Q3 2025 Lear Corp Earnings Call
Speaker #1: Good morning, everyone, and welcome to the Lear Corp 3rd Quarter 2025 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker #1: After today's presentation, there will be an opportunity to ask questions. Please note that today's event is being recorded. At this time, I'd like to turn the conference call over to Tim Brumbaugh.
Speaker #1: Vice President, Investor Relations. Please go ahead.
Speaker #2: Thanks, Jamie. Good morning, everyone, and thank you for joining us for LEAR's 3rd Quarter 2025 earnings call. Presenting today are Ray Scott, LEAR President and CEO, and Jason Cardew, Senior Vice President and CFO.
Speaker #2: Other members of LEAR's Senior Management Team have also joined us on the call. Following prepared remarks, we will open the call for Q&A. You can find a copy of the presentation that accompanies these remarks at ir.lear.com.
Speaker #2: 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.
Speaker #2: 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 10-K and other periodic reports.
Speaker #2: 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.
Speaker #2: The agenda for today's call is on slide 3. First, Ray will review highlights from the 3rd Quarter and provide a business update. Jason will then review our financial results and provide an update on our full year guidance.
Speaker #2: 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.
Speaker #1: Thanks, Tim. Now, please turn to slide 5, which highlights key financial metrics for the 3rd Quarter of 2025. They're delivered 5.7 billion dollars of revenue in the 3rd Quarter, an increase of 2% from the 3rd Quarter of 2024.
Speaker #1: Core operating earnings were 241 million dollars, and our total company operating margin was 4.2%. Adjusted earnings per share was $2.79, and our operating cash flow was 444 million dollars in the Quarter, one of our strongest operating cash flows in our history.
Speaker #1: Our 3rd Quarter financial performance was at the higher end of our expectations, despite the significant impact of a cybersecurity incident that disrupted production for one of our key customers, Jagland Rover, for the entire month of September.
Speaker #1: Excluding the impact of Jagland Rover disruption, total LEAR 3rd Quarter core operating earnings and operating margins would have been higher than the prior year.
Speaker #1: Jason will provide an additional detail on the impact of this disruption to our 3rd Quarter results and our full year outlook. Slide 6 summarizes key financial and business highlights from the Quarter.
Speaker #1: As a reminder, our strategic priorities continue to be extending our global leadership position and seating, expanding margins in each system, growing our competitive advantage in operational excellence through idea by LEAR, and supporting sustainable value creation with disciplined capital allocation.
Speaker #1: The momentum of positive net performance we delivered in the first half of the year continued through the third quarter, contributing 50 basis points to seating and 95 basis points to each system's margins.
Speaker #1: This performance was remarkable considering the 3rd Quarter of 2024 was also a very strong making it very tough comparison for the year. It is a testament to our commitment to operational excellence and the benefits we are capturing from our investments in digital tools, automation, and restructuring.
Speaker #1: Through the 3rd Quarter of the year, we delivered 70 basis points of net performance and seating, and 105 basis points in each system. Our operating cash flow of 444 million dollars was one of the highest 3rd Quarters in LEAR's history, second only to the 3rd Quarter of 2020, which was skewed by working capital fluctuations resulting from the impact of COVID.
Speaker #1: Our strong cash flow generation allowed us to accelerate our share repurchases, which totaled 100 million dollars for the Quarter. While maintaining our dividend of 77 cents per share, the solid momentum we experienced in the Quarter enabled us to raise the midpoint of our full year free cash flow outlook.
Speaker #1: Had it not been for the impact of the would have further increased the midpoint of our revenue and free cash flow and increased our operating income outlook.
Speaker #1: We continue to extend our leadership and operational excellence through our LEAR initiatives. To advance our employees' understanding and applications of digital and AI technologies, we have launched the LEAR Fellowship Program in collaboration with Palantir.
Speaker #1: This 12-week intensive training will engage 90 LEAR team members from across functions, including IT, engineering, finance, Jagland Rover disruption, we and purchasing. Empowering them to harness AI capabilities to address real business challenges.
Speaker #1: This is the first such company-focused fellowship program for Palantir. They are excited to work with LEAR because of our company-wide commitment to use digital and AI tools to rapidly improve our business and manufacturing processes and further improve our cost structure.
Speaker #1: I couldn't be more excited about the potential of this program, and I will be directly involved to gain the firsthand view into this transformative possibilities of these tools that they offer.
Speaker #1: We continue to win new business in both segments, and each system we have been awarded approximately $1.1 billion of business year to date.
Speaker #1: This is the 4th year of the last 5 years where LEAR each systems has generated over 1 billion dollars of business awards. In seating, we won new business with several automakers, including awards with BMW, Ford Motor Company, Nissan, Hyundai, and Jagland Rover.
Speaker #1: As well as awards with key Chinese domestic automakers. Our modularity strategy continues to drive new business. In the Quarter, we won 4 comfort flex awards, including a conquest award with Hyundai and awards with BMW, Leap Motor, and Sirius.
Speaker #1: During the Quarter, we took operational control of our second joint venture in China, this year. The joint venture supplies key programs for Sirius, consolidating this joint venture is expected to add approximately 75 million dollars to our reported revenue for 2025 and a significant growth in 2026.
Speaker #1: In each system's key business wins include 8 Wire Awards, among which are Conquest Awards for Stellantis and 4 awards with Chinese automakers. We also received 2 new Electronic Awards for power distribution boxes on Ford Motor Company's F-Series trucks.
Speaker #1: For the 3rd straight year, LEAR led the JD Power US Seed Quality and Satisfaction Study, with 7 top 3 finishes. And our customers continue to recognize us for our dedication to quality and performance, Ferrari honored LEAR with their highly coveted Fearless Organization Award.
Speaker #1: Recognizing us as a trusted supplier due to our commitment to transparency and reliability and dedication to quality. Nissan also recognized LEAR for our industry-leading quality by granting us their 2025 Global Quality Award, as well as their 2025 Global Quality Award in North America.
Speaker #1: During the Quarter, we published our 2024 Sustainability Report, providing an update on our commitments to sustainability and governance. Slide 7 provides an update on the key metrics to track our progress on expanding margins and generating long-term revenue growth.
Speaker #1: In seating, we won conquest awards for complete seats in Asia and South America, as well as for seat components with several automakers across multiple regions.
Speaker #1: In each system, we won 2 conquest wire awards with Stellantis in North America and the 3rd conquest award with a key Chinese automaker. Awards for our innovative modular seat products continue to grow.
Speaker #1: We received four additional awards during the third quarter, including a conquest award combining lumbar and seat suspension for Hyundai. Our other solutions combine heat and our foam comfort layer for BMW.
Speaker #1: And heat with seat belt reminder functionality for both Sirius and Leap Motor. These additional wins bring our total to 28 programs for Comfort Flex, Comfort Max Seat, and Flex Air products.
Speaker #1: Our strong relationships with Chinese domestic automakers continue to deliver new business wins. In seating, we won 5 complete seat awards with BAIC, Sirius, Dongfeng, Leap Motor, and SAIC.
Speaker #1: Four of our wiring awards in each system were with Chinese domestic customers. The idea by Lear and our investments in automation generated $20 million in savings in the third quarter.
Speaker #1: Keeping us on track to deliver approximately 70 million dollars of savings for the full year. Restructuring investments contributed approximately 25 million dollars in savings in the 3rd Quarter, positioning us to achieve 85 million dollars of savings in the full year.
Speaker #1: As a result of our strong operating performance, we are increasing our full year net performance outlook from 150 million dollars to 170 million dollars.
Speaker #1: This reflects the positive momentum in the benefits of both Idea by LEAR investments and restructuring actions. Our global hourly headcount reduction is 3,400 through the 3rd Quarter.
Speaker #1: Despite an increase in headcount due to the consolidation of our second joint venture in China, we anticipate the 4th Quarter restructuring actions will allow us to approach our target by the end of the year.
Speaker #1: We continue to outperform our scorecard metrics. These strong results are key enablers to improve margins and drive long-term growth in both segments. On Slide 8, I'll highlight the strategic opportunities emerging as automakers accelerate their U.S.
Speaker #1: production plans. We are currently in advanced discussions with a North American automaker who is looking to increase volume on one of their signature platforms here in the United States.
Speaker #1: We believe the award is imminent, and we will provide an update when it's appropriate. We view this as the first of several incremental opportunities.
Speaker #1: While estimates vary, the total addressable market for increased U.S. production is significant. Automakers continue to announce commitments to increase their production footprints in the United States.
And we we built the industry's first automated automated assembly of our Flex Air Comfort flex and comfort. Max systems to demonstrate our Innovative manufacturing capabilities to our customers and eventually to our investors in a production setting.
By integrating approximately 80% of our capital, which is designed specifically for our manufacturing processes, into our complete seat operations at a 20% to 30% cost advantage, we have a significant competitive advantage in both efficiency and scalability.
These efforts are already delivering results. We expect approximately $70 million in cost savings this year, with an additional $65 to $75 million in savings annually by 2026 and 2027.
In addition to the cost benefits, these initiatives improved working capital and free cash flow.
Our product and process, and Innovations. Improve our underlying cost structure. Resulting in stronger Financial returns for new business quotes.
These tools also enhance the safety, quality, and ergonomics of our world-class operations and improve employee retention.
Our digital and automation strategy is not just about operational excellence. It's it's a key driver of our long-term value creation.
Now, I'd like to turn the call over to Jason Cardew for a financial review.
Thanks. Alright.
Global Production, increased 4%, compared to the same period last year, driven primarily by higher year-over-year production in North America and China.
Production volumes increased by 5% in North America 1% in Europe and 10% in China.
The U.S. dollar weakened against the euro and was flat against the R&B.
Turning to slide 12, I will highlight our financial results for the third quarter of 2025.
Our sales increased 2% year-over-year to $5.7 billion.
Excluding the impact of foreign exchange, commodities, tear recoveries, acquisitions, and destitute sales were down 1%, reflecting the impact of the JLR production disruption, lower volumes on other Lair platforms, and the wind down of discontinued product lines. In these systems, this was partially offset by the addition of new business. In both of our business segments, the JLR disruption reduced our revenue by $111 million in the quarter.
Core operating earnings for 241 million, compared to 257 Million last year, driven by the impact of the jlr production, disruption and other in lower volumes on other their platforms partially offset by positive. Net performance, in our margin of creative backlog.
The JLR disruption, including the impact of trapped labor, reduced our core operating earnings by $31 million in the quarter.
Adjusted earnings per share for $2.79 as compared to $2.89 a year ago.
Reflecting lower adjusted net income, partially offset by the benefit of our share purchase program.
Third quarter, operating cash flow is 444 million. A sign significant increase to the 183 million generated last year due to Improvement in working capital partially offset by lower 4 operating organs.
Slide 13 explains the variance in sales and adjusted operating margins for the third quarter in the seating segment.
Sales for the third quarter were $4.2 billion, an increase of $138 million, or 3%, from 2024.
without the glr disruption sales would have increased 5% year-over-year.
In the impact of foreign exchange, commodities, and tariffs, recoveries, acquisitions, and sales were up 2% due to higher volumes and lower platforms, including the Ford Explorer and Aviator, as well as the GM full-size trucks and SUVs in North America.
The Hyundai Palisade and Xiaomi SU7 in Asia, along with the addition of new business such as the BYD Type 3 in the Series M7 in China, and the Citroën C3 Aircross in Europe, were partially offset by the impact of the disruption to JLR's production.
Adjusted earnings were $261 million, flat compared to 2024, with adjusted operating margins of 6.1%.
After margins were lower compared to last year, primarily due to lower Vines and the mix of production by program, including the disruption of JLR, partially offset by Strong. Net performance in our margin has decreased in backlog.
By 14 explains the variance in sales and adjusted operating margins for the third quarter and the E system segments.
sales for the third quarter were 1.4 billion dollars, a decrease of 42 million or 3% from 2024
without the jlr disruption.
Sales would have been down approximately 1% year-over-year.
In the impact of foreign exchange, commodities, and tariffs, recoveries, acquisitions, and investor sales were down 7%.
The decline in sales was driven by the jlr disruption and lower volumes. On ler platforms, including GM, electric vehicle Platforms in the Ford Escape and Corsair and North America and the Audi A6 and several Volvo Glee programs in Asia.
As well as the wind out of discontinued product lines, partially offset by the addition of new business such as the Renault 4 and 5, the Citroën C3 and C3 Aircross in Europe.
Adjusted earnings were $60 million for 4.2% of sales compared to 74 million and 5% of sales in 2024 lower. Operating margins were driven by the reduction of volumes and Lear platforms, including the disruption of jlr and the wind down of discontinued product lines. Partially offset by Strong. Net performance, in our margin of freedom of backlog.
By 15 provides Global vehicle production, volume and currency assumptions that form the basis of our full. Your outlook.
We are flat on our litter sales, weighted, based driven primarily by lower volumes in our two largest markets, North America and Europe.
From a currency perspective, our 2025 outlook assumes an average euro exchange rate of $1.13 per euro and an average Chinese RMB exchange rate of 7.21 RMB to the dollar.
Slide 16 provides an update to our full-year 2025 outlook. Our current outlook assumes no changes to current terrorist policies or significant industry-wide disruptions due to the next period or other supply constraints.
The primary adjustments to the midpoint of our guidance are as follows.
Revenue is now expected to be approximately $23 billion, or 1% higher than our previous guidance of $22.8 billion.
This increase is driven by favorable volume on their platforms, foreign exchange and the impact of the consolidation of a seating joint venture in China, partially offset by the jlr production disruption.
Core operating earnings are expected to be approximately $1.025 billion, unchanged from prior guidance. Higher volumes on our platforms and further improvements to net performance are offset by the impact of the JLR disruption.
We are increasing our outlook for restructuring costs by $20 million to reduce excess capacity and lower our structural costs. At the same time, we are reducing our outlook for capital spending by $30 million.
Operating cash flow is expected to be in the range of 1 to 1.1 billion and our free cash flow is now expected to be approximately 500 million at the midpoint of our guidance, a 30 million dollar, increase reflecting improved working capital including better, Inventory management, and lower Capital spending, partially offset by higher restructuring costs.
Slide 17 compared our October 2025 outlook to the midpoint of our prior 2025 outlook.
Revenue is expected to increase by approximately 230 million primarily due to higher production, volumes. And later programs, favorable foreign exchange and new business growth. At a recently Consolidated seating joint venture partially offset, by lower jlr volumes.
The midpoint of our core operating earnings outlook is expected to remain unchanged at 1.025%.
Well higher volumes and existing their platforms and an increase of expected. Net performance from 150 million to 170 million are positive. Contributors, these benefits are offset by the impact of the jlr production, disruption.
Excluding the lower Junior production, the midpoint of our operating income Outlook would be approximately 70 million higher. In our full year, margin would be above, 4.7%
We have included detailed walks to the mid midpoints of our guidance for seating, any systems in the appendix.
Moving to slide 18. We highlight our balanced Capital allocation strategy.
Our balance sheet and liquidity profile continue to be a significant competitive advantage for us.
We do not have any near-term outstanding debt matures, our earliest debt maturity is in 2027 and our debt structure has a weighted average life of approximately 12 years.
Our cost of debt is low averaging less than 4% in addition, we have 3 billion dollars of available liquidity
Our Capital allocation priorities remain consistent. We are focused on generating strong cash flow investing in the core business to drive profitable growth and returning excess cash to shareholders.
Given our current valuation and confidence in our ability to enhance the long-term value of the business, we believe the best use of excess cash is to prioritize share repurchases and our sustained dividend.
At this time, we do not see a compelling strategic acquisition opportunity in either segment that would deliver superior returns.
During the third quarter, our strong cash flow enabled us to accelerate our share repurchases to $100 million worth of stock.
And we continue to repurchase additional shares throughout our quiet, period.
Unfortunately, the disruption of Jag Glenn Rover, one of our key customers in both segments, obscured the underlying progress.
We are focused on growing our revenue and strengthening our margins.
We continue to win new business across our product lines in both segments, particularly in China, we still see significant opportunities in a robust pipeline
Our focused investments in restructuring and automation are resulting in strong operation, operating performance and we'll drive margin expansion in both segments.
Our strong focus on generating cash will allow us to achieve Approximately 80% free, cash flow conversion and we remain committed to returning excess cash to shareholders.
While still early to provide a specific outlook for 2026, we see several positive tailwinds over the next two years. These include the non-recurrence of the Jaguar and Land Rover disruption, a strong and positive backlog, and continued benefits from our automation and restructuring investments.
In addition, The Business Solutions emerging from the Lear fellowship program with Talent here are expected to significantly, enhance operating, efficiency and reduce costs.
Across the organization, including within our administrative and headquarters functions.
Looking further ahead, our robust pipeline of opportunities, especially those driven by customers on Shoring efforts position us for additional growth in 27 and meaningful growth. Beyond I couldn't be more proud of the team's third quarter performance. And I'm excited about the opportunities ahead. Now, we'd be happy to take your questions.
Ladies and gentlemen, we will now begin the question-and-answer session. To ask a question, you may press star and then 1 on your touchtone phones. If you are using a speakerphone, we do ask that you please pick up the handset before pressing the keys.
To withdraw your questions. You may press star and 2 again. That is star and then 1 to join the question queue.
Our first question today comes from Dan Levy from Barkley's. Please go ahead with your question.
Hi, good morning. Uh, thank you for for taking the questions. Um, good morning. Appreciate, uh, yeah, appreciate the, the disclosure for the fourth quarter on the jlr assumptions. And it seems like Next Period, you're not really assuming anything. Um, maybe you could just talk about what the impact might be or what's embedded related to, uh, the Ford, uh, stellantis novelis issues, and just sort of any other broader. Uh, supply chain issues with me seeing is does the guy
Fully reflect these points. Knowing that next period is a bit of a wild card.
Yeah, Dan, we were a bit cautious in our volume and production volume assumption for the fourth quarter and, and it's really a combination of, you know, if there's additional risk related to the novellas issue, um, if there's a a slower ramp of jlr's production restart. Um, and if there's a, you know, a modest disruption due to Next Period, that sort of captured in in the range so apps in any meaningful change. In those 3 issues, we would expect Revenue to come in closer to the the high end of the guidance range. And so, you could say, we sort of have 150 million of Revenue protection from the high end of the midpoint, uh, for those 3 issues and and then another 150 from the midpoint to the low end. And I will say that. Um, there is about 55 million dollars of impact for the novellas, um, related production, um, disruptions um, impacting both board and solantis. Um, that's embedded in the
Guidance. So it would have to be something incremental to to that anything that's been announced is, is captured and the guidance and I will say that generally speaking a jlr's restart and ramp up of of their facilities has really been a remarkable uh effort on the part of um the customer and the supply chain just um you know going from zero.
Back to, you know, approaching full production here, um, in a relatively short period of time. So it's been pretty impactful for the for the company. Um, but they've done a great job so far in in getting their lines. Um, back up to rate. They're not all the way there yet. We think by the end of November that they will be,
Thanksgiving. The moving pieces that we've seen here on, you know, how tariffs and reassuring, maybe shifting some of the production plans or how EV has shifted.
Plans in North America, you know, is there uh, still opportunity to have a a healthy backlog in in 26 or is it possible that given some of these shifts? There's still a bit of a of an air pocket as automakers sort of figure out uh their product plans uh you know, given the uncertainties here.
Well no it um it's something obviously we've been dealing with it for over some time. It is is it is starting and we are seeing some stabilization in our customer plans for timing and volume on on new programs which is is good. The industry I don't think is is not yet back to a, a normal. What we've seen historically source.
Cadence. But we are heading in that direction. So I feel we're in in a, in a much better position uh to evaluate where we're at with 2627 Beyond. And in addition to the onshoring in the new program announcements by our key customers for, you know, provides additional opportunities. Like you mentioned, very incremental new business Awards, you know, GM with their additional volumes and oriented Fairfax and uh Ford Motor companies adding volume on their Superduty and their F-150 pickup trucks and saunas.
With new derivatives, uh, now in the grand Waggoner and the the new uh midsize trucks. Um, uh, we do we do see catalysts for better sourcing environment and growth potential that will be meaningful for 202728 and 29. But but even before we consider those longer-term opportunities and I think we have put ourselves in a very good position. Like I said, to not just maintain our market share on those those, uh, announcements, but even grow,
We have increased confidence in our, our 2026 in 2027 backlog, which we expect will be approximately 1.2 billion dollars. And that's that is after the net impact of canceled, uh, delayed, uh, ending programs. Um, you know, such like the cancellation, uh, what was the original Ram rev and the delay of the hybrid version, you know, the buildout of the escape and the Corsair are in our the backlog number. I'm mentioning is as far as a net number and the later the the late launch of the Audi A7 and and q9 are considered in that and that's been almost, you know, a 12-month delay. So, uh, we still have a strong backlog in 26 and 27 despite all those significant changes or canceled programs. And so, we're very, you know, optimistic on on how we're looking at growth. And again, the new programs that we are currently quoting particularly the onshore volume.
We expect will improve you know in the 27 um you know, 27 time frame and and Beyond. And so you know I think perhaps more importantly, we continue to get very positive feedback from our customers on our Automation and digital efforts. I think that's something that is very important as our customers are considering onshoring. It it footprint is a key criteria, but they're looking at how they're going to change and and the Technology Innovation that is going to go into these facilities. And so the timing couldn't have been better for us to have this complete automated facility, that we have in in Rochester Hills to really
you know, it you know, um,
Go through an experience, our, our technology, and that the continuation of what we've done on the digital side is, is very impressive and in some cases we're getting incredible feedback from our customers and so there's a lot of different things that we're still going on. I I was hopeful, we'd have some announcements by now but we're following the process of being respectful of our customers and where they're at. But I I do feel very good about the feedback we're getting from our customers.
Um, on those opportunities. And and these systems, I think we've done an excellent job. We have a lot more work to do. We're not by any uh, stretch happy on where we're at. I think Nick and the team are doing an excellent job of expanding margins and and they've done a nice job this year. Like like I said on earlier the 1.1 billion dollars of awarded business and
In most recently the new wards were getting now with the domestic Chinese is critical. And most recently we just got requests from several OEMs.
And potential conquest opportunities, and that was very surprising to get those requests. So, those are things I'm not going to get ahead of myself on. But I see some very...
You know, an update on our backlog, uh, on the fourth quarter earnings call, but I feel really good. And again, I think we have a solid backlog. Um, right now, given all the canceled programs, delayed programs, and what we've done, I feel better about where the customers are at. Now, I think they've really sized up their portfolios. Uh, we have a good understanding of where they're at, and that's our net number. And we have a lot more opportunities. Like I said, hopefully, by the end of the year or early next year, we'll have some of these onshoring announcements. But I think from a technology innovation automation perspective, we put ourselves in a very, very competitive position to win some good business there. And so I'm very optimistic and positive about what we're doing with growth.
Thank you. That's all really helpful call us.
Our next question comes from Joe Spock from UBS. Please go ahead with your question.
Thanks. Um.
I guess maybe 1 Clarion here. Um, um, on slide 7, um, you're showing like you're ahead of...
Um the net performance targets year to date versus sort of the annual ones. So I just want to understand is that does that mean there's
some bad guys, in the fourth quarter because of some of the volume headwinds you're you're pointing to or are you trying to sort of imply that
You're just running ahead, and there might be a little bit, um, better performance that you could eek out for the year.
Yeah, that's effectively what's implied in in the full year guidance and so we had a particularly strong third quarter, um, Joe and that performance, and some of what we had anticipated on Commercial settlements commercial negotiations, um, what we're planning in the fourth quarter, were pulled into the third quarter and, and uh, it's about 10 million that, um, we were able to pull ahead. So Q3 is a little stronger than anticipated, and then that's offset in the fourth quarter and then, you know, the other Factor impacting sort of that sequential performance from the third quarter, the fourth quarter. Um, we have some higher engineering spending and that's a combination of spending. And the timing of customer recovery is particularly in these systems where we had really strong. New business wins this year and we're ramping up the engineering resources to support uh those programs uh, that's a factor. Um and then on just salary compensation, this is
The, you know, the time of year where we have our our annual, um compensation increases. So the fourth quarter, reflects some additional costs, relative to the third quarter. Um, and then that's partially offset by some incremental performance through restructuring, um, and and idea by Lear. So those are sort of the net puts and takes. And again, you know, I think I would characterize the guidance as appropriately conservative given the other factors that listed. Um, a moment ago in response to Dan's question with the jlr next period in nollas. And, you know, absence and deterioration in those 3 areas, we would expect to outperform the the midpoint. Um, we do have uh, an investor conference where participating in and and early December and we've booked to provide an update for investors um, at that point in time and how things are tracking.
Thank you. Um,
And then um maybe just on some of the backlog commentary, right. Just I guess I just want to make sure I thought I I heard the 1.2 billion dollar number was that
26/27 combined number. I just I just want to make if you could uh clarify that and then also related to some of the, you know, the wins. And I know you even sort of talked about, um, an F Series win on, um, distribution boxes. This quarter. I think you've already won some thermal
I know you've previously expressed some optimism that more can be done on the seed side, but I think that you had mentioned some of the sourcing decisions for that program have been delayed. I'm just wondering if you have an update specifically on whether that program has been awarded yet.
27 with the program cancellations and um, and programs that are, um, ending production like the escape and in Corsair, but we hadn't talked about, um, all the positives, which, you know, we've had significant new business Awards, um, in that 26 and 27 time frame in both business, segments, that helped offset it. Uh, we also have the benefit of this new business with a series in, um, in China as a result taking control of the joint, venture there excited about the growth potential of of that, um, as well. So, um, you know, I think on balance All Things Considered, we were pretty, um, happy with where we're at. And we feel like we have some additional upside for some of the sourcing and onshoring that has yet to take place that may impact the sort of tail end of 27 and and maybe more. So you know, 28 and 29. Yeah I think um,
You know, the process I'll be in has taken longer than what we anticipated.
Uh, yeah, kind of look at 2 different. Uh, buckets 1 is the onshoring opportunities that we're engaged uh, with our, with, with different OES, um, throughout the US and, you know, European customers and obviously, the North American customers and, and looking at opportunities there and we, those are taking, you know, which I think are is the right process. A lot of technical analysis, uh, you know, you know what we're going to do with automation how we're going to
Li plants out how we're going to set up uh facilities near their facilities. Those are all very constructive and I'm very confident that those are going in the right direction. The conquest wins or opportunities we talked about are equally I think, um, as balanced as far as opportunities and and they're still available. They just, you know, through the processes taking a little bit longer than what you know. We we would, uh, originally targeted. But nonetheless hasn't hasn't changed our optimism around our ability to to win, some really good Conquest opportunities and then also be on Shoring relative to some of the the different oems I've mentioned. And so it's just taking a little bit longer. I was hoping that you know Jason mentioned an investor conference. We're going to go ahead. Hopefully we can let a little bit out there but if not as it's coming out and it's appropriate and we get approval from our customers to announce it. Um, we'll make sure that, you know,
Okay, 1, 1. Just a really quick follow-up. Just to make sure we're properly covered, that's the consolidated backlog numbers you're talking about, correct? Or does that include some? Okay, thank you.
Yeah, that's just the consolidation.
Thanks.
Our next question comes from Mark, Delaney from Goldman Sachs, please. Go ahead with your question.
Uh, yes. Uh, good morning and thank you very much for taking the questions. Uh I I guess 1 topic I wanted to to start with was around uh, the increased um, ability to to, uh, do uh, automated Manufacturing in the US. And you, you spoke about just just how automated, uh, uh, this, this new facility is. And and so as you think about uh, doing more work in the US and and and hopefully supporting some of these uh, these these programs that that that you refer to C, could you just talk about the margin implications. I mean, I think you know, clearly labor costs tend to be higher in the US but there's so much automation so you know as you do that kind of a business um locally is that supportive of the near and medium-term margin targets of the company.
Yeah, I think that looking at the onshore and opportunities specifically we're seeing operating margins um that are very similar to our North America sea business. And um, and so the automation is helpful, in terms of, you know, being able to offset, maybe the higher cost of Labor between, you know, Mexico and the US. And then that affected that maybe a little higher capex. Um, but with the, you know, the resulting benefit of being strong, strong operating margins, um, in those facilities. And, and so, and then on The Conquest Awards, sort of the same story we we see, uh, leveraging automation
Not just product. We've we've really focused on the disruption of purchasing model and that's taking, uh, some time but 28 significant awards were complex comfort and flex. Their that, that's a significant change in the purchasing model or what they've uh typically done. And so, you know, that is something that we're going through and it there's a significant savings and opportunity there and the way we're automating it. So it's tied to the manufacturing facility and the the Acquisitions we've made I think we we got to look at we've been at this for over 10 years and the timing is very good uh for the technology and Innovation that we brought in. You cannot get this out and catch up and any reasonable time. This is something we've been working on for a long period of time and we're being recognized from our customers. You know there's feedback that we got that they're looking now at Technology Innovation within the supplier base and we had a significant advantage over our closest
Competitor. And we're going to just keep pushing.
The gas on that it. You know I I mentioned that by having these in-house capabilities and building very purpose-built, Capital allows us to significant significantly. Take the cost down, that's very important. We're manufacturing our own Capital. Now historically we would buy a 90% of our capital and very generic, very standard vary across the board. Use of capital, we're very purpose.
Office Bill and just like you, you think about VAV or cost savings through engineering designs on a product side that whole opportunity exists and we're seeing it and and I say 20 to 30%, we're going to push that even harder. And so we're seeing our Capital numbers come down significantly and I think the important ingredient here, you know with our domestic Chinese, they're pushing timing. And now what we're seeing here with onshoring, the speed to delivery we can get at that. It's very important to keep bringing up the most recent, um, launch that we had here in the US and be able to launch that in 8 months. That's because we have full control. So I think about a full service manufacturing integrator and there's not a lot of companies out there and we're benchmarking different companies and there's some great companies that we look at and say okay we got a gap that all we have to prove that but from product design to manufacturing ability we have the elements and so you know as we're having these why I'm so confident is the feedback we're getting from the customers. And again a lot of this is about
Uh, retention the the the the employees, love the technology on the plant, for we get great feedback on, you know, job satisfaction the ergonomics, the ability to see better around inventory levels and and how we can, you know, really focus on working capital. This is an accent when we look at our cash flow and what we're doing these all benefits. Everything you want to check off and so
having a leadership position in that the timing couldn't be better and you know,
I guess that optimistic we we were going to wait till we get the appropriate feedback from our customers on these Awards, but I think that will just let lead to more evidence on everything. We're doing is is is in a in a constructive, good way disrupting how you think about just in time seating and you can have others that talk about what they have and don't have. But having that ability to have it in house, is a differentiator
Uh, we'll stay tuned for, uh, December 4th. Hopefully, I get some, uh, some news there at the, um, at the conference. Um, uh, thanks for all that. My second question is on net performance. I think Jason last quarter, you described an expectation that net performance, uh, in 2026 could be replicated, uh, relative to what you were seeing in 2025; and at the time, that was $150 million. So, you know, as you look into 2026, uh, and think about net performance, uh, is the $150 million level you've been expecting 90 days ago still a reasonable framework at this point? Or any updates, uh, that you can share on, uh, your net performance thoughts, uh, for next year? Thanks.
Sure. You know, I think just to clarify what we've said, um, is that we believe that what we can, you know, we had established a target for not performance and in the business for this year: 40 basis points in City and 80 basis points in these systems, and that we could replicate that, um, in 2026. And again, in 2027, we've done better than that this year.
170 million dollar level. Now that that we've uh had embedded in, in this year's outlook for certainly going to work towards uh, achieving that. But um, I can say with confidence that that we're, we can generate 40 to 80 basis points, 40 and seating 80 in these systems of net performance, um, in 2026. And I think it's important, we put those metrics out there because the they really are driving us. And we are going to expand our margins in both business, segments, that that is the focus. That is the focus. And we're trying to illustrate with with the ability to execute how we're getting at that. And I having that confidence why we're talking about is, you know, I I think introducing idea by Lear and and what we're doing prior to that really Illustrated what the company can do, our culture is built around getting at this. And so I think, you know, it's a baseline for how we see this year, but we're very confident in what we're going to be able to deliver next year. And it is going to be about expanding margins in both business segments.
Thank you.
All right, next question. Comes from Emmanuel Rosner from Wolfe Research. Please go ahead with your question.
Oh, thank you very much. Good morning. Um, hey Manuel, I appreciate all the, hey, good morning. I appreciate all the callers on the, um, on shingo opportunities. Anyway, to a dimension this for us, in terms of addressable markets, either in terms of volume or revenue, like how many units are you sort of like, um, seeing customers?
Looking to potentially bring to the U.S., and what sort of time frame?
The, the way the that we can Dimension it. It's, you know, we've established and communicated a market, share Target, and seeding. For example, growing from 26 to 29%. And we've we've said that we believe the onshoring on balance will support, um, our market share or expand our market share. So, um, you know, I think it's premature to get into specifics around, you know, uh, Revenue dollars or units of production. Um, you know, in terms of what will be done in the US given the the state of the discussion with with customers. I think that that level of granularity would be misplaced at this point Emmanuel,
I understand, um, and then I appreciate also the caller on the, uh, on the backlog. Um, you know, certainly encouraging to see some wins for 2027. Uh, can you also give us a sense of, uh,
Potentially to break down between your 2, uh, uh, product lines, uh, sitting versus E Systems within that. And you know, how this, how should we think about growth of a market for E Systems progressing from here? Um between, you know, maybe the end of the wind down you know, at some point and then you know, some of these uh big wins that you mentioned.
Yeah, so if we look at next year, seating backlogs is expected to be north of 700 million and um, any systems is right around negative 100 million. And so the biggest Factor driving that next year is the the balance out of the Scapes Corsair and beginning to wind down to the focus. And and uh, seamax in Europe, you know, 230 million 240 million of Revenue that goes away on, on those kind of keep platforms. Um, we do have just to to talk a little bit about backlog composition in both business segments next year, you know, we we have the Audi Q7 and q9. Um, which is the, you know, that the series M7 and the Jeep's Cherokee here in North America. Those are the the Big 3 programs that that drive the bulk of the seating backlog next year. But we also have some growth with BMW on their new class.
Or end car program. Um, and we have some growth with a global EV OEM with Bic. Um, and with BMW, uh, on these systems. We also have growth with a global Evo M, that rolls on next year, that was a conquest win for us. We had the continued ramp up of the Volvo ex30 in Europe, which is a great program for us. And then we have
Product lines that were exiting, um, any systems, those numbers are consistent with what I shared on the prior earnings call. And uh, so it's about 350 million over 2026 and 2027. So that's certainly going to weigh on growth over Market over that time period. And then in 2028 you start to see and in 29, the benefit of the conquest Awards, um and new business growth opportunities that we've won this year and are pursuing, you know, throughout the balance of this year. And into next year, uh, like the F250, where a portion of that, uh, was replacement business. But there's a significant portion of that that was conquest and we have several other opportunities that we're quoting right now in wire. Um, that would be countless opportunities and and lead to further growth in that in that window. And so the near-term growth of a market is going to be um, weighed down by by the the wind down of the the programs and and the
The roll-off of that escaped course there, uh, program.
Is it just just very quickly clarification. So these these wind down in East systems, that would already be included in the, uh, uh, small negative background in 2026 and then, uh, would you talk about the, uh, breakdown of the backlog? Uh, between businesses in 27 piece?
Yeah, I think I'll I'll save the the 27 detail for um the fourth quarter earnings call. It's um, it's more balanced in 27 than in 26. Again in in 26, the system's backlog is negative and, and that's, um, independent of the wind down. Um,
of the
electronic business that we've spoken about in the past.
Great. Thank you.
Thanks man.
Our next question comes from Colin Langan from Wells Fargo. Please go ahead with your question.
Oh great, thanks for taking my question. Um, just you know, as we think about 26 margins, you mentioned this year the starting point, if excluding JLR, would be 47. And then there's, you know, $65 to $75 million of automation savings. Is that the right way to think about it as we step into next year, that the baseline is 47 and then you have the $70 million in additional help? Any other factors that I should be considering? Um, or is that the authorized starting point?
So it's early, obviously, to provide, um, you know, pinpoint numbers for next year, and we're still, uh, deep in our planning process. But you've hit on some of the key, um, puts and takes as we look out to next year. And I think the right way to model 2026 for Lear, the right exit rate to use for that is kind of the JLR adjusted.
Uh, for an emerging 4.7%, that's why we thought it was important to share that, uh, with investors today. Um, you know, looking at the S&P forecast, you know, they're they're calling for lower production, particularly in North America, I think Down 2 and a half percent, you know, we haven't, uh, concluded, uh, you know, our view, um, at this point, but we're trying to use conservative volumes for our planning, uh, process. Um, in order to get the cost structure aligned, um, and in our margin Improvement, plans, um set, um, based on that relatively conservative set of assumptions. And and, you know, from there, you can overlay the benefit of our backlog offset a little bit by the systems wind down and the benefit of our uh net performance improvements, which will be, um, higher in these systems than seating. So kind of summarizing all that, you know, the very early stage here we do see revenues higher next year and earnings higher. And next year we see margins higher in both segments.
And it's probably a little bit more in the system. Okay, I just mean to summarize it. Everything we're doing, I feel.
Really good about the work we're doing around this net performance. And what we're doing with idea, by layer, I think the...
And we got the tools to do it. So I'm confident, and I think we have some good tailwinds heading into 2026, despite everything else going on.
Got it and then just lastly on um BuyBacks. I think you commented that there's sort of no big m&a on the table and the pace and the quarter just 100 million. I think your commentary implies another 100 million is that maybe the pace, we should consider that most of the cash flow starts getting allocated to BuyBacks or is that reading too much. And so the, the the Outlook,
No, that is clearly what we we are signaling here in the, you know, for for the balance of this year. And into, into next year, we think that's the best use of of our excess cash. And you know we're targeting about 300 million in the fourth quarter. We had a program in place to buy throughout the quiet period. I think we've we've bought almost 50 million um, through the month of October. And we're going to continue um, through the balance of the fourth quarter. If we have a line of sight on a free cash flow number beyond, the midpoint we made by back a little bit more even. Um, we're going to be very uh opportunistic with with our buyback program and and we see that continuing into next year. Now, we do have our our board meeting in November where we discuss Capital allocation and so ultimately, that's a board decision but that that is our our current thinking. Yeah, well we're focused on that cash. I like this quarter, the 444 million and I love some.
The things that we're putting in place around working capital and inventory levels. It's uh continuing to improve and we continue to push the team because that cash is uh is uh important and we're going to continue to drive uh good good results there.
Did you just say 300 million, in Q4 and BuyBacks or or 100 million? Maybe, I'm not sure if I missed her 300 million for the year. Yeah, sorry. Okay, got it. Okay. All right, thank you.
You're welcome.
And ladies and gentlemen, with that, we'll be ending today's question and answer session. I like to turn the floor back over to Ray Scott for any closing remarks. Yeah, thank you, and I'm sure the leader teams on the phone. I just want to again, extend my appreciation and thank you for a great quarter. I know we got a lot to do to, to finish up the full year but I know like I say, we're built differently. I know we're all going to get at it and we're going to um knock this thing out of the park. So I appreciate everything you did in the third and uh looking forward to what we're going to achieve in the fourth. Thank you.
And with that, we'll conclude today's conference, call in presentation. We do thank you for joining, you may now disconnect your lines.