Autoliv Earnings: Solid Revenue Growth From Backlog, but Chip Shortage Continues to Ding Margin

Narrow-moat Autoliv ALV reported first-quarter earnings per share before special items of $0.90, even with the $0.90 FactSet consensus EPS but $0.45 ahead of the $0.45 EPS reported last year. Revenue increased 17% to $2.5 billion as volume, pricing, and the chip shortage all improved compared with a year ago and beat consensus by 7%. Excluding negative currency effect, organic revenue climbed 21%, outperforming a 6% increase in global light-vehicle production by 15 percentage points due to launched new business and increased pricing, partially offset by continued but fewer customer call-offs.

With customers’ chip availability and production volume improving, adjusted operating income jumped 93% to $131 million from $68 million last year. Margin expanded 210 basis points to 5.3% from 3.2% last year but was still impacted by customer call-offs. With the sizable beat in revenue but a 5.3% margin compared with 10.0% in the fourth quarter, the market showed its disappointment as shares sold off by 5%. Despite continued industry headwinds, management maintained 2023 guidance with organic revenue growth of 15%. Including a negative 1% currency effect, revenue growth guidance is up 14%. Because of improving volume as the chip crunch lessens and better pricing, Autoliv adjusted operating margin guidance is 8.5%-9.0%, up from 6.8% reported for full-year 2022.

We model organic revenue roughly in line with management’s guidance, but our euro currency assumption using the forward curve is up 3% for a total 16% year-over-year increase. Due to high uncertainty remaining from the chip shortage, Ukraine crisis, weakening global auto market economies, and inflationary cost pressures, we assume an 8.5% 2023 adjusted operating margin at the low end of guidance. The time value of money added $1 to our fair value estimate, raising our fair value estimate to $96 from $95. The 3-star-rated shares of Autoliv trade at a 9% discount to our new fair value estimate.