How China Is A Major Boost For Lear Corporation Right Now
Lear Corporation (NYSE:LEA) is a leading automotive interiors supplier whose revenue was up 3.2% year-over-year through the first nine months of the year, on growth in worldwide vehicle production. The company’s business is well-balanced in terms of product segment, customer and platform mix, and by geography. The fact that Lear’s business is spread across geographies is important given that if the market is down at one place, the company could extract growth in some other market. China has been that market in the last few years, with a high growth in its automotive production.
Through September, North America formed 41% of the company’s top line, Europe and Africa formed 39%, South America formed 3%, and Asia formed 17%. Of the 17% of the sales contributed by Asia, approximately three-fourths is from China. Lear has seating facilities across 12 cities in China, electrical facilities across 5 cities, and one administrative/technical facility in Shanghai. Revenue from China formed ~12% ($2.1 billion) of Lear’s top line in 2015, and non-consolidated sales in the country were another $1.5 billion.
North America sales declined 1% for Lear through September, mainly as the automotive growth has slowed down this year after aggressive refilling of fleet took place in the last few years, following the decline during the recession. Growth in China becomes even more crucial in this respect. Taking aside the negative impact of currency translations, which have reduced the transactional value of China’s sales this year, the growth in the country’s automotive industry has had a positive impact on Lear.
According to the China Association of Automobile Manufacturers, China’s passenger vehicle sales are up about 15.4% year-over-year through September to about 19.1 million units, buoyed by government tax breaks, and high discounts offered by dealers. The driver of this growth have been the SUVs and Crossovers, which have grown by 40-50% this year. The share of SUVs in China’s passenger vehicle market has risen from 32.7% in October 2015 to 39% October 2016. The growing demand for SUVs and Crossovers is aiding in growing content. Customers are opting for SUVs and Crossovers, which combine the looks of a car with the functionality of a utility vehicle. Why this benefits Lear is because these vehicles typically require more seating and electrical content per unit. The domestic manufacturers have benefited more from the rise in demand for SUVs, having over 62% share in China’s SUVs segment. While overall SUV sales in China rose 43.3% year-over-year last month, sales of Chinese-brand SUVs rose 60.4%, expanding the market share for Chinese automakers in this segment by 6.6 percentage points to over 62%. The good news for Lear is that it has solid relationships with the domestic manufacturers as well as foreign automakers, which protects its growth, despite the shift in market-share trends. Increase in content per vehicle is expected to increase the revenue from China for Lear.
Lear’s equity earnings from its Chinese joint ventures doubled to $50 million in 2015 from $24 million in 2010. Lear now expects these joint ventures to continue to grow strong and surpass $3 billion in sales by 2018, based on its 3-year non-consolidated sales backlog of almost $1 billion. [1]
Global vehicle production is expected to grow by 3% in 2016, up from 2% in 2015. China is expected to spearhead this growth, while growth in the U.S. is expected to weaken after the refilling of fleet (following the recession) in the previous three years. Demand is expected to be subdued in struggling economies that are major oil and commodity exporters. In this case, the growing production and content per vehicle in China becomes even more significant for Lear Corporation.
Have more questions on Lear Corporation? See the links below.
- Lear Raises Guidance On Solid Operational Performance
- What Will Be The Jump In Lear’s Valuation If Electrical Margin Jumps By More Than Expected?
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- Growing Content In China Could Add To Lear’s Growth This Year
- Lear Earnings Review: Profit Rises On Solid Performance Across Seating And Electrical Segments
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- Lear Corporation: Year In Review
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- How Has Lear Corporation’s Revenue And EBITDA Composition Changed Over 2011-2015?
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- Why Lear’s Stock Has Appreciated 90% In The Last Five Years
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