Autoliv (ALIV) Q4 2005 earnings summary

Executive summary

• Record 2005 sales of $6.205B, up 1% reported; organic sales were flat amid a 3% decline in Western European vehicle production and unfavorable model mix.

• Operating income held at $513M despite roughly $90M of higher raw-material costs; adjusted for $16M of additional restructuring costs, operating margin improved to 8.5%.

• Net income fell to $293M from $326M, mainly on higher taxes; 2005 shareholder returns totaled $483M through dividends and repurchases.

Financial highlights

• Net sales were $6,204.9M versus $6,143.9M in 2004; gross profit rose to $1,268.0M from $1,221.2M.

• Operating income was $512.7M versus $513.1M; net income was $292.6M versus $326.3M; diluted EPS was $3.26 versus $3.46.

• Cash from operations was $478.9M, down from $680.2M; net cash before financing was $176.3M after $30M of voluntary U.S. pension contributions.

• Gross margin rose to 20.4% from 19.9%; higher raw-material costs reduced margin by 1.5 percentage points, offset by purchasing and supplier improvements.

• Effective tax rate increased to 35.9% from 30.8%; Jobs Act transactions reduced diluted EPS by about $0.19, while repurchases added $0.11 and currency effects added $0.06.

Outlook and guidance

• FY06 organic sales were expected to be relatively flat; reported sales were expected to decline 2% at Feb. 1 exchange rates, largely due to currency effects.

• FY06 Triad light-vehicle production was forecast to rise 1%, despite a 2% decline in Western Europe; the first-quarter sales decline was expected to ease in Q2, with gradual recovery in H2.

• Q1 sales were expected to decline 8%, including a 5% currency headwind; operating margin was expected to exceed Q1 2005's 7.6% and operating income to exceed $129M.

• 2006 net interest expense could fall by about $15M from Jobs Act-related financing and the May Eurobond maturity, subject to higher rates and average net debt; effective tax rate forecast near 33%.

• FY06 capital expenditures were expected at $340M-$380M; FAS 123(R) adoption was expected to reduce operating margin by less than 0.1 percentage point.