Autoliv Inc. (ALV) Q2 2012 Earnings Conference Call July 20, 2012 08:30 AM ET Executives Jan Carlson – President Chief Executive Officer Mats Wallin – Chief Financial Officer Mats Odman – Vice President, Corporate Communications Analysts Brett Hoselton – KeyBanc Patrick Nolan – Deutsche Bank Ryan Brinkman – JP Morgan Johan Dahl - Erik Penser Bank Hampus Engellau - Handelsbanken Peter Nesvold - Jefferies Joe - Robert W. Baird [ph]Davis Lesnar – UBS Presentation Operator
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Moving on to the next slide, we continue to execute on our growth and operational strategies. Our organic sales growth and EBIT margin were slightly better than expected, despite a 10% light vehicle production drop in Western Europe.Cash flow rebounded as expected from quarter one and the operating cash flow for the first half of the year was the second best in the history of our company. We also paid a record dividend of $0.47 per share in the quarter and continue to generate strong returns on investment. Looking ahead, we see a more uncertain macro environment. For instance, in our largest market, Europe, light vehicle registration in Western Europe continue to run at a 17-year low and light vehicle production continues to decline. Due to this we announced our capacity alignment program at the start of the year. Our investments in growth will continue to pay off over the next several quarters. As a result, we expect to outperform the light vehicle production by approximately 5% points during the second half of this year. And lastly, despite the head wins in Europe, we still expect to return to a double digit EBIT margin in the third quarter excluding costs for anti-trust investigations and capacity alignment. Turning the page, we have some of our key figures for the second quarter. We achieved a new record sale of $2.1 billion for a second quarter and an underlying EBIT margin of 9.4%. Our return on capital employed and return on equity remained strong at 23% and 15% respectively. Turning the page, we have our cash flow. During the quarter we (inaudible) operating cash flow of $219 million, and our capital expenditures of $85 million was approximately 4.1% of sales. However, the full year 2012 indication remains unchanged at around 4.5% of sales. This level of investment is required to deliver growth rates above the market growth and support our strong order intake.
During the quarter, we returned $45 million to our shareholders in the form of the dividend which is a new record payout. This concludes my formal comments around the second quarter.And I now want to look into the outlook on the next page. On the next page, we have the third quarter light vehicle production according to IHS. That is expected to increase 2.1% year-over-year. In April, the expectation was an increase of 3.8%. This change in light vehicle production is primarily due to a lower production outlook for Western Europe, China and rest of Asia. However, IHS still expects a year-over-year growth in North America, Japan and China of 8% each, while the production in Europe is expected to be down 8%. On the next page, we have our outlook for the third quarter. Based on our customer call-offs we expect to continue to offset this strong negative head wins from Western Europe and achieve an organic growth rate of nearly 4%. This growth is due to our long term investments in China in the active safety that are paying off and due to important platform launchers. For the quarter we expect an underlying operating margin of approximately 10%. Sequentially, our margin improvement from the second quarter is mainly due to better utilisation of our capacity investment in China and R&D net. On the next slides, we see some of our key launches in China. These models will contribute to our market share gains and the overall market out performance in the second half of this year. The annual revenues for these models are the range of $10 million to $40 million each. On this great wall H6 platform we have a good example where Autoliv supplies all of the passive safety product. These launches will have Autoliv reach close to $1.2 billion of revenue in China this year.
Turning the page, we have the second half light vehicle production is expected to increase by approximately 1% year-over-year according to IHS. This year-over-year increase is approximately 2% point less than IHS forecasted back in April. And despite this negative market trend, we expect to outperform the global light vehicle production by 5% points during the second half of this year.Read the rest of this transcript for free on seekingalpha.com