Faurecia Earnings: Revenue Up on Backlog With Slight Margin Improvement as Chip Crunch Lessens

No-moat-rated Faurecia FRVIA reported first-half revenue of EUR 13.62 billion, slightly ahead of the FactSet consensus of EUR 13.48 billion by 1%, up 8% from EUR 11.77 billion on an as-reported basis a year ago. Excluding currency translation, acquisitions, and divestitures, organic revenue increased 19%, up 8 percentage points above an 11% increase in global light vehicle production. Even though the microchip shortage remains, effects on customer production lessened as backlog ramped up in the first half. Faurecia’s outperformance versus production was across the board in all operating segments and regions. The French auto parts vendor discloses only revenue in the first and third quarters, while financial statements are published for half- and full-year results.

Adjusted EBIT was EUR 675 million for a margin of 5.0%, up 18% from EUR 571 million and a 4.9% margin on an as-reported basis a year ago. While the Hella acquisition and new business supported the growth in adjusted EBIT, inflationary cost pressures and cost recoveries from customers at zero margin had a negative impact on margin. Due to the time value of money since our last update and slight changes to our model, we raised our fair value estimate to EUR 47 from EUR 45. The 5-star-rated shares of Faurecia currently trade at a compelling 51% discount to our new fair value estimate.

Management raised 2023 guidance with revenue of EUR 26.5 billion-EUR 27.5 billion, up from EUR 25.2 billion-EUR 26.2 billion prior and adjusted EBIT margin guidance of 5.2%-6.2% versus prior at 5%-6%. We raised our 2023 revenue estimate to EUR 27.0 billion from EUR 26.2 billion and our EBIT margin assumption to 5.2% from 5.0%. In our view, new business backlog supports the midpoint of management revenue guidance, but continuing industry headwinds, including the chip crunch, the Ukraine crisis, inflationary cost pressures, and potential recession in major auto markets, squeeze margin to the low end.