Autoliv (ALIV) Q4 2006 earnings summary

Executive summary

• 2006 sales were $6.188B, essentially flat YoY; operating income rose 1% to $520M and operating margin reached 8.4% despite weaker North American and Western European production, price pressure and higher material costs.

• Reported net income increased to $402M and diluted EPS to $4.88, boosted by $95M of favorable discrete tax items; excluding these items, net income was $307M and diluted EPS was $3.73.

• Operating cash flow was $560M, supporting nearly $300M of net reinvestment and $333M returned to shareholders through dividends and repurchases.

Financial highlights

• Gross profit was $1.265B and gross margin 20.4%, unchanged YoY; cost reductions and plant-sale gains offset higher raw-material costs and customer pricing pressure.

• Operating income was $520M versus $513M in 2005; net income was $402M versus $293M, with the comparison affected by discrete tax items in both years.

• Q4 sales were $1.602B, gross profit $314M, pretax income $124M and net income $103M; Q4 tax releases and other discrete items added $24M to net income and $0.30 to EPS.

• Net sales declined 0.3% to $6.188B; organic sales fell less than 1% for FY but rose 4% in Q4.

Outlook and guidance

• FY 2007 organic sales growth was forecast at at least 3%, assuming flat Triad vehicle production, a 4% decline in West European production, improved mix, curtain-airbag launches and emerging-market growth.

• Gross margin was expected to hold or improve slightly; operating margin was expected to exceed 8.0% despite $35–40M in added Asia start-up and Autoliv-Mando amortization costs, with an estimated 0.6-point margin impact.

• The 2007 effective tax rate was forecast at 33%; underlying EPS was expected to improve, aided by 2006 repurchases and about $0.03 from the Autoliv-Mando acquisition.

• 2007 capital expenditures were projected at $325–350M.