Autoliv Earnings: Solid Revenue Growth and Margin Expansion as Chip Shortage Alleviates

Narrow moat Autoliv ALIV SDB reported second-quarter earnings per share before special items of $1.93, blowing the doors off the $1.41 FactSet consensus EPS by $0.52 and $1.03 ahead of the $0.90 EPS reported last year. Revenue and organic revenue increased 27% to $2.6 billion as volume, customer recoveries, and the chip shortage all improved compared to a year ago and beat consensus by 4%. The 27% increase in organic revenue outperformed a 16% increase in global light-vehicle production by 11 percentage points due to launched new business and customer recoveries, partially offset by continued but much fewer customer call-offs.

With customers’ chip availability, production volume improving, and restructuring actions, adjusted operating income jumped 71% to $212 million from $124 million last year. Margin expanded 210 basis points to 8.1% from 6.0% last year, but was still felt the impact of customer call-offs and recoveries that mildly dilute margin. With the sizable beat on the top and bottom line, Autoliv shares rallied by 10%. Despite continued industry headwinds, management maintained 2023 guidance with organic revenue growth of 15% but changed a negative 1% currency effect to positive 1%, for revenue growth guidance up 16%. 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 revenue roughly in line with management’s guidance, with our euro currency assumption already at a 1% increase, for a total 16% year-over-year increase. Because of 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 $2 to our fair value estimate, raising our fair value estimate to $99 from $97. The 3-star shares of Autoliv trade at a 3% premium to our new fair value estimate.