Autoliv, Inc. Q1 FY2025 earnings call

• The company showed strong adaptability and resilience in the first quarter, with a solid foundation for 2025. - Achieved record earnings per share due to cost reduction activities, including reducing indirect workforce by over 1,500 since Q1 2023 and direct headcount by 3,700 over the past year. - Neutralized tariffs almost entirely in the quarter by agreements with customers. - Received the PACE Pilot Innovation to watch award for the Bernoulli airbag module. - Global light vehicle production had fluctuations, with China seeing growth due to scrapping/replacement subsidy policy, while North America and Western Europe declined. - Sales growth was robust in most regions, driven by product launches and pricing, with key model launches in Americas, Europe, and South Korea.

Autoliv Inc's first quarter 2025 had net sales of $2.6 billion, a 1% year-over-year decrease due to negative currency, light vehicle production development, and regional/customer mix issues. Adjusted operating income increased by 28% to $255 million, with an adjusted operating margin of 9.9%, 230 basis points better than the same quarter last year. Organic sales grew by 2% excluding currency effects. Regional sales split: China accounted for 17%, Asia (excluding China) 20%, Americas 33%, and Europe 30%. Gross margin was 18.6%, an increase of 160 basis points year-over-year, driven by direct labor efficiency and headcount reduction.

• Based on global light vehicle production decline of around negative 0.5%, tax rate around 28%, and net currency translation effect on sales around minus 3%, operating cash flow is expected to be around $1.2 billion. - Committed to maintaining high-level shareholder returns despite challenges. - Full year guidance is based on these assumptions and the company is monitoring the situation closely for adjustments.

• Tariff situation poses challenges, with uncertainties regarding compliance and impact on production and costs. - Economic fluctuations, including slowing growth in some regions, can affect light vehicle production and sales. - Raw material price increases and geopolitical challenges may add cost pressures. - Uncertainty in the automotive industry landscape, including changing vehicle production mixes and supply chain disruptions.

Q: Good day. Thanks for take my question. I know mid-quarter, you were trying to size the USMCA exposure. Do you have any better clarity now on how much of your sales are non-USMCA compliant that are at risk? Because I didn't see any actual impact on the walks on margin or sales, so I assume it was pretty small in March. But at any run rate you could kind of help so we could frame the potential risk?

A: We haven't given any detail around the split there with the USMCA compliance or noncompliance here because it's, I would say, with the current circumstances here, I mean it's pretty fluid situation here. And giving too much details in this environment, I think would more confuse than support. I think the bottom-line here is that we are well-positioned here with the footprint we have described here. We are having a regionalized setup, so meaning Americas for Americas. However, now with this focus on the U.S. side, it means the tariffs imply impact us mainly for the Mexican flow, but as we have mentioned here, that production we have in Mexico is to a large extent for OEMs in Mexico, also our customers are there. They also have pickup points in Mexico, meaning that they are carrying them over, and then a smaller part of that is also carried by us over the border into the customers' plant in the U.S. We are working with our customers here to see what we can do to improve that. But the reason why we are not -- why we have USMCA non-compliant components here is because there is no -- to a very large extent, there is no available supply in the region there. And we mentioned, for example, leather, we mentioned magnesium for the steering wheels. We have also uniqueness when it comes to certain directed components when it comes to electronics in the stearing wheels, et cetera. So we are working to find alternatives with our customers but that will take time. But wherever we are impacted by there is what we'd pass on to the customer here through surcharges. So I think we are as good as we can get in this environment here right now, and we monitor it carefully going forward to see what we can do.

Q: And the vast majority was passed on to the customer in the quarter already?

A: Yes, yes.

Q: Okay. And just as a follow-up. In your comments, you said -- I believe you may have misheard, but the profit trajectory is not going to be like prior years now. Is that -- but it will be strongest in Q4. So how should we be thinking about, I know you don't get quarters, but Q2, any rough color there? Are we now expecting that to not increase sequentially? And why would that be the case?

A: No, what -- I mean we have -- I mean I would say, we are more back to the normal free inflationary environment here where you always had a weaker Q1, we had a stronger Q4 and then Q2 and Q3 was more average in between there. And I think that's what we are trying to say now that we are not seeing the same inflationary pressure that creates this sequential development that we have seen for the last three years. So more back to normal.