Autoliv, Inc. Earnings Analysis: Q2 2016 By The Numbers

| About: Autoliv Inc. (ALV)

Autoliv, Inc. (NYSE:ALV) reported financial results for the quarter ended June 30, 2016.

We analyze the earnings along side the following peers of Autoliv, Inc. - Gentex Corporation (NASDAQ:GNTX), Visteon Corporation (NYSE:VC), Lear Corporation (NYSE:LEA) and Johnson Controls, Inc. (NYSE:JCI) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 2,578.50 million, Net Earnings of USD 148.40 million.
  • Gross margins widened from 19.93% to 19.96% compared to the same period last year, operating (EBITDA) margins now 12.20% from 12.70%.
  • Year-on-year change in operating cash flow of -33.25% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2015-06-30 2015-09-30 2015-12-31 2016-03-31 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 2291.5 2184.5 2519.5 2430 2578.5
Revenue Growth (%YOY) -3.84 -1.06 7.04 11.77 12.52
Earnings (mil) 136.7 98.9 185.5 133.2 148.4
Earnings Growth (%YOY) 65.1 -7.14 25.17 273.11 8.56
Net Margin (%) 5.97 4.53 7.36 5.48 5.76
EPS 1.55 1.12 2.1 1.51 1.68
Return on Equity (%) 16.65 11.88 21.87 14.53 15.19
Return on Assets (%) 7.42 5.38 10.01 6.8 7.24
Click to enlarge

Market Share Versus Profits


Revenues History

Earnings History

ALV's change in revenue this period compared to the same period last year of 12.52% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that ALV is holding onto its market share. Also, for comparison purposes, revenues changed by 6.11% and earnings by 11.41% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company's earnings growth has been influenced by the year-on-year improvement in gross margins from 19.93% to 19.96%. However, the company's overhead costs have prevented it from fully capitalizing on these gross margin improvements. In fact, the company's operating margins (EBITDA margins) showed no improvement over the same period last year.

Gross Margin Versus EBITDA Margin

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. CapitalCube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company's performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History

Working Capital Days History

ALV's improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 58.20 days from 71.08 days for the same period last year.

Gross Margin Versus Working Capital Days

Cash Versus Earnings - Sustainable Performance?

ALV's change in operating cash flow of -33.25% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Margins

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company's earnings rose.

EBIT Margin Versus PreTax Margin

EBIT Margin History

PreTax Margin History

Company Profile

Autoliv, Inc. develops and manufactures automotive safety systems for automobile manufacturers. It operates through the Passive Safety Products and Active Safety Products segments. The Passive Safety Products segment products include airbags, seatbelts, steering wheels, and restrain electronics. The Active Safety Products comprises of camera vision, night vision, and radar systems. The company was founded in 1997 and is headquartered in Stockholm, Sweden.

Disclosure: CapitalCube does not own any shares in the stocks mentioned and focuses solely on providing unique fundamental research and analysis on approximately 50,000 stocks and ETFs globally.