are seeking innovative solutions that reduce costs.
Raymond E. Scott: Whether or not Lear is the complete seed provider, Ford is just the first customer to begin this validation. We're in the late stage discussions with three other key customers for our Comfort Max seat. The Comfort Max seat provides several opportunities for long-term growth, improved performance, and reduced complexity, which delivers a better value proposition for our customers at a very critical time when they are seeking innovative solutions that reduce costs. This provides Lear with a competitive advantage when quoting just-in-time seed programs.
Speaker Change: Our comfort mack's seat provide several opportunities for long term growth the improved performance and reduced complexity delivers a better value proposition for our customers at a very critical time when they are seeking innovative solutions that reduce costs.
Unknown Executive: This provides Lear with a competitive advantage when quoting just-in-time seed programs. These Lear modules can be sourced to other complete seed suppliers, driving growth in our component business.
Speaker Change: This provides lear with a competitive advantage when quoting just in time programs.
Raymond E. Scott: And these Lear modules can be sourced to other complete seed suppliers, driving growth in our component business. [inaudible] Slide 8 highlights Lear's strong position with the Chinese domestic manufacturer. Lear has 30 years of automotive experience in China. Over that time, it has strengthened its local presence, built strong relationships with key customers, and has become a clear leader in luxury seating.
Speaker Change: And these lear modules can be sourced two other complete seat suppliers driving growth in our component business.
Unknown Executive: Slide 8 highlights Lear's strong position with a Chinese domestic manufacturers. Lear has 30 years of automotive experience in China. Over that time, Lear has strengthened his local presence. Built strong relationships with key customers and has become a clear leader in luxury seed. We have been growing with T.S. Davis customer such as BYD and G.L.E.E.E.E. have supported the launch for other targeted new market entrance like Xiaomi in their successful SU7 program. Two-thirds of our three-year backlog in China was driven by new business winds with Chinese domestic automakers. Some of which is captured in our growing 9 consolidated backlog, which increased by 70% to $650 million.
Speaker Change: Slide eight highlights lear's strong position with a Chinese domestic manufacturers Lear has 30 years of automotive experience in China over that time Lear has strengthened as local presence built strong relationships with key customers and has become a clear leader in luxury seating.
Raymond E. Scott: We have been growing with key established customers such as BYD and Geely and have supported the launch of other targeted new market entrants like Xiaomi and their successful SU7 program. Two-thirds of our three-year backlog in China was driven by new business wins with Chinese domestic automakers, some of which is captured in our growing non-consolidated backlog, which increased by 70% to $650 million.
Speaker Change: We have been growing with key established customers such as BYD and Geely.
Speaker Change: And have supported the launch for other targeted new market entrants like Xiaomi and their successful Su seven program.
Speaker Change: Two thirds of our three year backlog in China was driven by new business wins with Chinese domestic automakers some of which is captured in our growing non consolidated backlog, which increased by 70% to $650 million.
Unknown Executive: This position is clear to continue growing to continue growing in Asia as Chinese domestic OEMs continue to outpace the overall market growth in China. The financial return profile of our business with Chinese domestic customers is in line with our segment averages for seating and e-systems. As with most programs in our portfolio, the profitability is generally dependent on a level of vertical integration. Chinese domestic OEMs tend to control less of the seat component sourcing, providing rear with more opportunities to vertically integrate. The Xiaomi SU7 is a good example of that. We have foam and thermal comfort components in addition to the Just in Time assembly.
Raymond E. Scott: This positions Lear to continue growing in Asia as Chinese domestic OEMs continue to outpace the overall market growth in China. The financial return profile of our business with Chinese domestic customers is in line with our segment averages for seeding and e-systems. As with most programs, in our portfolio, profitability is generally dependent on a level of vertical integration. Chinese domestic OEMs tend to control less of the seed component sourcing, providing Lear with more opportunities to vertically integrate. The Xiaomi SU7 is a good example of that.
Speaker Change: This positions <unk> to continue growing too.
Speaker Change: To continue growing in Asia as the Chinese domestic Oems continued to outpace the overall market growth in China.
Speaker Change: The financial return profile of our business with Chinese domestic customers is in line with our segment averages for seating and E systems.
Speaker Change: As with most programs in our portfolio the profitability as general generally dependent on the level of vertical integration.
Speaker Change: Chinese domestic Oems tend to control less of the seat component sourcing, providing lear with more opportunities to vertically integrate.
Speaker Change: The Xiaomi <unk> seven is a good example of that.
Raymond E. Scott: We have foam and thermal comfort components in addition to the just-in-time assembly. We continue to pursue opportunities for Chinese domestic automakers both in China and as they expand globally. In seeding, we continue to win business with BYD and expect to produce about 30% of BYD's seeds within the next few years. Our vertical integration, combined with our local engineering capabilities, provides a significant opportunity for growth in China. As customers look to rapidly implement innovative solutions,
Speaker Change: We have foam and thermal comfort components. In addition to the just in time Assembly.
Unknown Executive: We continue to pursue opportunities with the Chinese domestic automakers, both in China and as they expand globally. In seating, we continue to win business with BYD and expect to produce about 30% of BYD's seek within the next few years. Our vertical integration, combined with our local engineering capabilities, provide a significant opportunity for growth in China. As customers look to rapidly implement innovative solutions. For each system, our market share in wiring and connection systems in China is similar to our global share despite the elevated competition from local suppliers.
Speaker Change: We continue to pursue opportunities with the Chinese domestic automakers, both in China and.
Speaker Change: And as they expand globally and.
Speaker Change: In seating, we continue to win business with BYD and expect to produce about 30% of byd's seats within the next few years our vertical.
Speaker Change: Integration combined with our local engineering capabilities to provide a significant opportunity for growth in China as customers look to rapidly implement innovative solutions for.
Raymond E. Scott: For eSystems, our market share in wiring and connection systems in China is similar to our global share despite the elevated competition from local suppliers. We are currently pursuing new opportunities in wire with the Chinese domestic OEM. Now I'd like to turn the call over to Jason for the financial review. Thanks, Larry.
Speaker Change: <unk> systems, our market share in wiring and connection systems in China is similar to our global share. Despite the elevated competition from local suppliers. We are currently pursuing new opportunities and wire with the Chinese domestic Oems.
Jason Cardew: We are currently pursuing new opportunities in wire with the Chinese domestic OEMs. Now I'd like to turn the call over to Jason for the financial review.
Speaker Change: Now I'd like to turn the call over to Jason for the financial review. Thanks.
Jason Cardew: Thanks, Eric. Slide 10 shows vehicle production and TH change rates in the second quarter. Global production decreased 1% compared to the same period last year on both an aggregate and layer sales weighted basis. Production volumes increased by 2% in North America and by 5% in China, while volumes in Europe were down 6%. From a currency standpoint, the US dollar strengthened against both the euro and R&B.
Jason Cardew: Thanks, Greg.
Jason Cardew: Slide 10 shows vehicle production and key exchange rates for the second quarter. Global production decreased 1% compared to the same period last year on both an aggregate and Lear sales weighted basis. Production volumes increased by 2% in North America and by 5% in China, while volumes in Europe were down 6%. From a currency standpoint, the U.S. dollar strengthened against both the euro and the RMB.
Jason Cardew: Slide 10 shows vehicle production in key exchange rates for the second quarter.
Jason Cardew: Global production decreased 1% compared to the same period last year on both an aggregate and litter sales weighted basis.
Jason Cardew: Production volumes increased by 2% in North America, and by 5% and China, while volumes in Europe were down 6% from a currency standpoint, the U S dollar strengthened against both the euro and RMB.
Jason Cardew: Slide 11 highlights clear scope of the market. For the second quarter, total company growth of a market was 3% as points. With seating growing 2 points above market, any systems growing 7 points above market. Growth over market was particularly strong in Europe at 7% as points. With both dozen segments found up setting from higher volumes in the Land Rover Range Rover and Range Rover Sport. You can request programs such as the BMW 5 Series in I-5 and seating, as well as new business with BMW and Renault, and these systems contributed to the strong growth in the region.
Jason Cardew: Slide 11 highlights Lear's growth in the market. For the second quarter, total company growth over the market was three percentage points, with seeding growing two points above market, and these systems growing seven points above market. Growth over market was particularly strong in Europe at 7 percentage points, with both business segments benefiting from higher volumes in the Land Rover Range Rover and Range Rover Sport. New Conquest programs such as the BMW 5 Series and i5 and seating, as well as new business with BMW and Renault and these systems contributed to the strong growth in the region. Lower volumes in several Stellantis, Audi, and Porsche programs negatively impacted the seating platform mix in Europe.
Jason Cardew: Slide 11 highlights lear's growth over market.
Speaker Change: For the second quarter total company growth over market was three percentage points with Seaton growing two points above market and a systems growing seven points above market.
Speaker Change: With over market was particularly strong in Europe at seven percentage points with both business segments benefiting from higher volumes on the land Rover range Rover and range Rover sport.
Speaker Change: New conquest programs, such as the BMW, five series and <unk> and seating as well as new business with BMW and Renault and these systems contributed to the strong growth in the region.
Jason Cardew: Lower volumes in several solantes, Audi and Porsche programs negatively impacted seating platform mix in Europe. In North America, sales out-the-formed industry production by 1% is point. Reflecting favorable backlog, partially offset by unstable platform mix in both segments. The growth in these systems was driven by new business on General Motors, all to the platform including the high-to-prologg and after a ZDX. Seating benefited from new conquest business on the Jeep lag in here and Grandwagon here. Lower volumes on their platform such as the Mustang Mach-E and the systems in the build-out of the Chrysler 300, Dodge Charger and Challenger, and seating impacted growth in North America.
Speaker Change: Your volumes in several salons us Audi and Porsche programs negatively impacted seating platform mix in Europe.
Jason Cardew: In North America, sales outperformed industry production by one percentage point, selecting favorable backlog partially offset by unfavorable platform mix in both segments. The growth in these systems was driven by new business on General Motors' Altium platform, including the Honda Prolog and Acura ZDF. Steeding benefited from new conquest business for the Jeep Wagoneer and Grand Wagoneer.
Speaker Change: In North America sales outperformed industry production by one percentage point, reflecting favorable backlog, partially offset by unfavorable platform mix in both segments.
Speaker Change: The growth in these systems was driven by new business on General Motors, Altium platform, including the Hyatt prologue inaccuracy Dx.
Speaker Change: <unk> benefited from new conquest business on the Jeep Wagoneer and Grand Wagoneer.
Jason Cardew: Lower volumes on Lear platforms, such as the Mustang Mach-E systems and the build out of the Chrysler 300, Dodge Charger, and Challenger and seating, impacted growth in North America. In China, revenue growth lagged the market by 5 percentage points, driven by lower volumes on Lear platforms, such as the BMW X3 and IX3 and seating, and the Volvo XC40 and E-System. New business on the Xiaomi SU7 and the BMW 5 Series and i5 Conquest programs partially offset the unfavorable platform mix in China. The next shift to domestic Chinese automakers accelerated in the past. We've been growing with key customers such as BYD, Geely, and others, which will further improve our customer mix in China going forward.
Speaker Change: Lower volumes on Lear platforms, such as the Mustang Mach E and the systems and the build out of the Chrysler 300, Dodge Charger and challenger in seating.
Speaker Change: Impacted growth in North America.
Unknown Executive: In China, revenue both lagged and marked by 5 percentage points, driven by lower volumes on their platform such as the BMW X3 and I-X3 and seating in the Volvo X4 and these systems. Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your.
Speaker Change: In China revenue growth lagged the market by five percentage points, driven by lower volumes on Lear platforms, such as the BMW <unk> and seating and the Volvo <unk> systems.
Speaker Change: New business on the Xiaomi Astra seven and the BMW five series and <unk> five conquest programs in seating, partially offset the unfavorable platform mix in China.
Speaker Change: The mix shift to domestic Chinese automakers accelerated in the past year.
Jason Cardew: When you include revenue from our non-consolidated joint ventures, our China growth over market improves by five points to flat for the quarter. Turning to slide 12, I will highlight our financial results for the second quarter of 2020. Sales reached a quarterly record of over $6 billion, a slight increase versus last year. Excluding the impact of foreign exchange, commodities, and acquisitions, sales are up 2%, reflecting the addition of new business in both of our business segments. Corporate earnings were $302 million, flat compared to last year, as positive net performance and the addition of new business were offset by lower volume and their platform.
Speaker Change: We've been growing with key customers, such as BYD, Julia and others, which will further improve our customer mix in China going forward. When you include revenue from our non consolidated joint ventures, our China growth over market improved by five points to flat for the quarter.
Speaker Change: Turning to slide 12, I will highlight our financial results for the second quarter of 2024.
Speaker Change: Sales reached a quarterly record at over $6 billion.
Speaker Change: A slight increase versus last year.
Speaker Change: Excluding the impact of foreign exchange commodities and acquisitions sales were up 2%, reflecting the addition of new business in both of our business segments.
Speaker Change: Core operating earnings were $302 million flat compared to last year as positive net performance and the addition of new business were offset by lower volume in their platforms.
Jason Cardew: Adjusted earnings per share improved to $3.60 as compared to $3.33 a year ago, reflecting higher net income and the benefit of our share repurchase program. Second quarter operating cash flow was $291 million compared to $311 million last year.
Speaker Change: Adjusted earnings per share improved to $3.60 as compared to $3 33, a year ago, reflecting higher net income and the benefit of our share repurchase program.
Speaker Change: Second quarter operating cash flow was $291 million compared to $311 million last year free cash flow, which is not shown on the slide was $170 million compared to $159 million in 2023.
Jason Cardew: Free cash flow, which is not shown on the slide, was $170 million compared to $159 million in 2023, reflecting lower capital spending, partially offset by higher cash restructuring. Slide 13 explains the variance in sales and adjusted operating margins in the seating sector. Sales for the second quarter were $4.4 billion, flat compared to 2023. Excluding the impact of foreign exchange and commodities, sales were also flat as the addition of new business was offset by lower volumes and Lear Platt.
Speaker Change: Reflecting lower capital spending partially offset by higher cash restructuring costs.
Speaker Change: Slide 13 explains the variance in sales and adjusted operating margins in the seating segment.
Speaker Change: For the second quarter were $4 4 billion flat compared to 2023.
Speaker Change: Excluding the impact of foreign exchange and commodities sales were also flat as the addition of new business was offset by lower volumes.
Jason Cardew: Adjusted earnings were $302 million, down $20 million or 6% from 2023, with adjusted operating margins of 6.8%. Operating margins were lower compared to last year due to a decrease in production on key Lear platforms and the impact from foreign exchange, partially offset by positive net performance in the roll-on of our margin accretive backlog. Slide 14 explains the variance in sales and adjusted operating margins in these system segments. Sales for the second quarter were $1.6 billion, an increase of 34 million or 2% from the previous year. Excluding the impact of foreign exchange and commodity, sales were up 5%, driven primarily by our strong backlog, partially offset by lower volumes on the Lear platform.
Speaker Change: Platforms adjusted earnings were $302 million down $20 million or 6% from 2023 with adjusted operating margins of six 8%.
Speaker Change: Operating margins were lower compared to last year due to a decrease in production on key Lear platforms and the impact from foreign exchange, partially offset by positive net performance in the roll on of our margin accretive backlog.
Speaker Change: Slide 14 explains the variance in sales and adjusted operating margins in the systems segment sales.
Speaker Change: Sales for the second quarter were $1 6 billion, an increase of $34 million or 2% from 2023.
Speaker Change: Excluding the impact of foreign exchange and commodity sales were up 5% driven primarily by our strong backlog, partially offset by lower volumes on Lear platforms.
Jason Cardew: Adjusted earnings improved significantly to $82 million, or 5.3% of sales, compared to $63 million and 4.1% of sales in 2023. The improvement in margins reflected strong net operating performance and a margin accretive backlog, partially offset by lower volumes on Lear plastic. Now shifting to our 2024 output, Slide 15 provides global vehicle production volume and currency assumptions that form the basis of our full-year outlook.
Speaker Change: Adjusted earnings improved significantly to $82 million or five 3% of sales compared to $63 million and four 1% of sales in 2023.
Speaker Change: The improvement in margins reflected strong net operating performance and our margin accretive backlog, partially offset by lower volumes on <unk>.
Speaker Change: That forms.
Speaker Change: Now shifting to our 2020 for outlook.
Speaker Change: Slide 15 provides global vehicle production volume and currency assumptions that form the basis of our full year outlook.
Jason Cardew: We've updated our global production assumptions, which are based on several sources, including internal estimates, customer production schedules, and S&P forecasts. Our production assumptions are modestly lower than the latest S&P forecast across our key regions, reflecting our most recent customer production schedules and our expectations regarding near-term market conditions. At the midpoint of our guidance range, we assume that global industry production will be down 3% compared to 2023, which compares to our prior guidance assumption of flat production value. We've also adjusted our currency estimates, which now assume an average euro exchange rate of $1.085 per euro and an average Chinese RMB exchange rate of 7.2 RMB to the dollar.
Speaker Change: We've updated our global production assumptions, which are based on several sources, including internal estimates customer production schedules and S&P forecasts.
Speaker Change: Our production assumptions are modestly lower than the latest S&P forecast across our key regions, reflecting our most recent customer production schedules and our expectations regarding near term market conditions.
Speaker Change: At the midpoint of our guidance range, we assume that global industry production will be down 3% compared to 2023.
Speaker Change: Which compares to our prior guidance assumption of flat production volumes.
Speaker Change: We've also adjusted our currency estimates, which now assumes an average euro exchange rate of 1.5 dollars per euro and an average Chinese RMB exchange rate of seven point to RMB to the dollar.
Jason Cardew: Slide 16 provides detail on our outlook for 2020. Key changes include the following: Our revenue is now expected to be in the range of $23.2 to $23.7 billion. Operating earnings are expected to be in the range of $1.1 to $1.2 billion. We have substantially completed our commercial negotiations around price increases for inflation, volume reductions, volume fluctuations, and other matters with nearly all customers.
Speaker Change: Slide 16 provides detail on our outlook for 2024.
Speaker Change: Key changes include the following our.
Speaker Change: Our revenue is now expected to be in the range of 23 to $23 7 billion.
Speaker Change: Core operating earnings are expected to be in the range of one one to $1 $2 billion.
Jason Cardew: However, our full-year core operating earnings range is wider than usual to reflect uncertainty around the timing of negotiations with the remaining customers. As we discussed in our last earnings call, we are focused on negotiating agreements that ensure sustainable financial returns. We are increasing our outlook for restructuring costs by $25 million to $150 million to fund actions that will improve our manufacturing capacity utilization and reduce costs. At the same time, we are reducing our outlook for capital spending by $25 million, primarily as a result of slower customer ramp-up on various new vehicles and to continue aggressively managing capacity utilization. Operating cash flow is expected to be in the range of $1.1 to $1.3 billion.
Speaker Change: We have substantially completed our commercial negotiations around price increases for inflation volume reductions volume fluctuations other matters with nearly all customers. However, our full year core operating earnings range is wider than usual to reflect uncertainty around the timing of negotiations with the remaining customers as well.
Speaker Change: Discussed on our last earnings call. We are focused on negotiating agreements that ensure sustainable financial returns.
Speaker Change: We are increasing our outlook for restructuring costs by $25 million to a $150 million to fund actions that will improve our manufacturing capacity utilization and reduce cost.
Speaker Change: At the same time, we are reducing our outlook for capital spending by $25 million pre.
Speaker Change: Primarily as a result of slower customer ramp up on various new vehicles and to continue aggressively managing capacity utilization.
Speaker Change: Operating cash flow is expected to be in the range of $1 one to $1 3 billion.
Jason Cardew: Slide 17 compares our current outlooks to our prior outlooks for sales and core operating earnings. We are forecasting the midpoint of our 2024 sales outlook to be approximately $23.5 billion, down $850 million from our April outlook, reflecting the impact of reductions in vehicle production volumes and changes to our foreign exchange assumptions. The midpoint of our core operating earnings outlook is approximately $1.1 billion, down $115 million from our prior outlook.
Speaker Change: Slide 17 compares our current outlook to our prior outlook for sales and core operating earnings.
Speaker Change: We are forecasting the midpoint of our 2024 sales outlook to be approximately $23 5 billion.
Speaker Change: $850 million from our April outlook, reflecting the impact of reductions in vehicle production volumes and changes to our foreign exchange assumptions the midpoint of our core operating earnings outlook is approximately $1 1 billion down $115 million from our prior outlook.
Jason Cardew: The reduction in our core operating earnings outlook reflects the impact of lower volumes and the change in FX rates, partially offset by improvements in net performance, including lower costs resulting from additional restoration. These restructuring actions will continue to help align our capacity with current industry volumes and provide further cost savings in 2025 and beyond. Slide 18 compares our second half outlook to our first half actual results for sales and co-operating earnings in the seeding segment.
Speaker Change: The reduction in our core operating earnings outlook reflects the impact of lower volumes and the change in FX rates, partially offset by improvements in net performance, including lower cost, resulting from additional restructuring.
Speaker Change: These restructuring actions will continue to help align our capacity with current industry volumes and provide further cost savings in 2025 and beyond.
Speaker Change: Yeah.
Speaker Change: Slide 18 compares our second half outlook to our first half actual results for sales and core operating earnings in the <unk> segment.
Jason Cardew: We're forecasting the midpoint of our second half sales outlook to be approximately $8.5 billion, down $450 million 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 projected customer downturns. The midpoint of our second half operating income outlook is $533 million, or 6.3%. The reduction in operating income reflects the expected impact from lower volumes on our seating platform.
Speaker Change: We are forecasting the midpoint of our second half sales outlook to be approximately $8 5 billion.
Speaker Change: Down $450 million 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 projected customer downtime.
Speaker Change: The midpoint of our second half operating income outlook of $533 million or six 3%. The reduction in operating income reflects the expected impact from lower volumes on our seating platforms, partially offset by lower engineering and launch costs and the benefit of commercial negotiations as well as savings associated with restructuring.
Jason Cardew: Partially offset by lower engineering and launch costs and the benefit of commercial negotiations, as well as savings associated with restructuring actions that optimize capacity, improve efficiencies, and lower labor costs. We expect to reduce headcount and seating by approximately 8% this year as compared to the end of 2023. More than half of these reductions are already complete and will drive savings throughout the remainder of the year. Slide 19 compares our second half outlook to our first half actual results for sales and core operating earnings in the E-Systems segment. They're forecasting the midpoint of our second half sales outlook to be approximately $3 billion, down 114 million from our first half actual results, reflecting lower production.
Speaker Change: That optimized capacity improve efficiencies and lower labor costs we.
Speaker Change: We expect to reduce head count in seating by approximately 8% this year as compared to the end of 2023.
Speaker Change: And half of these reductions are already complete and will drive savings throughout the remainder of the year.
Speaker Change: Slide 19 compares our second half outlook to our first half actual results for sales and core operating earnings in the E systems segment.
Speaker Change: We are forecasting the midpoint of our second half sales outlook to be approximately $3 billion down.
Speaker Change: Down $114 million from our first half actual results, reflecting lower production volumes.
Jason Cardew: The midpoint of our second half operating income outlook is approximately $166 million or 5.6%, an increase of $7 million from our first half actual results. We continue to improve margins in these systems despite headwinds from production costs. We expect to offset the impact of reduced volumes through a combination of lower engineering and launch costs, commercial recoveries, and restructuring actions to optimize capacity, improve efficiencies, and lower labor costs. We plan to reduce headcount in these systems by approximately 6% this year as compared to the end of 2023. More than half of these reductions are already complete and will drive savings throughout the remainder of the year.
Speaker Change: The midpoint of our second half operating income outlook.
Speaker Change: <unk> $166 million or five 6% an increase of $7 million from our first half actual results.
Speaker Change: We continue to improve margins in E systems, despite headwinds from production volumes.
Speaker Change: We expect to offset the impact of reduced volumes through a combination of lower engineered and launched us commercial recoveries in restructuring actions to optimize capacity improved efficiencies and lower labor costs.
Speaker Change: Plan to reduce head count any systems by approximately 6% this year as compared to the end of 2023.
Speaker Change: More than half of these reductions are already complete and will drive savings throughout the remainder of the year.
Jason Cardew: In addition, improvements in plant productivity and efficiencies in our North America wiring business will continue through the second half of the year. Moving to slide 20, we highlight our commitment to continue to return capital to Sheriff. We've repurchased $60 million worth of stock in the second quarter and will continue to repurchase additional shares throughout our quiet period. Here to date, we have repurchased over $110 million worth of shares. Free Cash Flow Conversion is expected to exceed 80% in 2024, which will enable us to repurchase $325 million worth of shares this year, more than what we repurchased last year.
Speaker Change: In addition improvements in plant productivity and efficiencies in our North America wiring business will continue through the second half of the year.
Speaker Change: Moving to slide 20, we highlight our commitment to continue to return capital to shareholders, we repurchased $60 million worth of stock in the second quarter and continue to repurchase additional shares throughout our quiet period.
Speaker Change: Year to date, we have repurchased over $110 million worth of shares.
Speaker Change: Free cash flow conversion is expected to exceed 80% in 2024, which will enable us to repurchase $325 million worth of shares this year more than what we repurchased last year.
Jason Cardew: The share of pound reduction will help accelerate EPS growth in 2024. Since initiating the share repurchase program in 2011, we have repurchased $5.3 billion worth of shares and returned approximately 85% of free cash flow to shareholders through repurchases and debits. Our current share repurchase authorization has approximately $1.4 billion remaining, which allows us to repurchase shares through December 31st, 2020. Now I'll turn it back to Ray for some closing. Thanks Jason. Please turn to slide 22.
Speaker Change: The share count reduction will help accelerate EPS growth in 2024.
Speaker Change: Since initiating this.
Speaker Change: <unk> the share repurchase program in 2011, we have repurchased five $3 billion worth of shares and returned approximately 85% of free cash flow to shareholders through repurchases and dividends.
Speaker Change: Our current share repurchase authorization has approximately $1 $4 billion remaining which allows us to repurchase shares through December 31, 2026, now I'll turn it back to Ray for some closing thoughts.
Raymond E. Scott: Thanks, Jason Please turn to slide 'twenty two.
Raymond E. Scott: There continues to focus on what we can control and execute on our strategic initiative. In seeding, we are accelerating the deployment of our thermal comfort systems product. Our ComfortFlex by Lear modular designs are expected to launch over the next several quarters. Full validation of our Comfort Max seat by Lear Technology is on track to be completed with Ford by the end of this year. Our thermal comfort business gives Lear a competitive advantage and further strengthens our industry-leading position in seating.
Raymond E. Scott: There continues to focus on what we can control and execute on our strategic initiatives.
Raymond E. Scott: In seating we are accelerating the deployment of our thermal comfort systems products.
Raymond E. Scott: Our comfort flex by Lear modular designs are expected to launch over the next several quarters.
Speaker Change: Full validation of our comfort mack's seat by Alere technology is on track to be completed with forward by the end of this year.
Speaker Change: Our thermal comfort business gives lehr, our competitive advantage and further strengthens our industry leading position in CD.
Raymond E. Scott: These systems are execution and focus on efficiencies continues to drive margin improvement, and continue to win new business across all power trains, resulting in strong growth. The acquisition of WIPP Industrial Automation was recently completed. WIP strengthens our automation and artificial intelligence capabilities, which will extend our leadership as an advanced manufacturing integrator. Initiatives we are executing will drive sustainable profit, and profit improvements and will allow us to continue to return capital to shareholders. We have repurchased over $110 million worth of shares year to date and have set a target of $325 million for the year, which will help accelerate earnings per share growth. And now, we'd be happy to take your questions.
Speaker Change: New systems, our execution and focus on efficiencies continues to drive margin improvement.
Speaker Change: Continue to win new business across all powertrains, resulting in strong growth.
Speaker Change: The acquisition of with industrial automation was recently completed with strengthens our automation and artificial intelligence capabilities, which will extend our leadership as an advanced manufacturing integrator.
Speaker Change: The initiatives, we are executing will drive sustainable profit profit improvements and will allow us to continue to.
Speaker Change: Turn capital.
Speaker Change: Capital to shareholders, we have repurchased over $110 million worth of shares year to date and have set a target of $325 million for the year, which will help accelerate earnings per share growth.
Speaker Change: And now we'd be happy to take your questions.
Operator: Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one on your touchtone telephone. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the key.
Speaker Change: Ladies and gentlemen at this time, we will begin the question and answer session.
Operator: To withdraw your questions, you may press star and two. Once again, that is star and then one to add a question. We'll pause momentarily to assemble the roster. And our first question today comes from John Murphy from Bank of America. Please go ahead with your question.
Speaker Change: To ask a question you May Press Star then one on your Touchtone telephone.
Speaker Change: If you are using a speaker phone.
Speaker Change: Can you please pick up your handset prior to pressing the keys.
Speaker Change: So withdraw your question you May press Star two.
Speaker Change: Once again that is star and then wanted to join the question queue.
Speaker Change: We will pause momentarily to assemble the roster.
Speaker Change: And our first question today comes from John Murphy from Bank of America. Please go ahead with your question.
John Joseph Murphy: Good morning, guys. My first question is on the Chinese automakers in the market. You said something about 30% of BYD seats in a few years. I'm just curious, you know, who the other 70% are as far as that, you know, the seats that are sourced by BYD, what the competitive landscape is there. And if you see anything different, I know it might be hard to tell between the vehicles that are sold within the Chinese market versus the vehicles that are exported, because obviously, exports are going to probably continue to grow pretty rapidly over time. If there's a difference in the opportunity set for you in the market versus exports.
John Joseph Murphy: Good morning, good morning, guys.
John Joseph Murphy: Okay.
John Joseph Murphy: My first question on on the Chinese automakers in the market.
Speaker Change: You said something about being 30% of BYD seating in a few years.
Speaker Change: I'm just curious the other 70.
Speaker Change: <unk>.
Speaker Change: He is as far as the seats that are sourced by BYD, what the competitive landscape is there and if you see anything different I know it might be hard to tell between the vehicles that are sold within the China market versus the vehicles that are exported because obviously exports are going to probably continue to grow pretty rapidly over time.
Speaker Change: And if there is a difference in the opportunity set for you in market versus exports.
Raymond E. Scott: Yeah, starting with kind of the breakdown of BYD's seating suppliers, they do have an in-house seat making company. I believe it's called Foodie. In addition to that, they have a joint venture with 4VIA. So I think our book of business with BYD, and those two together, are the vast majority of BYD's seat suppliers if you look out over the next three or four years. In terms of the content differences, we're not seeing significant differences at this point in time.
Speaker Change: Yes, starting with.
Speaker Change: The breakout of <unk> seating suppliers. They do have in house seat, making company I believe its called <unk>.
Speaker Change: In addition to that they have a joint venture with four via so I think our our book of business with BYD and those two are the three taken together are the vast majority of of <unk>.
Speaker Change: Seed suppliers, if you look out over the next three or four years.
Speaker Change: And in terms of the the content differences, we're not seeing significant differences at this point in time.
Raymond E. Scott: You know, what you're seeing with BYD is a couple of things. Manufacturing in China for the domestic market and export, but also setting up manufacturing outside of China. So they have capacity in Thailand, in fact, they're in Hungary this week meeting with our team there, they're establishing capacity in Eastern Europe, and they're talking about Brazil as well. And I think the way they're initially entering these markets, mostly through knockdown kits, CKD business, and so to the extent we're supplying that in China, we'll likely win that business as it moves to other markets.
Speaker Change: Seeing with BYD is a couple of things manufacturing in China and then.
Speaker Change: For the domestic market and export, but also them setting up manufacturing outside of China. So they have capacity in Thailand.
Speaker Change: In fact, they're in Hungary. This week meeting with our team there, they're establishing capacity in eastern Europe.
Speaker Change: They're talking about Brazil, as well and I think the way they're initially entering these markets mostly through <unk>.
Speaker Change: Markdown cat <unk> business and so to the extent, we're supplying that in China will likely win that business.
Speaker Change: Let's move to the other markets.
Raymond E. Scott: And then from there, they will ramp up production and manufacturing in those regions. And because of our presence in those markets, we feel confident we're going to win our share of that business. I don't think we'll be the only supplier in those markets, but we will certainly maintain our share with them. And I think, John, we were there not that long ago, Frank, and looking at some of the vehicles, it's impressive on the luxury side what they're doing with content and features.
Speaker Change: And then from there they will ramp up production and manufacturing in those regions and because of our presence in those markets. We feel confident we're going to win our share of that of that business. I don't think will be the only supplier in those markets, but we will certainly maintain our share with them and I think just John.
John Joseph Murphy: They're not that long ago, frankly, and looking at some of the vehicles.
John Joseph Murphy: It's impressive on the luxury side, what theyre doing with content and features I don't see that.
Raymond E. Scott: And I don't see that, you know, diminishing regardless if it's in China or exported. Really, they're separating themselves with some of the quality features. And I think that's where we've done a nice job of really... Getting at growth with BYD is the capabilities we have with thermal comfort and emphasize the importance of having innovative technology. And they're very, very focused on ways that you can drive modular solutions, improve features, you know, package the features within the seat.
Speaker Change: Diminishing regardless of it's in China or export, it's really they're separating themselves with some of the quality quality features and I think that's where we've done a nice job of really.
Speaker Change: Getting it.
Speaker Change: Both with BYD is is the capabilities, we have with thermal comfort I can't.
Raymond E. Scott: And so, you know, having that capability, I think, is uniquely positioned us to be as successful as we have been with BYD. And I think even, you know, outside of China, they're looking for that to continue. They really have to differentiate their product; having, you know, that type of capability outside of China and in China is very complementary. And so, you know, it's been a great customer. We love the growth. We don't see that really changing in China or outside of China.
Speaker Change: Emphasize the importance of having innovation technology and they're very very focused on ways that you can drive modular solutions and improved features pack.
Speaker Change: Package the features within the seat and so having that capability I think is uniquely positioned us to be as successful as we have been with BYD and I think even.
Speaker Change: Outside of China. They are looking for that to continue they really have to differentiate their product having that type of capability outside of China, and then China is very complementary and so.
Speaker Change: It's been a great customer we loved the growth, we don't see that really changing in China outside of China.
Raymond E. Scott: That's very helpful. Then just one second question. I mean, you're explaining that the lower guy is largely based on market conditions of lower volume, maybe to some extent, mix. But there are definitely some programs that are being pushed down and to the right, particularly on EVs. I'm just curious how much disruption that's creating for your business, how much that may be adding to sort of the incremental pressure here in the short run, and how you think about that in 2025. Because you're being pretty polite, not calling that out too much, but I would imagine that's a bit of an issue. Yeah, we're
Speaker Change: That's very helpful. And then just a second question.
Speaker Change: The lower guide largely is based on market conditions of lower volume maybe to some extent Mickey.
Speaker Change: Mix, but there is definitely some programs that are being pushed down into the right, particularly.
Speaker Change: On Evs I'm, just curious how much disruption that's creating your business how much that may be adding into sort of the incremental pressure here in the short run and how you think about that in 2025 and beyond because you are being pretty polite not calling that out too much but I would imagine thats a bit of an issue.
Raymond E. Scott: Yeah, we're certainly seeing a disproportionate share of this adjustment to our revenue guidance being driven by lower volumes on electric vehicle platforms. And I think it's roughly 65% of the revenue reduction is driven by lower volumes on those platforms. And those are a combination of programs that were ramping up this year that are now ramping up more slowly and those that are getting pushed out, you know, even out of this year.
Speaker Change: Yeah, we're certainly seeing a disproportionate share of this.
Speaker Change: Adjustments to our revenue guidance being driven by lower volumes on electric vehicle platforms, and I think it's roughly 65% of the revenue reduction.
Speaker Change: It's driven by lower volumes on those platforms and those are a combination of programs that were ramping up this year that are now ramping up more slowly in and those that are getting pushed out even out of this year.
Raymond E. Scott: And then also programs that are in production that are now running at a lower rate than they were last year. And so some of the Silver to OEM EV programs that launched last year and the year before, we're seeing lower volumes this year. In terms of how it impacts our business, it really depends on the customer and the program.
Speaker Change: And then also programs that are in production that are now running at a lower rate than they were last year and so some of the <unk>.
Speaker Change: OEM.
Speaker Change: Programs that launched last year and year before we're seeing lower volumes on this year in terms of how it impacts our business it really depends on the customer and the program, we've got certain customers, where they're producing evs and ice vehicles in the same footprint and we are as well and in those cases, we're able to adjust adjust more much more quickly.
Raymond E. Scott: We have certain customers where they're producing EVs and ICE vehicles in the same footprint, and we are as well. In those cases, we're able to adjust more, much more quickly. In our component plants, the same thing. We are generally producing components for ICE and EV vehicles, and we're able to move the headcount. We're not higher as quickly to adjust to the lower volumes. The exception to all that is some of our dedicated capacity that we've put in for some new EV plants, and that's where you're seeing perhaps maybe a little bit more decremental margin impact on those platforms specifically. Very helpful; thank you, guys.
Speaker Change: And our component plants. The same thing we are generally producing components.
Speaker Change: For ICD EV vehicles, and we're able to move head count or not hire as quickly.
Speaker Change: To adjust to the lower volumes.
Speaker Change: The exception to all that some of our dedicated capacity that we've put in for some new EV plants, and Thats, where youre seeing perhaps maybe a little bit more decremental margin impact on.
Speaker Change: Those platforms specifically.
Speaker Change: Okay very helpful. Thank you guys.
Jeff: Thanks, Jeff.
Operator: Our next question comes from Joseph Spak from UBS. Please go ahead with your question.
Joseph Robert Spak: Our next question comes from Joe <unk> from UBS. Please go ahead with your question.
Joseph Robert Spak: Thank you. I guess just to start with the 24 guidance. I know you've taken a more conservative view here than before, but I think you're even more conservative then.
Joseph Robert Spak: Thank you.
Joseph Robert Spak: I guess just to start for the 24 guidance.
Joseph Robert Spak: I know you've taken a more conservative view here than prior I think you were even more conservative then.
Joseph Robert Spak: Current S&P. But you know, we're seeing OEMs announce production cuts by the day, really. So how should we interpret what's in your guide here? Like, are some of these announcements that we are seeing and will likely see over the coming months already embedded in your plans? Or, you know, should we expect potentially more risk if we see continued production cuts?
Speaker Change: Current S&P, but we're seeing Oems announced production cuts by the day really so how should we interpret what's in your guide here like or some of these announcements that we are seeing and will likely to see over the coming months, you think already embedded in your plans or.
Speaker Change: Sure.
Joseph Robert Spak: Or.
Speaker Change: Should we expect potentially more risk if we see continued production cuts.
Jason Cardew: Joe, we've spent a lot of time on this over the last several weeks, as you might imagine. And, you know, our adjustment to the second half outlook was greater than what we had anticipated and communicated at a public investor event in mid-June. And that really reflects the kind of ramp-up in announcements and also our extrapolation of what that may mean into the fourth quarter as well, particularly on electric vehicle platforms where we're just seeing a slower ramp-up and slower demand in the U.S. and Europe, in particular.
Speaker Change: Yes, Joe we spent a lot of time on this over the last several weeks as you might imagine and.
Speaker Change: Our adjustment to the second half outlook was greater than what we had anticipated and communicated at a public investor event in mid June.
Speaker Change: It really reflects kind of the ramp up in announcements and also our extrapolation of what that May mean into the fourth quarter as well, particularly on electric vehicle platforms, where we're just seeing.
Speaker Change: A slower ramp up and slower demand in the U S and Europe in particular, and so we've tried to capture not just what's been announced but what we anticipate to be announced.
Jason Cardew: And so we've tried to capture not just what's been announced but what we anticipate to be announced as the year progresses. And at the midpoint, we've tried to capture a balance of that risk as well as, you know, some upside on platforms that are doing particularly well. For example, in China, on a number of our Chinese domestic OEM platforms, like the Xiaomi SU7 and Leap Motor, we've increased our volume assumption, reflecting the strong sales performance that they've seen in the market. So it just depends on the customer, the car line, and the market. But we've tried to be very balanced, and I wouldn't characterize the midpoint as unduly conservative or unduly aggressive at this stage.
Joseph Robert Spak: As the year progresses and at the midpoint, we've tried to capture a balance of that risk as.
Joseph Robert Spak: As well as some upside on platforms that are doing particularly well for example, and in China and a number of our Chinese domestic OEM platforms like the Xiaomi ask your seven.
Joseph Robert Spak: Fleet Motor we've increased our volume assumption, reflecting the strong sales performance that they've seen in the market. So it just depends on the customer the Caroline in the market, but we've tried to be very balanced and I wouldn't characterize the midpoint is unduly conservative or unduly aggressive at this at this stage.
Joseph Robert Spak: That's very helpful. And maybe I could just follow on a little bit from John's question. So, you know, we've obviously seen the slowdown in EVs, where new programs proceeding were a large part of your backlog. I think overall, that was also expected to drive e-systems. You know, we're seeing just other production cuts in the industry from some higher inventories. So when we put it all together, like, and just think out here, like, how do you actually view the growth algorithm for Lear over the next, you know, one to three years?
Speaker Change: That's very helpful.
Speaker Change: And then maybe just to follow on a little bit from Jon's question. So we've obviously seen the slowdown in evs.
Speaker Change: They're new programs proceeding where a large part of your backlog I think overall, though is also expected to drive E systems.
Speaker Change: We're seeing just either production cuts in the industry from some higher inventories. So when we put it altogether like I'm just thinking out here like how do you actually view the growth algorithm for layer over the next one to three years because it would seem at the very least and I know you've already sort of done. This one so like there needs to be a revision to some of the further revich.
Joseph Robert Spak: Because it would seem, at the very least, and I know you've already sort of done this once, like, there needs to be a revision to some of the, a further revision to some of the backlog commentary you had prior. So I'm just curious if you could help us a little bit with how you're thinking about the next, you know, couple of years here.
Speaker Change: To some of the backlog.
Speaker Change: Commentary you had you had prior so I am just curious if you could help us a little bit of how youre thinking about the next couple of years here.
Jason Cardew: Yeah, you know, if you look at eSystems, what we talked about previously is that about half of our six points of growth over the market was driven by the added content on electric vehicles and our participation in that market transition. And so, clearly, that piece of the six points has slowed down.
Speaker Change: Yes, if you look at E systems.
Speaker Change: What we've talked about previously is that about half of our six points of growth over market was driven by the added content on electric vehicles and our participation in that market transition and so clearly that that piece of the six points has slowed down despite that we have grown six points over market.
Jason Cardew: Despite that, you know, we have grown six points over market, including this year, on a five-year, you know, running basis in eSystems. And we expect this year to be six points of growth over market, despite the pullback in this transition to electric vehicles. So growth is holding up, clearly, in eSystems because we're winning business on the low-voltage side of ICE vehicles and taking share there as well, and I think that's a factor.
Speaker Change: Including this year add up five year.
Speaker Change: Running basis any systems and we expect this year to be six points of growth over market. Despite the pullback in this transition to electric vehicles. So growth is holding up clearly.
Speaker Change: Any systems, because we're winning business.
Speaker Change: The low voltage side on ice vehicles, and taking share there as well and I think that that's a factor and seating I think theres, a little bit more near term uncertainty because of the weighting of EV platforms that are in the backlog and ramping up a bit more slowly.
Jason Cardew: In seeding, you know, I think there's a little bit more near-term uncertainty because of the weighting of EV platforms that are in the backlog and ramping up a bit more slowly. And so our growth over market this year in seeding is more like two points, roughly, for the full year and three percentage points in the second half of the year. And so the question that is unanswered, and we're seeing some evidence of an answer forthcoming, is how many extensions will we see in ICE programs as the slowdown in EV ramp-up continues?
Speaker Change: And so our growth over market. This year in seating is more like two points.
Speaker Change: Roughly for the full year and three.
Speaker Change: Three percentage points in the second half of the year and so the question that is unanswered and we're seeing some evidence of an answer forthcoming.
Speaker Change: How many extensions will we see an ice programs as the slowdown in EV.
Speaker Change: Ramp up continues and we are starting to hear more.
Jason Cardew: And we are starting to hear more discussions or participate in more discussions with customers. We're not prepared to front-run their commentary in this regard, but we are seeing more evidence that there will be ICE extensions that will help sort of backfill that lower revenue growth attributed to the new EV vehicle. So ultimately, I think the bigger question on sales growth is going to be, you know, what happens with, you know, industry demand overall, and that will be the key factor determining the pace of growth in both segments over the near term.
Speaker Change: More discussions or participate in more discussions with customers are not prepared to to front run their commentary in this regard, but we are seeing more evidence that there will be ice extensions that will help sort of backfill that that lower revenue growth attributed to the new EV vehicles. So ultimately I think the bigger question on sales.
Speaker Change: Growth.
Speaker Change: Is going to be what is it what happens with industry demand overall.
Speaker Change: That will be the key factor determining the pace of growth in both segments with.
Jason Cardew: Longer term, you know, we continue to take share in both segments, and we see, you know, a strong backlog in both segments and believe that we can grow both segments consistent with our target rates, you know, four points in seating and six points in e-systems, you know, over the next five years. And so we're more confident as we sit here today than we ever were in the past. And seeding really, because of the thermal comfort traction that we have with customers and how that's contributing to our competitive advantage in seeding, and our strength in our systems business and the cost structure in that business, allowing us to take share there. So I think the growth story longer term is intact. I acknowledge that in the near term, it's a little bit bumpy.
Speaker Change: In the near term longer term, we continue to take share in both segments and we see.
Speaker Change: Our strong backlog in both segments and believe that we can grow both segments consistent with our target rates for points in seating and six points in these systems over the next five years.
Speaker Change: And so.
Speaker Change: We're more confident as we sit here today than even in the past and <unk> really because of the thermal comfort.
Speaker Change: Traction that we have with customers and how that's contributing to our competitive advantage in seating and are the strength in our E systems business and the cost structure in that business, allowing us to take share. There. So I think the growth story longer terms intact I acknowledged that the near term, it's a little bit bumpy.
Joseph Robert Spak: Maybe one quick follow-up, I don't know if there are any answers, but like in the original backlog where, let's say, take senior example, where you were seeing a lot of new programs for EV, what was your sort of high-level assumption for ice declines at that time?
Speaker Change: Maybe one quick follow up I don't know if theres, an easy answer this but like in the original backlog, where let's say <unk> for example, where youre, where youre seeing a lot of new programs for for EV. What was your sort of high level assumption for price declines at that time.
Jason Cardew: Yeah, it depends on the customer and the region. There isn't a straightforward answer that I could provide you, Joe, in the constraints of time on this on this call today. I need a half hour discussion on that. Okay, all right. We'll take it off.
Speaker Change: Yeah, it depends on the customer and the region that there isn't a straightforward answer that I could.
Speaker Change: Provides agility.
Speaker Change: And the constraints of time on this on this call.
Speaker Change: At the half hour discussion on that Okay, alright, well take it offline. Thanks.
Joseph Robert Spak: Okay, all right; we'll take it offline. Thanks.
Speaker Change: Thank you.
Operator: Our next question comes from Dan Levy from Barclays. Please go ahead with your question. Hi, good morning.
Speaker Change: Our next question comes from Dan Levy from Barclays. Please go ahead with your question.
Dan Meir Levy: Hi, good morning, Thanks for taking the question.
Dan Meir Levy: Thanks for taking the question. Hey, I wanted to start with a question on unseated and just the margin trajectory. So recognize the volume mix pressure. But really, the question is, if you're writing 6-3 for the back half of the year, is that really a starting point for 2025? And maybe just more broadly, you know, look, at your seeding day a year ago, you were talking about, you know, a path to 8, 8.5% over time.
Speaker Change: Okay.
Dan Meir Levy: Wanted to start with a question on.
Speaker Change: In seating and just the margin trajectory so recognize the volume mix pressure.
Speaker Change: But really the question is if you're going to if you're guiding six three for the back half of the year is that really a starting point for.
Speaker Change: For 2025.
Dan Meir Levy: And I recognize a very different industry today; mix is softer, the backlog is bigger, and affected there's some effects and inflation, but really, the question is what's the path to getting seating margins back on track? Are there any benefits from, you know, TCS or vertical integration? Maybe you could just talk about the broader trajectory of seating margins and if there's anything beyond just the program launches and customers.
Speaker Change: And maybe just more broadly look at you see today a year ago, you were talking about.
Speaker Change: Our path to 88, 5% over time and I recognize very different industry today makes it soft or the backlog has been.
Speaker Change: Impacted there is some FX and inflation, but.
Speaker Change: Really the question is what's the path to getting ceding margin back on track is there any benefits from.
Speaker Change: Tcs or vertical integration, maybe you could just talk about the broader trajectory.
Speaker Change: Seating margins.
Speaker Change: And if there's anything beyond just the program launches and customer mix.
Jason Cardew: Yeah, Dan, I'll start with the first part of that question. I think if I were modeling 2025, I would use the full year guidance for seating at the midpoint of six and a half percent as opposed to the second half margin guidance as a launching point for next year. Because you're really seeing a concentration of this volume reduction in the third quarter. You have extensive downtime in North America and Europe, much more so than we saw last year.
Dan: Yes, Dan ill start with the first part of that question I think if I'm modeling 2025, I would use the full year guidance for seeding at the midpoint of six 5% as opposed to the second half.
Dan: <unk> guidance.
Speaker Change: Two as a launching point into next year, because you're really seen.
Speaker Change: Our concentration of this volume reduction in the in the third quarter you have extensive downtime in North America and Europe much more so than we saw last year.
Jason Cardew: And we've built in slower production into the fourth quarter across a number of our car lines, so I think that six and a half percent is a better starting point. If you look at what we've done this year, we've generated positive net performance of about 20 basis points in the first half of the year. We expect to do that again in the second half.
Speaker Change: And we've built in a slower production in the fourth quarter across a number of our Carolina. So I think that six 5% as a better starting point.
Speaker Change: If you look at what we've done.
Speaker Change: This year, we've generated positive net performance of about 20 basis points in the first half in seating we expect to do that again in the second half, we're seeing 10% to 15 basis points of.
Dan: Of margin growth from our backlog and so as you fast forward into 2025, I would expect both of those to.
Jason Cardew: We're seeing 10 to 15 basis points of margin growth from our backlog. And so, as you fast forward into 2025, I would expect both of those to continue. And I would argue that we're poised for that net performance to accelerate beyond the 20 basis points that we were able to achieve this year because I would characterize this year as sort of the peak wage inflation impact and also a pretty significant peso headwind that will diminish considerably, certainly if the rates hold up where they are right now.
Dan: To continue.
Dan: And I would argue that we're poised for that net performance.
Dan: To accelerate beyond the 20 basis points.
Dan: That we were able to achieve this year because I would characterize this year sort of peak the peak wage inflation impact and also a pretty significant peso.
Dan: That will diminish considerably certainly if the rates hold up where they are right now and what we've done in terms of these investments in web and other advanced manufacturing automation.
Jason Cardew: And what we've done in terms of these investments in WIP and other advanced manufacturing automation systems and integration companies will allow us to really accelerate the labor cost reduction and manufacturing cost reduction over the next several years. I would characterize what we're doing with automation as being sort of in the second inning of the game here. You're seeing the initial benefits. We talked about reducing headcount by 8%. Seating revenue is only down less than 1% for the year.
Dan: Our systems and integration companies will allow us to really accelerate the labor cost reduction and manufacturing cost reduction over the next several years I would characterize what we're doing with automation as being sort of in the second inning of the game here Youre seeing the initial benefits we talked about.
Dan: Reducing head count by 8% excuse me revenue is only down less than 1% for the year, So pretty impressive performance in the vast majority of that is already.
Jason Cardew: So pretty impressive performance, and the vast majority of that's already been completed. As we look out to next year, we see more opportunities to do that. And then if you sort of get past the next two years of, say, 50 basis points of backlog and net performance improvement a year, you start to see the full benefit of the TCS margin enhancement over a longer period of time, driving both revenue growth and but also improving margins, you know, in that third, fourth, and fifth year of the five-year plan we're building right now. So those would be the kind of building blocks I would think about.
Dan: When completed as.
Dan: As you look out to next year, we see more opportunities to do that and then as you sort of get past. The next two years of 50 basis points of backlog in that performance improvement a year.
Speaker Change: Thank you.
Speaker Change: You start to see the full benefit of the Tcs margin enhancement over a longer period of time driving both revenue growth, but also improving margins.
Speaker Change: That third fourth and fifth year of the five year plan. We're building right now so those would be the kind of the building blocks I would think about.
Speaker Change: Got it thank you.
Speaker Change: And then the second question wanted to ask about.
Speaker Change: E systems margins.
Jason Cardew: Uh, and, and really, you know, see the, uh, you know, the offsets that you're, you're talking to recognize there's some seasonality, but wondering what is the line of sight that you have on, you know, the efficiencies and negotiations that you have in place there, recognizing that, you know, the EV impact on e-systems is probably higher than what's going on in Phoenix. Yeah, I mean, if you look at
Speaker Change: And really.
Speaker Change: So see the offsets that you're talking to recognize there is some seasonality, but I'm wondering what is the line of sight that you have on.
Speaker Change: The fishing season negotiation.
Dan:
Dan: That you have in place there recognizing that.
Speaker Change: EV impact on E systems is probably higher than what's going on in seating.
Jason Cardew: Yeah, I mean, if we look at sort of the first half of the second half, what we're guiding to is more than offsetting the impact of lower production volumes, the volume impact, first half, the second half, and the revenue reduction is actually a smaller impact in these systems than seeding based on just platform mix. But we are offsetting that through a combination of commercial negotiations, the vast majority of which, you know, we either have a line of sight on or are completed; there are some that are still ongoing that we have to work through.
Speaker Change: Yeah, I mean, if you look at sort of the first half to the second half what we were guiding to is more than offsetting the impact of lower production volume the volume impact first half to second half and the revenue reduction is actually a smaller impact any systems than ceiling based on just platform mix, but.
Speaker Change: We are offsetting that through a combination of commercial negotiations.
Speaker Change: The vast majority of which we either have a line of sight on or our completed there are some that are still ongoing that we have to work through but our our confidence level is high.
Jason Cardew: But our confidence level is high. We have lower engineering launch costs for any system, that's more of a reduction in launch costs than it is engineering. We have a clear line of sight to that just given the cadence of our launches this year.
Speaker Change: We have lower engineering and launch costs in any system.
Speaker Change: For a reduction in launch costs in it as engineering, we have a clear line of sight to that just given the cadence of our launches this year.
Speaker Change: Have significant improvements in our North America wire business.
Speaker Change: We've guided to a 30 basis point improvement sequentially.
Speaker Change: Seeing those happen.
Speaker Change: Into the third quarter, the first quarter was.
Jason Cardew: We have significant improvements in our North America wire business that we've got to 30 basis point improvements sequentially on. We're seeing those happen, you know, into the third quarter. The first quarter was, was, you know, the low point; we saw improvements throughout the second quarter, still not happy with the performance there, but it improved. Nonetheless, those improvements and efficiencies continued into the third quarter. And so you're going to really see a nice benefit both in the second half versus the first half and also next year versus this year, since we had such a slow start to the year there, specifically in that part of the business.
Speaker Change: The low point, we saw improvements throughout the second quarter still not happy with the performance there, but it improved nonetheless, those improvements and efficiencies continued into the third quarter and so you're going to really see a nice benefit both in the second half versus the first half, but also next year versus this year.
Speaker Change: Since we have such a slow start to the year there specifically in that part of the business and then the last driver is really restructuring savings and automation and so we continue to have opportunities to shift headcount from eastern Europe to North Africa from the border Mexico to the interior in Mexico, and then from all parts of.
Jason Cardew: And then the last driver is really restructuring, say, things in automation. And so we continue to have opportunities to shift headcount from Eastern Europe to North Africa, from the border of Mexico to the interior of Mexico, and then from all parts of Mexico into Honduras. And so that's the last sort of contributor to it. So we have a clear line of sight on what we need to do to meet that midpoint guidance and hope to do better than that in the second half.
Speaker Change: Mexico into Honduras.
Speaker Change: And so that's the last sort of contributor to it. So we have we have a clear line of sight of what we need to do to meet that midpoint guidance and hope to do better than that in the second half of the year.
Speaker Change: Great. Thank you.
Speaker Change: Oh.
Jason Cardew: Once again, if you would like to ask a question, please press star and then one to withdraw your question. You may press star and.
Speaker Change: Once again, if he would like to ask a question. Please press star and then one to withdraw your question you May Press Star two.
Operator: Our next question comes from James Picariello from BNP Paribas. Please go ahead with your question.
Speaker Change: Our next question comes from James Picariello from BNP Parable. Please go ahead with your question.
James Albert Picariello: Hi, good morning, everyone. My first question, and I imagine that the situation is highly fluid, but can you share any thoughts on the very recent UAW strike affecting one of your seeding plants? I did come across an article this morning that pointed to a possibility of a tentative deal already being reached. And just on that point, does your guidance embed anything once in nature in terms of, you know, labor, you know, labor contribution, just whatever you could share on this? Thanks.
James Albert Picariello: Hi, good morning, everyone.
James Albert Picariello: My first question.
James Albert Picariello: Imagine the situation is highly fluid, but can you share any thoughts on the very recent UAW strike affecting when Youre ceding plant site did came across an article this morning that pointed to a possibility of a tentative deal already getting reached.
Speaker Change: And just on that point.
Speaker Change: Does your guidance embed anything onetime in nature in terms of labor.
Speaker Change: Labor Labor contribution just whatever.
Speaker Change: Whatever you can share on this next well.
Raymond E. Scott: Well, yeah, we did reach a tentative agreement, hoping to get it ratified sometime in the near future here, and we're going to work closely with the UAW. And, and, you know, as far as any other information on that, we're going to just continue to work with the team on the ground, but they're back to building vehicles this morning. So we couldn't be more happy for GM and our employees down in Wentzville. And the costs associated with the contract are reflected in our guidance.
Speaker Change: Well, yes, we did reach a tentative agreement I'm, hoping to get it ratified some.
Speaker Change: Time in the near future here, we're pleased with the UAW.
James Albert Picariello: And.
Speaker Change: As far as far as any other information on that we're going to discontinue to work with the team on the ground, but we have they are back to building vehicles. This morning, So we couldnt be more happy for GM and <unk>.
Speaker Change: Our employees down in Huntsville, and the costs associated with the contract are reflected in our guidance.
James Albert Picariello: Got it. Okay, that's helpful. And then, and great to hear.
Speaker Change: Got it Okay. That's helpful and then.
Jason Cardew: What's the assumed value for your Mexican peso exposure? I believe, believe previously, you were assuming a $60 million headwind? Yeah, it's still roughly the same.
Speaker Change: Great to hear.
Speaker Change: What's assumed for your Mexican peso exposure I believe previously you were assuming a $60 million.
James Albert Picariello: $6 million headwind.
Jason Cardew: Yeah, it's still roughly the same. You know, we had 85% of that hedged. And, you know, if it holds up at 1850, or whatever it was, you know, the small trading at this morning, there's a modest opportunity in the last several months of the year, but it's just on that 15% that's unhedged. So our annual exposure is $1.2 billion. So about $100 million a month. So you can figure out from there the potential tax based on your call, on the pay. So, but I would suggest it's a modest opportunity for us at this stage.
Jason Cardew: You know, we
James Albert Picariello: Yes, it's still roughly the same.
Speaker Change: We had 85% of that hedged and if if it holds up at 18 50 or whatever it was.
Speaker Change #100: Trading at this morning, there's a modest opportunity in the last several months of the year, but it's just on that 15% that's unhedged. So.
James Albert Picariello: Our annual exposure is $1 $2 billion, so about $100 million a month.
James Albert Picariello: So you could you can figure out from there.
Speaker Change: Actual facts based on your call on the peso, but I would I would suggest it's a modest opportunity for us at this stage.
Speaker Change: Thanks.
Speaker Change: Thank you thanks.
Operator: And our next question comes from Itay Michaeli from Citi. Please go ahead with your question.
Speaker Change: And our next question comes from it came from.
Speaker Change: Please go ahead with your question.
Itay Michaeli: Great, thank you. Good morning, everyone. Two questions. First, just on Flight 17, and thank you for all the detail on the $285 million backlog. Can you mention how much of that is just EV volume as opposed to deferrals into 2025? And then on some of the potential ICE extensions that you alluded to earlier, any way to roughly kind of quantify what those might mean for the 2025 backlog opportunity?
Speaker Change #102: Great. Thank you good morning, everyone.
Speaker Change: Just two questions. Firstly, just on slide 17, and thank you for all the detail on the $285 million backlog you mentioned how much of that is just your EV volume as opposed to deferrals into 2025, and then on some of the potential ice extensions that you alluded to earlier any way to roughly kind of quantify.
Speaker Change: If those were to come through what that might mean for the 2025 backlog opportunity.
Jason Cardew: Yeah just starting with the EB impact so of the 285 roughly 250 million of that is on EB platforms and and you know we're in discussions with our customers obviously our customers are deep in their planning process we would expect to see some of that shift into next year but again I you know I think the reoccurring theme we're hearing from customers is it's going to depend on the demand so the ramp up will be dependent on that but I would say that the 25 backlog would benefit from the shifting of some of that volume from from 24 into 25 now at the same time there may be some risk to the 25 layer of backlog that's that's that we had guided to previously for the same reasons that we have adjusted downward our backlog this year and and we're we're just in the kind of middle of that planning process for next year so we'll have more to say on that as the year progresses in terms of the ice offset to that you know that's also unfortunately not enough we can quantify at this stage it's more of a theoretical opportunity but we do anticipate that you know that will sort of be a one-for-one opportunity if the industry demand holds up overall and just simply shifts from EV to ice you know that our customers will figure out a way to satisfy that demand by either continuing ice programs that they had planned to build out or increasing the volume on those that they plan to reduce
Speaker Change #111: Yes, just starting with the <unk> impacts so off the $2 85, roughly $250 million of that is on EV platforms and.
Speaker Change: Yes.
Speaker Change #108: We're in discussions with our customers obviously, our customers are deepening their planning process, we would expect to see some of that shift into next year, but again I think the reoccurring theme. We're hearing from customers is it's going to depend on the demand. So the ramp up will be dependent on that but I would say that the 25 backlog would.
Speaker Change: From the shifting of some of that volume.
Speaker Change: From 24 to 25 now at the same time, there may be some risks to the 25 layer of backlog that's.
Speaker Change: That we had guided to previously for the same reasons that we have.
Speaker Change: Adjusted downward our backlog this year.
Speaker Change: And we're just in the kind of middle of the planning process for next year. So we'll have more to say on that as the year progresses in terms of the ice offset to that.
Speaker Change: Also unfortunately, not a number we can quantify it at this stage it's more of a.
Speaker Change: Theoretical opportunity, but we do anticipate.
Speaker Change: That will sort of be a one for one opportunity.
Speaker Change: The industry demand holds up overall, and just simply shifts from EV to ice.
Speaker Change: That's.
Speaker Change: Our customers will figure out a way to satisfy that demand by either continuing nice programs that they had planned to build out or increasing the volume on those what they plan to reduce.
Itay Michaeli: That's very helpful. Thank you. Just a quick second question. With the deterioration in the LVP environment just in the last few weeks and months alone, I'm curious if you're seeing any signs of distress across Tier 2s or any other issues across the supply chain?
Speaker Change #115: That's very helpful. Thank you just a quick second question.
Speaker Change #105: With the deterioration in the LBP environment, just in the last deal 50 weeks and months low and Im curious if youre seeing any signs of distress across tier twos or any other issues across the supply chain.
Jason Cardew: At this point, we're not seeing any significant change. I would say that over the last several years, there have been issues with supplier bankruptcies and distressed suppliers, but it hasn't been material to the results. I think one of the benefits, particularly in seeing it being so vertically integrated, is that we have the ability to bring that business in-house, and that's oftentimes a helpful lever to be able to pull in that situation. But we're not seeing significant signs of distress or change in that environment. That's-
Speaker Change #106: At this point, we're not seeing any significant change I would say that over the last several years, there has been issues with supplier bankruptcies and distressed suppliers, but it hasnt it.
Itay Michaeli: That's very helpful. Thank you.
Speaker Change: It hasn't been material to the results I think one of the benefits, particularly in seeding of being vertically integrated is that we have the ability to bring that business in house and that's oftentimes are helpful lever to be able to pull in that in that situation, but we're not seeing significant signs of distress or.
Speaker Change: Or change in that environment.
Speaker Change #110: That's very helpful. Thank you.
C J: Thanks C J.
Operator: And our next question comes from Mark Delaney from Goldman Sachs. Please go ahead with your question.
Speaker Change: And our next question comes from Mark Delaney from Goldman Sachs. Please go ahead with your question.
Mark Delaney: Yes, good morning. Thanks for taking the time to ask the question. I'm hoping to better contextualize some of the efforts that Lear has made within automation, including the recent WIP transaction. And as you think about some of the steps the company has taken, including with that deal, what does that mean in terms of what Lear may be able to achieve in terms of the high single-digit margin targets it has both for seeding and e-systems over the intermediate to longer term?
Mark Delaney: Yes, hi, good morning, Thanks for taking the question.
Mark Delaney: A better contextualize some of the efforts that Lear has done within automation, including the recent web transaction and as you think about some of the steps the company has taken including with <unk>.
Speaker Change: With that deal.
Speaker Change #109: What does that mean in terms of what may be able to achieve in terms of the high single digit margin target has both for seating and E systems over the intermediate.
Speaker Change #101: Longer term and does this deal suggest that inflationary pressures would have prevented you from getting there without incremental actions or perhaps there is some opportunity for margins to be a bit higher in the longer term as you focus more on automation.
Mark Delaney: And does this deal suggest that inflationary pressures would have prevented you from getting there without incremental actions, or perhaps there's some opportunity for margins to be a bit higher in the longer term as you focus more on automation?
Raymond E. Scott: First of all, we recently made the announcement that we set the organization up for even more focus on what we consider to be an idea by Lear, which is the innovation, the digitalization, and engineering and automation of how we're driving our businesses. And I think it's important.
Speaker Change #107: First of all.
Speaker Change #103: We recently made the announcement we've reached.
Speaker Change #104: Set the organization or even more focus on what we consider to be idea by layer, which is the.
Jason Cardew: And Jason mentioned earlier, we're seeing continued improvements. How we're outpacing the efficiencies in our plant relative to the revenue downturn in seeding is a great example, and we have very similar examples in each system. So we're able to really drive operational excellence at a plant level through technological innovation, and these acquisitions we've made through ASI, InTouch, Tagora, most recently with WIP, and our own organic capabilities are really driving results in our plants, and we have examples where we're able to automate even in our seeding facilities from finesse all the way to delivery to the customer, 100% automation.
Speaker Change: Innovation, the Digitization and engineering and automation of how we're driving our businesses and I think it's important and Jason mentioned earlier, we're seeing.
Speaker Change: We.
Speaker Change #112: <unk> improvements in how we're outpacing the efficiencies in our plant relative to even the revenue downturn in seating is a great example, and we had the very similar examples any system. So we're able to really drive operational excellence at a plant level through technology innovation and these acquisitions we've made.
Speaker Change #112: ASI and touch the GOR, most recently with web and our own organic capabilities is really driving results in our plants and we have examples where we're able to automate even in our seating facilities from <unk>, all the way to delivery to the <unk>.
Speaker Change: Customer, 100% automation and so those type of steps.
Jason Cardew: And so those types of steps, and I call them, they're implemented at a level that we're still validating and really accelerating those across all of our plants over time, and that's over the next several years, is really going to drive, I think, even better results than we're seeing even today. And so right now, it's about the continuation of expanding our capabilities in those areas, building a very strong technical organization around them and really driving those results, connecting the dots between the different plants.
Speaker Change: All of them. They are implemented at a level that we're still validating and really accelerating those across all of our plants over time and that's over the next several years is really going to drive I think even better results than we are seeing even today and so.
Speaker Change: Right now it's about the continuation of expanding our capabilities.
Speaker Change: And those areas building a very.
Speaker Change: We have a technical organization around those and really driving those results connecting the dots between the different plants I think the second part of that which I think is very important I mean, we have some short term churn bumps whatever you want to call it within the industry, but this modular concepts of how we're revolutionizing how you look at seating is very important.
Jason Cardew: I think the second part of that, which I think is very important, I mean, we have some short-term churn bumps, whatever you wanna call it within the industry, but this modular concept of how we're revolutionizing how you look at seeding is very important, and it's connected to those acquisitions that we're acquiring. Very specific connection systems, wiring systems, modular components that differentiate us at a whole new level.
Speaker Change: Two of those acquisitions that we're acquiring very specific connection systems wiring systems modular components that differentiate us in a whole new level I couldnt be more excited about this introduction of what we're doing with Ford because it validates through all the different Oems requirements and statement of requirements and it.
Raymond E. Scott: I couldn't be more excited about this introduction of what we're doing with Ford because it validates through all the different OEM requirements and statements of requirements, and it's connected to automation within the manufacturing plant. I think that's really just scratching the surface; it's the first step, but the continued pressure that we see with labor inflation, we see with labor scarcity, what we're seeing with increased manufacturing output around the world and even other different industries has really put us in an incredible position.
Speaker Change: Connected to automation within the manufacturing plant I think that's really just scratching the surface as the first step, but the continued pressure that we see with labor inflation, we see with labor scarcity, what we're seeing with increased manufacturing output around the world and even though they're different industries has really put us in.
Speaker Change: In an incredible position we are.
Raymond E. Scott: We are really an automation integrator designing our own manufacturing processes in our plants that are unique to our products, and that connection between engineering and automation is essential. And so we are very excited, very proud of the efforts that we've made this year, but I think we're only scratching the surface. So it's gonna be a continuation, it's connecting, it's moving fast, it's driving results one quarter after another. But I think these steps are how we've set the business up, simplified the portfolio, focused on manufacturing excellence, really driving efficiencies within our plants, and growing profitable business.
Speaker Change: And automation integrator designing our own manufacturing processes in our plants. They are unique to our products and that connection between engineering and automation is essential and so we are very excited.
Speaker Change: Im very proud of the efforts that we've made this year, but I think we're only scratching the surface. So it's going to be a continuation. It's connecting is moving fast it's driving results.
Speaker Change: One quarter after another but I think in E systems, how we set the business up simplified the portfolio focused on the manufacturing excellence really driving efficiencies within our plants growing profitable business youre seeing that business.
Raymond E. Scott: You're seeing that business, really the results of the strategic direction we put in place there. And the seating business, I think we're really in good discussions with our customers about this modular approach, and I think it changes the way you look at components within seats, which allows for much more efficient designs within the manufacturing process. So I couldn't be more proud.
Speaker Change: Really the results of the strategic.
Speaker Change: Directionally put in there.
Speaker Change #117: Seating business I think.
Speaker Change: We're really in good discussions with our customers on this modular approach and I think it changes the way you look at components within seats that allows for much more efficient designs within the manufacturing process. So I couldn't be more proud right now like I said, we've shifted the organization to really drive quicker results.
Jason Cardew: Right now, like I said, we've shifted the organization to really drive quicker results, and it's working. And our expectation is that over time, we will more than offset wage inflation through these actions. And I think you see evidence of that in the positive net performance in both businesses this year, despite very high wage inflation and the impact of the pace.
Speaker Change: And it's working.
Speaker Change: And our expectation is that overtime, we will more than offset wage inflation through through these actions and I think you see evidence of that in the positive net performance in both businesses. This year, despite very high wage inflation and the impact of the peso.
Mark Delaney: Thanks, very helpful. Another question I had was thinking about your JET market share, as the company has been making investments in things like modularity, offerings like thermal comfort, you know, those weren't just good standalone businesses but I think contributed to perhaps gaining some JET market share. So maybe you could give us more globally how you see your JET share tracking relative to your longer-term expectations? Yeah, we're still on track to achieve our
Speaker Change #113: Thanks very helpful. Another question I had was thinking about your jet market share as the company has been making investments in things like modularity offerings like thermo come for those weren't just good standalone businesses, but I think contributed to perhaps gaining some share. So maybe you could update us more.
Speaker Change #124: Globally, how do you see your J sure I'm tracking to relative to your longer term expectations. Thank you.
Jason Cardew: Yeah, we're still on track to achieve our longer-term 29% market share goal in seeding. And I think thermal comfort is a key enabler to that. And it's not just growing the JIT business; it's also growing the component businesses as well. And so we see that as an additional, not just earnings catalyst, but revenue catalyst, longer term.
Speaker Change #116: Yes, we're still on track to achieve our longer term, 29% market share.
Joel: Joel in seating and.
Speaker Change #118: And I think thermal comfort as a key enabler to that and it's not just growing the chip business is also growing the component businesses as well and so we see that as an additional.
Speaker Change #118: Not just earnings catalysts that revenue catalyst longer term.
Raymond E. Scott: And it does benefit us when we're quoting for JIT business with a modular approach. We are much more competitive, much more efficient, and it gives an enormous amount of flexibility to our customers. And we're already seeing the results, like I mentioned earlier, that the system itself is so much more efficient. I mean, for one, we're cutting down 50% of what was a traditional design system. It's integrated, it's automated, so the actual output itself from a customer's preference is changing dramatically, you know, the improvements from airflow and lumbar, and massage and those types of features.
Speaker Change #118: And it does benefit us when we're quoting business with a modular approach we are much more competitive much more efficient.
Speaker Change #118: And it gives us enormous amount of flexibility to our customers and we're already seeing the results like I mentioned.
Speaker Change #113: Earlier.
Speaker Change #113: The system itself is so much more efficient I mean, one we're cutting down 50%.
Speaker Change #113: What was a traditional design system.
Speaker Change #113: It's integrated it's automated the actual output itself from a customer's preference is changing dramatically.
Speaker Change #113: The improvements.
Speaker Change #113: From airflow in lumbar and massage and those type of features and so on the just in time side of it we have a competitive advantage, we can be much more efficient in our quoting process and what's great about that system. We designed it with the intent to be agnostic to any frame system. So we can supply that.
Raymond E. Scott: And so on the just-in-time side of it, we have a competitive advantage. We can be much more efficient in our quoting process. And what's great about that system, we designed it with the intent to be agnostic to any frame system, so we can supply that to other JIT manufacturers. And that was intentional, so the value proposition within the modular system itself is still capable of being supplied to our competitors. Not that we want to supply it to them, but we can. And it was designed intentionally so that we can build it around any structure. They're not as traditional in some of the supply chains and the ways they've been designed.
Speaker Change #126: Two other manufacturers and that was intentional.
Speaker Change #113: The value proposition within the modular system itself is still capable of being supplied to our.
Speaker Change #113: Our competitors now that we want to supply to them, but we can.
Speaker Change #113: <unk> was designed intentionally that we can.
Speaker Change #113: <unk> build out around any structure and so we're seeing that I think that like I said earlier with BYD some of the new entrants.
Speaker Change #113: They're not as traditional in some of the supply chain.
Speaker Change #113: The ways they've been designing much more open these type of concept. So it's been very beneficial and how we're growing globally with some very strategic customers.
Raymond E. Scott: Much more open to these types of concepts, so it's been very beneficial in how we're growing globally with some very strategic customers. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Okay, I think that's the last call. So hey, just me and I think the Lear employees are on the phone.
Speaker Change #113: Yes.
Speaker Change #113: Thank you.
Speaker Change #123: Thank you.
Raymond E. Scott: I just want to again thank you for your incredibly incredible, great job. You've been doing the hard work. You know, we have a great strategy. We talked about it with Nick's leadership now in these systems, Carl's leadership with ideas by Lear and Frank, and I continue to drive seeding to simplify the product portfolio in these systems. We're seeing great results right now. We're growing the business. So I appreciate all the hard work and look forward to us continuing it through the second half. Thank you.
Speaker Change #122: Okay I think that's the last.
Speaker Change #121: Also he just I think the.
Speaker Change #113: Our employees around the Florida just want again, thank you for your incredibly.
Speaker Change #113: Incredible great job <unk> been doing the hard work.
Speaker Change #125: We have a great strategy, we talked about it with Nick's leadership now in these systems Carl's leadership with idea by layer and Frank continue to drive seating.
Speaker Change #125: <unk> the product portfolio in these systems, we're seeing great results right now we're growing the business, that's very profitable very diversified across customer different customers around the world. So thank you for your efforts here in the system seating continued to do a great job, we're going to continue to push these modular concepts are working they're doing a great job of growing our business.
Speaker Change #113: Backlog, that's going to drive our value proposition not just for Lear Corporation, but for our customers and we're doing a really nice job with these acquisitions and industry four <unk> with the idea and we connect those dots much quicker and get at those results. So I appreciate all the hard work.
Speaker Change #113: And look forward to continuing through the second half. Thank you.
Operator: Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining us. You may now disconnect your lines.
Speaker Change #120: Ladies and gentlemen, with that we'll conclude today's conference call and presentation. We thank you for joining you may now disconnect your lines.