Autoliv: Investor Day Reveals Solid Revenue Growth, Margin Expansion, and Returns for Investors

Autoliv ALIV SDB held an investor day at its Tech Center in Auburn Hills, Michigan, in which management targeted 4 percentage points above market growth in revenue in the midterm and 4%-6% organic revenue growth in the long term. Revenue growth is expected to come from slight market share increases (since 2019, Autoliv market share has increased from 40% to 43%), increasing content per vehicle on a strong backlog of booked new business, and customer pricing negotiations to recoup inflationary cost pressures. We raised our fair value estimate to $97 from $96 due to the time value of money since our last update.

Management’s unchanged 2023 guidance includes organic revenue growth of 15% and adjusted operating margin of 8.5%-9.0%, up from 6.8% reported for full-year 2022. We model 2023 organic revenue roughly in line with management’s guidance, up 15% including currency effect, to $10.2 billion. 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 firm targets 13% adjusted operating margin in the long term as customer production volatility from supply chain disruptions subsides. Also, Autoliv expects to reduce total headcount by 11%, despite increasing underlying light-vehicle production, as it improves operating efficiency through automation and capital reuse. The firm’s flexible manufacturing techniques enable components for different customers to be produced on the same line, improving throughput. Additionally, long-term capital spending is targeted at 5% of revenue, down from 6.6% in 2022. Increasing margin with less invested capital results in higher economic profits for investors. Since 2002, Autoliv has averaged 4.4 percentage points ROIC above WACC. Our model has a normalized midcycle economic profit of 5.4 percentage points, reflecting the firm’s improving operating efficiency.