Autoliv, Inc. Q3 FY2024 earnings call

• Gratitude to employees for contributions to third quarter results and ongoing efforts to enhance competitiveness despite market headwinds.
• Maintained solid sales and earnings in the quarter, outpacing light vehicle production by four percentage points. Adjusted operating profit was virtually unchanged due to effective cost reductions and cost compensations.
• Inflation compensation negotiations progressing as expected with few outstanding. Progressing towards reducing indirect workforce by up to 2,000 and related savings of US$50 million in 2024, and reducing direct headcount by around 6%.
• Cash flow strong, with repurchasing and retiring 1.3 million shares for US$130 million in the quarter. Earnings per share improved 11% due to lower number of outstanding shares and lower tax rate.
• Market development: Global light vehicle production declined nearly 5% in the third quarter, with different regional mixes. Production cuts in North America, Europe, and Asia (excluding China) mostly offset by increased output from domestic OEMs in China.
• Cost improvements: Direct labor productivity trending up with reduction of 3,100 direct production personnel year-over-year. Gross margin improved by 110 basis points from the first quarter and 10 basis points year-over-year. RD&E and SG&A in relation to sales continued to decline.
• China market update: Chinese car manufacturers are growing rapidly, Autoliv is the leading automotive safety supplier to global and domestic OEMs in China, with 68 customers, and has made significant investments and achieved market share gains in NEVs. Had a record number of key model launches in the quarter, including models from Chinese and Indian OEMs, with trend towards electrification and higher CPV.

Consolidated net sales in the third quarter were US$2.6 billion, which was $42 million lower than the previous year. Regional sales split: China accounted for over 19%, Asia (excluding China) for 20%, Americas for 33%, and Europe for 27%. Adjusted operating income for Q3 decreased by 2% to US$237 million from US$243 million last year. The adjusted operating margin was virtually unchanged despite lower sales.

• 2024 guidance is built on global light vehicle production decline of around 3% for the full year.
• Adjusted operating margin guidance is around 9.5% to 10%, expected to be at the low end of the range.
• Operating cash flow expected to be around US$1.1 billion.
• Anticipate significant increase in profitability in the fourth quarter compared to the first nine months, supported by higher light vehicle production, seasonality, structural cost reduction, and favorable currency effects, partly offset by supplier cost inflation.

• Market headwinds from weak light vehicle production.
• Unfavorable regional light vehicle production mix impacting top line performance.
• Volatility in call-off.
• Supplier cost inflation and related settlement costs.

Q: About the cost takeout program, specifically on headcount reduction and progress in Q4.

A: Fredrik Westin mentioned indirect headcount reduced by over 1,200 so far, direct headcount reduced by around 6%, progressing in line with expectations, and savings coming through as expected.

Q: Regarding Chinese domestic OEMs, how to see market share going forward?

A: Mikael Bratt said making good progress in increasing share of Chinese OEMs and expects outperformance in 2025 as Chinese OEMs grow together.

Q: About the supplier settlement, nature and impact?

A: Fredrik Westin said cannot comment on the legal case details, it was related to a settlement with a supplier but nature not disclosed.

Q: On Europe's outperformance in the quarter and extrapolation, and customer commentary?

A: Fredrik Westin said outperformance in Europe due to significant launches and cost compensations, no indication of sudden change in outlook, and no downside risk compared to alluded to.

Q: On China OEMs and component to system supply transition?

A: Mikael Bratt said historically customers starting with component buying tend to transition to system supply as they globalize, and it's a tendency seen.