EUR 850.00 For Business Accounts Only

Morningstar | Autoliv Full-Year 2018 Revenue Improves but Margin Disappoints; Maintaining $80 Fair Value Estimate

Narrow-moat rated Autoliv, supplier of airbags, seatbelts, and steering wheels to the global auto industry, reported earnings per share before special items of $6.83, $0.13 better than the sell-side consensus but $0.29 lower than the year-ago result. However, management tamped-down expectations for 2020, by which, the company had previously said it would achieve greater than $10 billion in revenue and 13% adjusted operating margin (excludes special items). While the revenue and margin targets remain, the time frame by which they will be achieved has been postponed. The stock reacted with a 5% sell-off, but shares remain 3-star rated, reasonably priced relative to our estimates for revenue, cash flow, and return on invested capital.

Full-year 2018 consolidated revenue improved 6.7% to $8.7 billion from $8.1 billion reported last year. The America's region led the year-over-year improvement with a 12.3% revenue increase. Airbag and Seatbelt groups were both up equally at 6.7%, but airbag growth was steadier throughout the year while seatbelt business jumped in the first half followed by declines in the second half of the year. Lower second half seatbelt revenue was attributable to Europe WLTP and negative currency translation. Despite consolidated revenue growth, adjusted operating margin contracted 60 basis points to 10.5% from 11.1% in 2017. The disappointing performance was attributable to higher-than-expected launch costs, increased commodity costs, and unfavorable currency translation, the combination of which more than offset favorable operating leverage.

Management guidance includes organic growth revenue growth of 5%, partially offset by a 1% negative currency translation, for a consolidated full-year revenue growth of 4%. Adjusted operating margin guidance for 2019 is around flat with 2018 at 10.5%. We adjusted our 2019 estimates to 4% revenue growth, down from 9.4%, and to adjusted EBIT margin of 10.6%, down from 11.4%. The revision had little impact on our $80 fair value estimate, as our normalized sustainable midcycle assumptions remain intact.