Q1 2025 Lear Corp Earnings Call
[inaudible]
Speaker Change: Good morning everyone and welcome to the Lear Corporation first quarter 2025 earnings conference call.
Speaker Change: After today's presentation, it will be an opportunity to ask questions. We also note today's event is being recorded.
Speaker Change: I would not like to turn the conference call over to Tim Brumbaugh, Vice President and Professor Relations, please go ahead.
Tim Brumbaugh: Thanks, James. Good morning, everyone, and thank you for joining us for Lear's first quarter of 2025 Reigns Call.
Speaker Change: presenting today our race got Lear President and CEO , and Jason Cardew, Senior Vice President and CFO . Other members of Lear Senior Management team have also joined us on the call.
Speaker Change: 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.
Speaker Change: Before I begin, I'd like to take this opportunity to remind you that, as we conduct this call, we'll be making forward-looking statements to assist you in understanding Lear's expectations for the future.
Speaker Change: As detailed in our State Parvers statement on fly-to, our actual results could differ materially from these forward-looking statements due to many factors discussed in our latest 10K and other periodic reports.
Speaker Change: I also want to remind you that during today's presentation, we will refer to non-yet financial metrics.
Speaker Change: You are directed to the slides and the appendix of our presentation for the reconciliation of non-GAAP items to the most directly comparable GAAP measures .
Transcription by CastingWords
Speaker Change: The agenda for today is called on slide three. First, Ray will review highlights from the report and provide a business update.
Speaker Change: Jason will then review our first quarter results and provide an update on the factors impacting our full year guidance.
Finally, Ray will offer some concluding remarks.
Speaker Change: Following the formal presentation, we would be happy to take your questions. Now, I'd like to invite Ray to me. Thanks, Tim.
Speaker Change: Please turn to slide five, which highlights key financial metrics for the first quarter of 2025.
They're delivered 5.6 billion dollars of revenue in the first quarter.
Speaker Change: Operating Earnings were $270 million and our total company operating margins improved to 4.9%. Near our previously targeted exit run rate of 5%, despite a challenging production environment.
Speaker Change: Adjusted earnings per share was $3.12 operating cash flow was a use of $128 million in the first quarter.
Speaker Change: Flight 6 summarizes key business and financial highlights from the quarter.
Speaker Change: As a reminder, our strategic priorities continue to be extending our global leadership position and seating.
expanding margins in these systems through our focus product portfolio.
Speaker Change: Growing our operational excellence and competitive advantage through idea by a lear [inaudible]
and supporting our sustainable value creation with disciplined capital allocation.
Speaker Change: Our execution on these key priorities enabled us to improve our operating margins in both seating and these systems.
Speaker Change: as well as for the total company in the quarter, despite the challenging market conditions.
Speaker Change: This improvement was driven by historic levels of positive net performance, contributing 125 basis points to seating and 155 basis points to ease systems margins.
Speaker Change: Efficiency improvements, particularly in these systems, and savings from our investments in restructuring and automation in both segments, are driving durable operating performance.
Speaker Change: This was our best single quarter of net performance since the second quarter of 2021.
We're extending our global leadership position in the city.
Speaker Change: Winning two new comfort flex programs and a new global seed program with the key Chinese domestic automakers.
Speaker Change: For Volvo, we will provide a comfort flex model combining ventilation and pneumatic lumbar support.
Speaker Change: We will also supply our combined steering wheel heat and hands-on detection module for a second program with Honda.
Speaker Change: This award illustrates how winning, invalidating a module for a customer can lead to the sourcing of additional programs.
Speaker Change: The performance improvements driven by our comfort flex models are gaining recognition from third parties, such as motor trim.
Speaker Change: In a recent review of elucid gravity, motor trend noted, the massage seats for both front passengers were nothing short of exceptional.
Offering a deeper and more therapeutic experience than most rivals [inaudible]
Speaker Change: In China, we won several awards with domestic Chinese automakers, such as B-Y-D, F-A-W, and
Speaker Change: In April , we took operating control of one of our joint ventures in China, which supplies seats on two key programs for BID. Consolidating this joint venture is expected to add approximately $70 million to our reported revenue for 2025.
Speaker Change: In these systems, we continue to win new business across all our focused private lines.
Speaker Change: The awarded business, tolling more than $750 million in annual sales, was the most in any quarter in more than a decade.
Speaker Change: and Wearingly One Two Key Awards with Ford and BMW.
Speaker Change: Before we won a large award for a program with production in North America.
including Conquest volume incremental to the portion we currently supply.
Speaker Change: We're awarded our third major wire harness program with BMW, launching in 2028.
Speaker Change: and building on the momentum we have with BMW. This is our first BMW Wear Award in China.
Our teams continue to develop innovative solutions.
Speaker Change: This quarter we were awarded a second-generation battery disconnect unit with a key customer by providing an enhanced design relative to the current generation.
Transcription by CastingWords
Our innovation continues to be recognized by third parties.
Speaker Change: Our Zone Control Module won a Peace Award from Automotive News.
Speaker Change: It's highly configurable software increases scalability and enables flexibility in wire harness designs.
I'd like to congratulate the team for this incredible honor.
Speaker Change: The first quarter results highlights our ability to execute our strategy in any macro environment. During the quarter we re-purchase $25 million worth of shares demonstrating our confidence and our long-term outlook for the company.
Speaker Change: Flight 7 provides an update on the key metrics we introduced during our last quarterly earnings call, which investors can use to track our progress on expanding margins.
and generating long-term revenue growth.
Speaker Change: Forceding, we still expect a quote up to $3 billion in Conquest Opportunities this year, with most programs awarded in the second half. While the quote pipeline remains robust, customers had the latest sourcing on some programs in the 2026.
Speaker Change: There could be more customers reevaluate their plans based on the recent changes to
and assistance approximately 20% of our first quarter awards.
It's a quite conquest business.
Speaker Change: including incremental content on the existing Ford wire programs. We continue to pursue additional
Speaker Change: customer interest in our innovative module seat product is rolling. Two additional awards for our comfort flex modules bring our total to 21 programs for comfort flex, comfort max, seat, and flex air products.
Speaker Change: and our robust pipeline of development projects will lead to further program wins.
Speaker Change: Our strong relationships with Chinese domestic automakers continue to deliver new program wins.
Speaker Change: We will supply complete seats for several programs with D.Y.D., F.A.W., in Chalpingh, in China, and continue our discussions with D.Y.D., to support their global growth outside of China.
Speaker Change: The F.A.W. Award is Conquest Business and we are actively quoting additional opportunities with both F.A.W. and Shao Ping as well as other Chinese domestic customers that we expect will be sourced in the coming quarters.
Speaker Change: Our first quarter performance was driven by strong performance across the key metrics we previously outlined as enablers to improve margins in both segments.
Speaker Change: Investment is an idea by Lear and our automation projects generated $11 million of savings in the first quarter with benefits compounding over the year.
Speaker Change: Restructuring Investments, Contributed $12 million of Savings in the First Quarter. Efficiency improvements in our operations allowed us to reduce our global hourly head count by $3,600 in the first quarter, primarily in Mexico and Eastern Europe .
Speaker Change: Our strategic actions drove our strong net performance in the quarter. We're on pace to deliver at least 40 basis points in seeding and 80 basis points of net performance. Any systems
Speaker Change: And lastly, the 4.9% operating margin we delivered in the first quarter increases our confidence that we can continue to expand margins in both business segments over time.
Speaker Change: Turning to slide 8, the Global Trade Landscape is shifting rapidly and terrorists are at the forefront of these changes. I will provide an overview of our exposure and the proactive steps we are taking to mitigate the risk.
Speaker Change: Our exposure is primarily in two areas, direct exposure, where we are the importer of record into countries with tariffs on the components and indirect exposure to the vehicle production that may be disrupted due to tariffs or softening demand.
Speaker Change: The tear impact was minimal in the first quarter, and we are working with our customers to ensure full recovery of the cost we incurred.
Speaker Change: Our direct exposure is primarily in Mexico and Honduras. On an annual basis, we import into the United States for Mexico approximately $2.8 billion of components where either Lear or suppliers provide the parts and Lear is the employer of record.
Speaker Change: These components are primarily trim and structures and seating and wire harnesses in these systems.
Speaker Change: Approximately 94% of the components imported into the U.S. from Mexico and Canada are U.S. MCA compliant, a significant increase from approximately 77%
Speaker Change: On an annual basis, we import approximately $625 million of components from Honduras, primarily wire harnesses in these systems.
which are subject to the section 232 Terrace.
Speaker Change: We already have customer commitments in place which cover more than 90% of the Honduras exposure and expect to complete agreements with customers for the remaining 10% in the coming days.
Speaker Change: Change is to North American production, do the customer schedules or softening customer demand is our primary indirect tear of exposure.
Speaker Change: Approximately $1.8 billion of our 2024 North American sales was derived from vehicles exported to the United States from Mexico and Canada.
Speaker Change: Additional indirect exposure is on European vehicles exported to the US.
Speaker Change: of our approximately $8 billion of sales in Europe for 2024, about $1 billion or 13% where vehicles exported to the U.S.
Speaker Change: We have taken proactive steps and moved aggressively to minimize our gross exposure.
Speaker Change: Our first step was to build a team of 16 individuals from across the organization, folks done measuring our exposure to our supply chain development processes, to track and report a cost.
and execute our mitigation actions.
Speaker Change: Our continued focus on automation and investments we made in digital tools, such as Foundry, have enabled us to quickly develop operational capabilities to track and impact the terrorists and support our commercial recovery plans with our customers.
[inaudible]
Speaker Change: Our message to customers has been very clear. A hundred percent of all tariffs must be recovered.
Speaker Change: At the same time, the team has worked very aggressively to provide solutions to minimize the overall exposure for our customers.
Speaker Change: Innovative Designs, Engineering Changes, and alternative sourcing options can reduce the overall
Speaker Change: As the largest US-based automotive supplier, we continue to have conversations with the administration and other key elected officials of the United States and the United States and the United States.
Speaker Change: to clearly explain how our supply chain has been optimized as well as the rationale for sourcing certain labor-intensive products from Mexico and Honduras.
Speaker Change: This ultimately ensures our customers can produce and sell vehicles at competitive prices in US market and globally.
Speaker Change: The evolving trade policy environment has clearly created a certain need for the automotive industry. We're developing multiple planning and manufacturing scenarios to quickly respond to changes in trade policy.
Speaker Change: Our investments in automation provide us with a competitive advantage to grow capabilities we currently have in the U.S. Such as injection molded components, stamping, foam, flex air, fabrics, and the assembly of battery disconnect units in their self-connect boards.
Speaker Change: While tariffs are impacting the entire automotive industry, there is taking proactive approaches to reduce the direct and indirect impact of tariffs and renovative solutions, and now I'd like to turn the call over to Jason for the financial review.
Thanks, Ray.
Speaker Change: Slide 10 shows vehicle production and key exchange rates for the first quarter.
Speaker Change: Global production increased 1% compared to the same period last year slightly better than expected due to higher production in all regions
Speaker Change: Let's still down 5% on a lear sales weighted basis driven by lower your over your production in North America in Europe .
Speaker Change: Production Dimes to Climb by 5% North America and by 7% in Europe while Dimes in China were up 12%.
Speaker Change: U.S. dollar strengthen against both the Euro and the R&B.
Slide 11, Highlight Sleers, Growth of a Market
Speaker Change: In the first quarter, sales performed in line with global industry production, with seeding growth of the market in line, and the system's down 1%.
Speaker Change: excluding the impact of the wind down of discontinued product lines, the system's growth of the market would have been 4%.
Speaker Change: In Europe , sales outperformed industry production by two percentage points, driven by new business with BMW and Renault and E-Systems, as well as higher volumes than several Mercedes and Land Rover programs and seating.
Speaker Change: North America revenue growth lagged the market by two percentage points, reflecting lower volumes on their platforms such as the Jeep Lagonyr and Ford Explorer and Aviator and Seating and the Ford escape any systems.
Speaker Change: New seeding in these systems business on the Volvo EX90 and the Chevrolet Equinox EV and seeding offered a portion of the underperformance in the region.
Speaker Change: and our China business lagged industry growth estimates by five percentage points, driven by lower volumes on several BMW programs and seating, and the wind down of onboard charger business for several GLR programs, any systems.
Speaker Change: New Business on the Xiaomi Su7 and two lead motor programs in seating and a shopping Mona in the systems offset a portion of the underperformance in China.
Speaker Change: We recently took operating control of the seating joint venture in China supporting two BID programs which will have a positive impact on our consolidated growth over market going forward and provide investors with a clear view of the strength of our competitive position in this key market.
Speaker Change: Regarding the slide 12, I will highlight our financial results of the first quarter of 2025.
Speaker Change: Our sales declined 7% year over year to $5.6 billion, excluding the impact of foreign exchange, commodities, acquisitions, and debustitures, sales were down 5%. Reflecting lower volumes on their platforms partially offset by the addition of new business in both our business
[inaudible]
Speaker Change: core operating earnings for $270 million, compared to $280 million last year, driven by lower volumes and lear platforms, partially offset by positive net performance in our margin-a-created backlog.
Speaker Change: Adjusted earnings per share were $3.12 as compared to $3.18 a year ago, reflecting lower adjusted net income partially offset by the benefit of our share repurchase programs.
Speaker Change: First quarter operating cashflow was a use of $128 million. As expected, operating cashflow was negatively impacted in the quarter by the timing of the close of this quarter as compared to last year in higher cash restructuring costs, which will further improve our cost structure going forward.
Speaker Change: By 13 explains the variants and sales and adjusted operating margins for first quarter in the seating segment.
Speaker Change: Sales through the first quarter were 4.2 billion dollars, a decrease of 327 million or 7% from 2024.
Speaker Change: excluding the impact of foreign exchange, commodities, acquisitions and debustatures sales were down 5% due to lower volumes on lear platforms partially offset by the addition of new business.
[inaudible]
Speaker Change: Adjusted earnings were $280 million, down 15 million or 5% from 2024, with adjusted the dappering margins of 6.7%.
Speaker Change: Operating margins were higher compared to last year, like a new strong performance, partially offset by lower production on their platform.
Speaker Change: By 14 explains the variance in sales and adjusted operating margins in the E-system segment for the first quarter.
Speaker Change: Sales for the first quarter, with $1.4 billion dollars, a decrease of $108 million or 7% from 2024.
Speaker Change: including the impact of foreign exchange, commodities, acquisitions, and divestitures, sales were down 5 percent, driven primarily by the wind-down of discontinued monoclinings in lower volumes on lear platforms, partially offset by the addition of new business.
Speaker Change: Adjusted earnings were 74 million dollars with 5.2% of sales compared to 77 million and 5.1% of sales in 2024.
Speaker Change: Operating margins were higher compared to last year reflecting strong net performance in the role of our margin accrued backlog, partially offset by lower production on their platforms and the wind down of discontinued product lines.
Speaker Change: The strong performance in the quarter was driven by operating improvements across all regions that we expect to result in durable improvements to our margin store and forward.
By 15, provides an update on our full year outlook.
Speaker Change: While our first quarter of results were solid and we have made significant progress on our operational improvement initiatives, the ongoing international trade negotiations have introduced significant uncertainty in both the broader global economy as well as the automotive industry.
Speaker Change: As indicated earlier, there are two exposures that were managing.
Speaker Change: The direct impact of tariffs and the indirect impact on production volume and mix.
Speaker Change: We remain confident that we will recover the indirect impact, the direct impact of tariffs.
Speaker Change: This has been our position from the start and we have made significant progress in our negotiations with customers. On the other hand, the indirect impact associated with production, diamond mix is not yet clear.
Speaker Change: External production forecasts have deteriorated since February , and we expect that OEMs will need time to adjust their production and mixed plans to counter the recent changes in global trade policy.
Speaker Change: In addition, we're making significant progress on our operating performance initiatives and remain on track for the net performance targets outlined at the beginning of the year.
Speaker Change: We are increasing our investment in restructuring to accelerate our footprint rationalization actions and reduce costs.
Speaker Change: At the same time, we are lowering our capital spending by roughly the same amount as we adjust our new capacity and other discretionary capital investments in response to the weaker industry product and outlook.
Speaker Change: Law as a result of the uncertainty in the industry, we are not reaffirming our 2025 failure outlook. We do remain cabinet, we can deliver the operating performance improvements highlighted on our last earnings call.
Speaker Change: We typically speak at a public investor conference during each quarter and we'll use those opportunities to provide updates on the business and we'll reintroduce a lawyer outlook when we have increased clarity from customers on their production plans for the remainder of the year.
Speaker Change: Moving to slide 16, we highlight our balanced capital elevations strategy.
Speaker Change: We do not have any near-term outstanding debt maturities. Our earliest bi-maturity is in 2027 and our debt structure has a weighted average life of approximately 12 years.
Speaker Change: Our current share repurchase authorization has approximately $1.1 billion for meaning, which allows us to repurchase shares to December 31, 2026.
Speaker Change: We are a temporary, early pause in shared purchase activity to ensure we maintain a strong liquidity position during this period of uncertainty.
Speaker Change: Jason, recent developments, we believe this pause will be short.
Speaker Change: and are planning to reinstate shared purchases as soon as disability improves. Now I'll turn back to Ray some calls and thoughts. Thanks Jason.
Speaker Change: Please turn to slide 18. Our first quarter results provided another clear example of our ability to deliver strong performance.
Speaker Change: and a volatile industry environment. We continue to execute on our strategic initiative, the Physician of the Company for Revenant Growth and Margin Improvement. In seeding, we are winning new business, in thermal comfort, and expanding our presence with Chinese domestic
Speaker Change: Motor train recognized the performance improvements we can deliver through our comfort flex and comfort max seat module solutions.
Speaker Change: and these systems are historic quarter of business ones particularly in wiring and the next generation battery disconnect unit sets us up the long-term revenue growth.
Speaker Change: of our Focus Pride portfolio. The Automotive News Pace Award for our zone control module highlights the innovation our teams are developing for our customers.
Speaker Change: Extending our leadership in operational excellence through our investments and idea by Lear is trying to margin improvement throughout the business.
Speaker Change: We have a strong balance sheet with no near term debt maturities that allows us flexibility in our capital allocations strategy and positions as well to navigate tariff related industry
Speaker Change: After work through challenging industry conditions, we are proactively taking steps to position in Lear for future success, and we are committed.
Speaker Change: to keeping the investor community updated in the current dynamic environment. I couldn't be more proud to lead the Lear team, and I want to thank all our employees for their dedication and hard work, and now we'd be happy to take your questions.
We will now begin the question and answer session.
Speaker Change: To ask a question you may press star and then one on your touchdown phones. If you are using a speaker phone, we do ask that you please pick up your handset before pressing the keys.
We'll draw your questions. You may press star and two.
Speaker Change: Well, it's again that a star and then one to ask a question.
Speaker Change: And our first question today comes from Joseph Spak from UBS. Please go ahead with your question.
Speaker Change: Thanks. Good morning, everyone. Right. I guess this is the first question.
Speaker Change: Have you seen any meaningful changes to production schedules yet? Or are you just anticipating this? And the reason I ask is it just seems interesting that you know the further we get in turning season here the more guidance controls we're getting so I'm wondering if we're seeing some some more breaking changes to the schedules. [inaudible]
Speaker Change: Yeah, I think we have seen changes announced throughout the last four five weeks. I wouldn't say that there has been, you know, any recent uptick in the number of announcements, but it's
Speaker Change: Clearly the environment remains pretty dynamic and maybe Joe just take a minute to explain our thought process on why we decided to withdraw guidance at this point.
Speaker Change: As a result of having our call a little bit later in the cycle, we've had the benefit of hearing from our customers what they're saying on their calls.
Speaker Change: We've seen some positive developments in terms of the cost of tariffs for the industry.
Speaker Change: and certainly this industry has faced the challenges over the last five years for COVID, the chip shortage issue and splicing disruptions. I think this is really a very different situation. And as we were thinking about how to guide in this environment, what would be helpful to investors. What we need.
Speaker Change: Struggled with the wide range that we would end up guiding you to account for all the variability in the production outlook. There's really three variables that remain right now.
Speaker Change: You know, first, how do the end consumers respond to price increases, you know, a higher price in the market, which seems, you know, likely to happen? Then how do our customers react?
Speaker Change: to those changes. Do they have a preference for market share or do they try and capture some price benefit in the opportunity for their margins and associate with that?
Speaker Change: You know, listening to our customer's earnings calls, you could hear the sort of tension in that decision making framework between market share and margins that they're working through. And so given that uncertainty and what their plans are, we thought that, you know, we ended up with too wide of a range. [inaudible]
Speaker Change: to be helpful for for investors and and so until there's visibility at least on those first two variables, you know, we're not in a position to provide guidance that would be useful I think.
Speaker Change: We have fairly decent clarity and visibility on the second quarter, but there's still our changes coming and we are presenting at an investor conference in the second week of June , June 10th or 11th.
Speaker Change: and we will provide more clear guidance on the second quarter, specifically at that event once we see a little bit more visibility on the items I just mentioned.
Speaker Change: Thanks for all that color. As a second question.
Speaker Change: Is that where you need to see most of the work done right I know you've made some comments about potentially moving some some production around.
Speaker Change: Yeah, well I think the first point, Joe Yes, we've.
Speaker Change: I think the team has done a remarkable job of presenting all options to our customers and one of those options is.
Speaker Change: Who is who is going to be the reported a record as far as <unk>.
Speaker Change: Locations and so that is an option we have put underneath it absolutely is something that well.
Speaker Change: We are considering and talking to our customers about.
Speaker Change: Okay.
Speaker Change: With respect to the ability to move parts and.
Speaker Change: In manufacturing I mean, those are the things that we're looking at it's still very competitive.
Speaker Change: Location for Us and obviously like Jason mentioned, there is still a lot of work to be done in or there's still work that is going to be done on what that's going to be at the end of the day and so it's really going to come down to what that we're cyclical tariff or what that tariff would be on those components in Honduras will look like and so those discussions are going on with our customer island adjacent fuel.
Speaker Change: They are a little bit and our understanding Joe.
Speaker Change: The 375%.
Speaker Change: Exemption credit so to speak and said that the Oems our customers can.
Speaker Change: Kate which of their components can be.
Speaker Change: Given that exemption and so I think a product like wire harnesses has a fairly high likelihood of being a product that would be important to the U S tariff free whether we're the importer of record or the customer is I don't think that that necessarily has to shift from us to our customer in order to take advantage of that.
Speaker Change: That new rule there.
Speaker Change: And just kind of go back to your first comment.
Speaker Change: In regards to Honduras, yes. It is our most significant exposure and since I'm sure. This is a question that.
Speaker Change: It's going to come up as the call progresses.
Speaker Change: Address that now overall, we see our gross tariff costs.
Speaker Change: About $200 million.
Speaker Change: And so about half of that is Honduras and thats because the wire harnesses are on the annex that accompanies the section 232 auto tariffs and and so there are subject to the 25% tariff we think it's highly.
Speaker Change: Highly likely that that tariff rate is adjusted because wire harnesses really don't have a place on that.
Speaker Change: <unk> in the same way engines transmissions or other highly technical parts to it.
Speaker Change: I think it's kind of misplaced and you've heard customers and others advocate for that change. So as a result of that you would then revert to the 10% tariff rate the reciprocal tariff rate that's in place with whats Honduras and at a 10% rate.
Speaker Change: Honduras is still competitive with Mexico, and so we think ultimately that's where it ends up but.
Speaker Change: There's clearly some uncertainty on how long that process takes to get there.
Speaker Change: The other half of our tariff exposure.
Speaker Change: The other 100 million for this year roughly half of that is on components are.
Speaker Change: Where our customers are the the.
Speaker Change: Controls are sourcing with our suppliers and so they have direct responsibility for that theyre, having negotiations and discussions with those suppliers and that would be pass through whatever the outcome of that negotiation would be pass through from our cost back to the supplier and then so what we're really focused on in terms of the direct exposure is that remaining.
Speaker Change: $50 million.
Speaker Change: 25, 25% of the gross exposure is for products, where we are the importer of record and we are.
Speaker Change: We control the sourcing and we've already made tremendous progress in reducing that exposure through design changes and sourcing changes and we will continue to reduce that and we've had very productive discussions with our customers about recovering the cost of that.
Speaker Change: That tariff in the interim I think it's important.
Speaker Change: Tim mentioned that we have been very clear with the customer that we expect 100% recovery, if it's direct or indirect on the components and for the majority or the majority of our customers they've agreed on 100% of what I'll call directed their source components.
Speaker Change: The indirect and I feel very very confident that we're going to get full recovery on our net position I think the team has done a great job of commercializing what our expectation is and we're making really good improvements on that side of it but I also think that there are alternative solutions that debt.
Speaker Change: Can work to our I think our advantage with how we can you can relocate components.
Speaker Change: I mentioned some of the manufacturing the strong manufacturing presence, we have in the United States and how we can relocate things to the United States in certain years.
Speaker Change: Around the ones I mentioned with phone and.
Speaker Change: Textiles.
Speaker Change: Stampings and those type of components that would work really well here in the U S and so I think the teams have done a really nice job and I have confidence because.
The conversations are going extremely well.
Speaker Change: I think we've made some very good progress I think what the team has done with these systems on the wire harness it shows the level of expectations and the results we expect across the board from all customers.
Speaker Change: I appreciate all the detail guys.
Speaker Change: Thanks, Joe.
Speaker Change: Our next question comes from Dan Levy from Barclays. Please go ahead with your question.
Dan Levy: Hi, good morning, Thanks for taking the question.
Dan Levy: Wanted to start with a question.
Dan Levy: On the outlook and I recognize there is uncertainty and you'll provide us with an update but maybe we could just go back to the original outlook.
Dan Levy: That that you provided and yes.
Dan Levy: Give us a sense because it feels like you're getting most of the recoveries on the tariffs. When you say you expect 100% recoveries, but what is the lower end of your outlook contemplating as far as LDP by region and maybe you could just talk about maybe some of the pluses and minuses outside of tariffs that we've seen versus.
Dan Levy: The guidance that you provided back in February.
Dan Levy: Yeah Dan.
Dan Levy: February guidance contemplated production down 1% globally down 2% on Alere weighted basis, and so I think we had $1 billion range on revenue. So you could.
Dan Levy: There'll be another 2% roughly declined there beyond that so let's call it 4% down.
Dan Levy: Lear weighted basis.
Dan Levy: And.
Dan Levy: The other key assumptions affecting the top line would have been around the foreign exchange rates, we had the euro at 104 in the RMB 730, So I think we're going to see some top line improvement.
Dan Levy: As a result of FX.
Dan Levy: Youre going to see some revenue as a result of the pass through of tariffs and then youre going to see some reduction in revenue.
Dan Levy: Associated with the volume reductions that are anticipated and some of which had been announced.
Dan Levy: Theyre, taking place here in the second quarter.
Dan Levy: <unk>.
Dan Levy: The North American market is probably the biggest question Mark S&P's forecast since for 14 million units I believe production and when we were at 15.
Dan Levy: And the prior guidance. So that's the biggest risk factor. If you if you look at what the external.
Dan Levy: Prognosticators are suggesting and as we think about.
Dan Levy: The kind of puts and takes are I think.
Dan Levy: We're looking at Europe.
Dan Levy: We're looking at vehicles produced in Mexico, and Canada, and then we're looking at vehicles produced in Japan, and Korea that are imported into the U S and.
Dan Levy: And so the.
Dan Levy: What our customers ultimately decided to do again around.
Dan Levy: Market share versus margin preservation is going to have a profound impact on the.
Dan Levy: The volumes vehicles imported into the U S market and ultimately on the production of vehicles that we supply parts two and so that's that's the big variable that's.
Dan Levy: Difficult to predict in terms of the other things we can control, we talked about tariff costs and recoveries, we expect full recovery don't see that as a.
Dan Levy: Any large issue.
Dan Levy: In terms of our cost structure in general we are.
Dan Levy: On track to deliver the commitments, we made around automation and restructuring savings and other efficiency program program improvements Yeah, I, certainly don't want to lose sight of the very strong first quarter. We had in both business segments. It really increased our confidence in being able to achieve the full year guidance.
Dan Levy: We provided for net performance, which was 40 basis points and seeding and 80 basis points of margin improvement in E systems for when that performance, we far exceeded that in the first quarter. So the things that we can control remain well on track and maybe a little bit of ahead of where we started the year.
Dan Levy: Great. Thank you.
Dan Levy: And maybe just a follow up question and if you could just maybe double click on the pieces that are driving our performance, but broadly it feels like the tariff.
Dan Levy: Just place.
Dan Levy: An added pressure on it.
Dan Levy: But.
Dan Levy: The seating and electrical architectural wire harness businesses, which has it was either.
Dan Levy: Tight margin business to begin with.
Dan Levy: You've laid out a series of all of these strategic actions.
Dan Levy: How are you starting to see that play into maybe separating yourself from the pack and taking share I know you referenced that you want to.
Dan Levy: Ward.
Speaker Change: E systems.
Dan Levy: Well first of all it was a great quarter.
Dan Levy: I think these systems team did a remarkable job not just when we talk about expanding our margins and operational excellence and what they did as far as performance but.
Dan Levy: The growth side it was.
Dan Levy: A really good quarter for us and I think it comes down to.
Dan Levy: A couple of things one the performance and how they're performing with.
Dan Levy: Particularly I do think that we can't overlook the innovation and capabilities that we've been able to deliver both on the product side.
I think equally as important as the operational side you know.
Dan Levy: It's interesting we've been really strategically looking at how we can change our operational excellence and advanced automation in software development. Some of the things we've mentioned with how we're designing different efficiencies on the plant floor.
Dan Levy: Allows us to be extremely competitive and still get a return above our cost of capital that's everything we're focused on in.
Dan Levy: Those elements that we've been working on for.
Dan Levy: For more more more than 10 years are really starting to show the benefits in the operations to date, we did great.
Dan Levy: <unk> really put ourselves.
Dan Levy: You know out there as far as being able to track as to our investors and show how we're performing from a net performance perspective, and the team did a great job, but it also shows up in growth because we can quote business, where we still get a return above our cost of capital as we're introducing new technology innovation on the plant floor and so I think thats it.
Dan Levy: As an important message because we have been.
Dan Levy: Talking about that for some time and we're seeing the conviction in how we're delivering.
Dan Levy: Not just from a performance standpoint, but from a growth perspective, and so we.
Dan Levy: We absolutely believe that that is something that we can continue to do it puts us in a great position today.
Dan Levy: Today, and currently as we expand our margins, but more importantly, as we're winning new business.
Dan Levy: Great. Thank you.
Speaker Change: Our next question comes from Emmanuel Rosner from Wolfe Research. Please go ahead with your question.
Emmanuel Rosner: Great. Thank you so much I was actually hoping to follow up on this on.
Speaker Change: On the cost performance, which obviously was quite impressive.
In the quarter and so you mentioned, a an accelerated investment in restructuring.
Speaker Change: I'm curious to what extent you could still.
Speaker Change: Inflect the benefits from these actions still this year, especially.
Speaker Change: Especially in case some of these indirect tax impact com and the volume plays off sort of weaker.
Speaker Change: Do you have any room to offset some of that was accelerated benefits on the net performance side.
Speaker Change: Basically higher than your initial guidance.
Speaker Change: And that's certainly our goal and we're we're looking to increase our restructuring investment this year by between 30% and $40 million.
Speaker Change: And some of that well.
Speaker Change: Produce intermediates.
Speaker Change: Two our cost structure.
Speaker Change: And so there will be some.
Speaker Change: Some additional of that performance that results from from that investment in restructuring now we are dialing back our capital spending.
As well by a similar amount.
Speaker Change: And most of that relates to capacity that.
Speaker Change: We don't need as a result of lower volumes and some discretionary spending.
Speaker Change: Little bit of it is also one on the automation side, where you have some longer payback projects that were going to.
Speaker Change: Push out to next year.
Speaker Change: Annual what we really did it just kind of took a step back and looked at all of the investment opportunities that we have across both our capital expenditure program at our restructuring program in force rank those based on payback.
Speaker Change: Sort of re prioritized our investments are that led to some again additional investment in restructuring and a little lower investment in capex, but the net effect of that should be positive for that performance. This year, Yes, I think that's important to manual that.
Speaker Change: During this time of uncertainty our priorities are operational excellence and as Jason mentioned.
Jason Cardew: How we're focused on capital deployment, where we're focused based on returns how we can accelerate particularly areas.
Jason Cardew: All of our products or region or manufacturing facilities. The second priority is our is our balance sheet.
Jason Cardew: Very disciplined on what we're looking at how we're spending capital where we're spending capital.
Jason Cardew: You've been building some assumptions around changes in volume and how we deploy capital, we're really getting it potentially even getting it and cutting costs.
Jason Cardew: Our capital cost based on what we see relative to volumes and how we're really focused on cash I mean, even our commercial agreements that we're putting in place are two elements. One is to get 100% recovery, but also to minimize any type of cash impact relative to how we're solving those commercial issues in the two discipline.
Jason Cardew: Between operation in commercial are equally weighted as far as how we're really aggressively going after that and the last one is the strategic options. You know, how we are position where a U S. Based company a large U S. Based company. We believe we have some strategic strategic options that we can take advantage of and I think that's going to play out over time.
Jason Cardew: They've got these rebates that theyre going to receive and those were out over three years, you know, how we're going to reposition for our customers, but I'll tell you one thing that comes.
Jason Cardew: As we discuss all of these with our customers, we learned quite a bit through coal that we learned quite a bit through the EV.
Jason Cardew: Collapse with volumes, we're really focused on terms and conditions you know if we're going to deploy capital what are the terms and conditions look like relative to how we're going to get.
Jason Cardew: Our returns above our cost of capital based on volume based on deployment of capital how we're focused and so we also looked at look at this as an opportunity to go back and really discuss the terms of conditions relative to our customers because I think we've learned quite a bit over the last five years in those terms need to change.
Jason Cardew: Particularly around the suppliers are making investments for our customers.
And not just short term, but longer term. So we really got at this I'm really proud of the team I tell you that mitigation.
Jason Cardew: <unk> innovation ideas, the engineering ideas of things that they've come up with really I think put us in a better position to really get at the things I mentioned as far as priorities within this company right now.
Speaker Change: Yes, thanks for the color and then exit two quick follow ups. The first one is beyond just the impact on or risk to industry volumes.
Speaker Change: Do you see any risk from the current uncertainty on backlog and the backlog that you announced last quarter and then specifically.
Speaker Change: On the balance sheet, obviously continued commitments and returning excess cash to shareholders, but are you pausing the buyback at all while staying about where the outlook in free cash flow for the year looks like or is it just continuing.
Speaker Change: Yes, Emmanuel I'll start with the second question first we are pausing our share repurchases here for a short period of time until there is more visibility on the on the <unk>.
Speaker Change: Reduction environment, and we believe that will be brief and then we hope to restart that soon.
Speaker Change: Once we have a better understanding of our customers' production plants for.
Speaker Change: Really the second half of the year in terms of the backlog I think it's too early to provide an update on the two year backlog, we announced a 2025 2026 backlog but.
Speaker Change: Certainly the the award.
Speaker Change: Wire and.
The other awards of new systems in general in the quarter will help the longer term growth rate of that business.
Speaker Change: $150 million of the $750 million of New business Awards were conquest award. So those are market share gains also drive growth.
Speaker Change: For the business longer term and I think once we sort of get through this wind down of products that we're exiting any systems, you'll see a return to the more normalized growth rates.
Speaker Change: Enjoyed over the last five or six years in that segment.
Speaker Change: Thank you.
Speaker Change: Welcome.
Speaker Change: Our next question comes from Colin Langan from Wells Fargo. Please go ahead with your question.
Colin Langan: Oh, great. Thanks for taking my questions.
Speaker Change: Congrats on a pretty good margin in the corner.
Speaker Change: I'm just wondering you know I think a couple of weeks during the quarter ended you were talking about a low 4% four nine what came in so much better it at the end of the corner to kind of get you. So much higher than what you were thinking.
Speaker Change: Yes, there were really two things that happened the production.
Speaker Change: <unk> held up better than we had anticipated and what we were seeing at that time, particularly in Asia. We saw a very very strong march much better than we had expected.
Speaker Change: And then in addition to that we.
Speaker Change: We did see a little bit of a pull ahead some of our commercial performance in the seating segment in particular, and so there, there's probably 20 basis points of.
Speaker Change: Of that net performance that we delivered in in the first quarter that we had anticipated in the second quarter and beyond.
Speaker Change: And so those are the two primary factors.
Speaker Change: And then just generally speaking just strong operating performance in both business segments that doesn't often happen that whenever you get sort of everyone.
Speaker Change: Hum.
Speaker Change: For me, that's such a high level simultaneously and that's what we had we had great performance in <unk> systems and really across all regions and so it's just a testament to the strong finish to the quarter for the team more than anything and I. Appreciate the recognition to it because I feel the same way I felt really good about the first quarter of <unk>.
Speaker Change: You were.
Speaker Change: We've talked about.
Speaker Change: The indirect.
Speaker Change: Situation around tariffs as kind of the uncertainty that we're faced with right now as an industry, but I think it gives you a good indication.
Speaker Change: Even during a very.
Speaker Change: Tough quarter relative to the volatility around production.
Speaker Change: We can perform well and so I think it's really a great job by the operation teams.
Speaker Change: In seating and E systems, and how they performed I was really happy with the numbers.
Speaker Change: Got it that's helpful color.
Speaker Change: Talking on performance coming in a couple of times on the call already but if I look at the initial full year guide and I think it implies something like 130 million 55 basis points.
Speaker Change: I believe you've got more than half of that already in Q1 is that what you were anticipating.
Speaker Change: I guess it sounds like from <unk> comments earlier that performance is actually coming in stronger than and should we interpret that is.
Speaker Change: If it wasn't for tariffs you'd actually be raising guidance today.
Speaker Change: Yes, I think Thats certainly the first quarter came in better than we expected.
Speaker Change: And that could lead to an improved number for the full year, but there's still lots of moving parts that we're managing here.
Speaker Change: And I think your math is right more than half of our full year net performance was achieved.
Speaker Change: In the first quarter.
Speaker Change: What we had guided to previously now part of that is kind of that year over year.
Speaker Change: Look at the business and so the first quarter any systems in particular last year was pretty weak we had very high launch costs, we had some efficiency issues in our North America.
Speaker Change: Operations, which we talked about throughout last year those improved significantly from the first half of last year. The second half of last year and so the comp gets a little harder in the second half of the year than it is and it was in the for the first half counts. So that's also a driver.
Speaker Change: Okay.
Speaker Change: I mean would you have raised guidance if it wasn't for the tariff issue around that.
Speaker Change: It's just too early to say that's a theoretical question.
Speaker Change: Yeah.
Speaker Change: There wasn't this level of volume uncertainty, we certainly wouldn't have been talking.
Speaker Change: Talking about lowering guidance I'll put it this way we have been very confident in the year, rather than a good position, especially coming out of that first quarter.
Speaker Change: Got it alright, thanks for taking my questions.
Speaker Change: Youre welcome.
Speaker Change: Yeah.
Speaker Change: Our next question comes from John Murphy from Bank of America. Please go ahead with your question.
John Murphy: Good morning, guys just a.
John Murphy: Simple question to start when you think about doing winding wiring harnesses in.
John Murphy: Honduras.
John Murphy: Wonder if you could walk us through sort of the.
John Murphy: The evolution of how that.
John Murphy: Wound up being in Mexico.
John Murphy: Then got pushed down to Honduras.
Our labor costs perspective, but also maybe labor availability perspective as well.
John Murphy: Yes, well one.
John Murphy: So we've done a lot of work, even working with Washington trying to explain.
John Murphy: Wire harnesses in very similar like a trim covers theyre very labor intensive unattractive jobs.
John Murphy: Say that you like Jason mentioned need to get up moved off the annex.
Speaker Change: But the migration was about labor arbitrage and having enough labor. We have facilities that you can have anywhere from five to 6000 employees in a facility running multiple platforms to be the most efficient.
John Murphy: For our customers.
Speaker Change: The debt that we have.
Speaker Change: <unk> and so the move from Mexico, Honduras was really driven around the continuation of the labor arbitrage Honduras is a very good location for us I mean, we have great quality.
Speaker Change: The FCT is very low.
Speaker Change: The job satisfaction. The work environment everything is is a really really good location for it. So it's ideal for US a matter of fact, we talked a little bit previously about even migrating more of our business to Honduras, obviously put that.
Speaker Change: Until we get some clarity around what's going to happen but.
Speaker Change: It's been a move from what was more as to central Mexico down too.
Speaker Change: Even.
Speaker Change: Further south in Mexico, now to Honduras, and so it's worked out extremely well for us in both locations.
Speaker Change: And that's really how we've moved our wire harness business from Mexico Honduras.
Speaker Change: Okay, maybe just a follow up when you think about wiring harnesses and other stuff that's done outside the U S.
Speaker Change: Whats kind of the hurdle to bring you back to the U S is it just labor cost labor availability and how much do you think you can or you could automate it I'm just trying to understand really here. So I mean, it kind of gets out there.
Speaker Change: Public a little bit more.
Speaker Change: Good question.
Speaker Change: First.
Speaker Change: Yes, no. It's a good question and I think the first.
Speaker Change: Roadblock would be.
Speaker Change: The labor scarcity of labor issue of attracting.
Speaker Change: That type of work here in the U S. It's in its way.
Speaker Change: The way I describe it there are very very attractive jobs that are very sophisticated technical we do just in time assembly of seats here in the U S and UAW represented workers great work, but what type of work makes a lot of sense I think when you get in.
Speaker Change: When you look at our wire harness is very labor intensive.
Speaker Change: The automation is coming it's going to take some time.
Speaker Change: Not quite there yet theres, some very challenging aspects about harness even though.
Speaker Change: We've made significant improvements with automation and harnesses is not quite there yet so I think the roadblocks really are the labor scarcity, the worst workforce development that would be required to bring those type of jobs here I think the attractiveness from a workers perspective would be extremely low very tough and the technology just.
Speaker Change: <unk> isn't there yet to bring and automate a major wire I mean these these harnesses are hundreds of pounds there.
Speaker Change: Extremely labor intensive as you're doing the taping the cramping in the assembly of the harnessed itself and so.
Speaker Change: Those are probably the big roadblocks.
Speaker Change: That I think it would be a very tough move.
Speaker Change: To move to the United States.
Speaker Change: Okay and then just another question you highlighted it was incredibly helpful. The tariff commentary $1 billion of parts that are coming across.
Speaker Change: <unk>.
Speaker Change: Europe on European produced vehicles.
Speaker Change: Some of those might not make it here might be fewer but in reality you know there might be market share shifts that occur in the U S market that offset that so could you kind of remind us generally what's coming across.
Speaker Change: The PON there.
Speaker Change: And then also maybe your exposures here in North America, because there might be a really good story to market share gains from your domestic automakers as well as a result of that.
Speaker Change: Yeah, John just to clarify so that's $1 billion of Rev.
Speaker Change: Revenue that's associated with parts, we sell to customers that are for vehicles produced in Europe and imported into the U S. So it's that hard imports.
Speaker Change: Yes, so the biggest.
Speaker Change: A component of that is whats Jaguar land Rover.
Speaker Change: So the range Rover range Rover sport Thunder that whole product lineup and.
Speaker Change: And we just saw that they announced that they are restarting shipments into the U S. So there are going to continue to participate in this market.
Speaker Change: And then the VW group.
Speaker Change: And Theyre luxury brands, Audi and Porsche in particular.
Speaker Change: And then to a lesser extent Mercedes.
Speaker Change: And still a lot to us and with Mercedes They have also announced the move of one of their key programs, which we haven't seen any four in Europe too.
Speaker Change: Tuscaloosa.
Speaker Change: And so.
Speaker Change: We see over time.
Speaker Change: We will likely benefit from that business, that's relocated from Europe into the U S.
Speaker Change: As our customers adjust their their footprint and then in terms of Hubei benefit here in the in the U S. I don't want to go too far down that path, but I think our largest platform.
Speaker Change: In the U S market is the GM full size SUV program Thats produced down in Arlington, Texas.
But we also have the Ford explorer we have.
Speaker Change: With Hyundai with BMW.
Speaker Change: Lots of customers here that have domestic footprint that could benefit longer term from from this tariff regime. So it's hard to say exactly how it's going to play out but.
Speaker Change: Those are some of the highlights of our programs that may be impacted.
Speaker Change: So it's fair to say the uncertainty in the guidance that all to the downside. It may actually eventually be to the upside right. It's uncertainty yeah. Yeah. That's right I think look at the GM full size SUV inventory levels I think that came out again yesterday or the day before a third 30 days on hand.
Speaker Change: Yes, certainly it seems like there could be some opportunities as well.
Speaker Change: And that affected our thought process around that.
Speaker Change: Herman guidance.
Speaker Change: Okay, and then just lastly, it sounds like there's some program extensions and stuff that's getting pushed out on wins can.
Speaker Change: Can you just remind us.
Speaker Change: Programs are extended.
Speaker Change: If we're looking at a five six year program that goes to seven or maybe eight years whatever it may be what are the requirements for.
Speaker Change: Refurbishing tooling or extending tooling and other plant equipment for another year or two.
Speaker Change: Are there big capital commitments or is this more of a great situation for you.
Speaker Change: No that's more we.
Speaker Change: We like the we like the situation.
Speaker Change: Lending programs.
Speaker Change: Programs are long in the tooth. So we've done a nice job with BD engineering changes.
Speaker Change: Cost savings.
Speaker Change: We like it and there isn't a tremendous amount of that.
Speaker Change: There might be some modifications to some capital that we have in place, but there's no significant reinvestment that's required we can run the current capital.
Speaker Change: That is in place and.
Speaker Change: It also gives us an opportunity to reevaluate contracts because they need to extend the contracts of the terms and conditions that are in place need to be extended which means.
Speaker Change: Some respects, you'll get to sit down and reestablish where youre at.
Speaker Change: Okay very helpful. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Utah, and the Kelly from TD talent. Please go ahead with your question.
Speaker Change: Great. Thank you good morning, everyone.
Speaker Change: Two quick ones for me first going back to slide eight you mentioned mixed headwinds due to components on high content trends, just curious whether you're actually seeing any pressure on for mixed thus far.
Speaker Change: In Q2.
Speaker Change: Both in North America, perhaps globally.
Speaker Change: Yes, I'd say its something we're anticipating.
Speaker Change: We haven't seen a lot of it but there are some specific examples where we have seen.
Speaker Change: This impacted the most notably things like.
Speaker Change: <unk> Entertainment, where there is a component that's imported with a high tariff rate.
Speaker Change: And so the customer may reconsider their option packages.
Speaker Change: And so we lose that content that debt if that screen is on the back of the seat for example, things like that we haven't seen.
Speaker Change: Significant changes in features generally, but we wouldn't be surprised to see that as part of the response to customers managing higher costs and so that's that was the reason we included that in the slide.
Speaker Change: Part of our.
Speaker Change: Mitigation plans, we're giving our customers alternative options. So we have some insight.
Speaker Change: Even the options, we're giving them to mitigate tariff costs or other related costs.
Speaker Change: Or lack of components and so I think it's just more our insight of what we're doing.
Speaker Change: How we're communicating with our customers.
Speaker Change: That's very helpful and a quick follow up on the new business awards in the quarter. Congrats on the progress how should we think about the timing of when these awards flow into revenue and just some of these actually launch.
Speaker Change: Earliest 2027.
Speaker Change: Most of it is in 2028, I think there may be a little bit at the tail end of 2007, but I think it's most of the 28.
Speaker Change: Great. That's very helpful. Thank you.
Speaker Change: Yeah.
Speaker Change: And ladies and gentlemen, with that we'll be wrapping up todays question and answer session I would like to turn the floor back over to Ray Scott for any closing remarks.
Speaker Change: Yeah. Thank you and now I'd like to thank everyone for participating in our call today also.
Speaker Change: I also like to thank the Lear employees are on the call you guys did a great job in the first quarter I couldn't be more proud of the work that youre doing an exceptional job.
Speaker Change: And what we're doing as far as the organization and really protecting the company with tariffs and costs and giving our customers.
Speaker Change: Options to mitigate their own caution. So I appreciate all the hard work so proud of the work that you've done and thank you.
Speaker Change: Okay.
Speaker Change: And ladies and gentlemen, with that we'll conclude today's conference call and presentation. We do thank you for joining you may now disconnect your lines.
Speaker Change: Yeah.
Speaker Change: Okay.