Lear (LEA) 25 Oct 192019 Q3 Earnings call transcript

Company Profile

Participants

Alicia Davis	Senior Vice President of Corporate Development & Investor Relations
Ray Scott	President & Chief Executive Officer
Jeff Vanneste	Senior Vice President & Chief Financial Officer
Jason Cardew	Vice President of Finance
Carl Esposito	President, E-Systems
John Absmeier	Chief Technology Officer
Rod Lache	Wolfe Research
Brian Johnson	Barclays
Emmanuel Rosner	Deutsche Bank
Dan Levy	Credit Suisse
Armintas Sinkevicius	Morgan Stanley
Itay Michaeli	Citi
Chris McNally	Evercore
Joseph Spak	RBC Capital Markets
David Kelley	Jefferies
John Murphy	Bank of America Merrill Lynch

Call transcript

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Operator

Hello. Thank you for joining Lear's Third Quarter Earnings Conference Call.

I will now turn the call over to Alicia Davis, Senior Vice President of Corporate Development and Investor Relations. Please go ahead.

Alicia Davis

Thanks, Carmen. thanks call. us and quarter Lear's everyone, earnings XXXX morning, for for joining third Good are Scott, Jason today Vice of Presenting Ray President Vanneste, CEO; Finance. and Senior Jeff CFO; and Cardew, President Lear's Vice President and call. members Officer, Orsini, of Frank us also President the have our team Absmeier, John the Esposito, President E-Systems; Carl joined of and Lear's division; our Other management of including senior Seating Chief on Technology

Following we open call the Q&A. prepared for remarks, will

remarks find at the presentation can these accompanies You ir.lear.com. that

begin, conduct will we assist as forward-looking opportunity expectations to to remind this Before Lear's to I'd take this for like you statements the you understanding that be we in we future. call, making

these our As also many X, financial statement to during metrics. actual latest forward-looking factors refer Safe discussed slide we in from remind non-GAAP and to on today's I statements Harbor reports. detailed presentation, other periodic will our due results in that our you XX-K want materially could differ to

directed are measures. the the GAAP the comparable to our items directly most of You of in non-GAAP reconciliation presentation to for the slides appendix

today's for X. is agenda The on call slide

our Ray quarter highlights will quarter review the provide financial business First, update. will Jason results. from a Then and review third

some offer Finally, Ray remarks. will concluding

happy Following questions. the to would formal presentation, we be your take

begin. Now to like I'd to invite Ray

Ray Scott

respectively. were in a X.X% X.X% was quarter Adjusted operating Thanks, Alicia, the $X.XX. which us results, E-Systems for Seating X%, summary slide our financial Sales and everyone, and were today. joining in of Earlier and adjusted released was appears thanks, billion, quarter this morning, margins operating and EPS third we X. $X.X on margin

Lear. quarter. supply has American other the industry strike strike. significant had the and effect delivered financial impact we on strike including last the has customer auto been a solid experiencing labor six Despite of The For our headwinds, in weeks, a results North chain, the largest

on increased back business, foreign the global Our Sales impact in a X% forecasting Seating quarter. exchange, in in in third X% came points what quarter than In year-over-year above better was July. third market. or although our basis, excluding E-Systems, down a lower production were bit we X of the margins,

restructuring some electronics, with and the Lear enhance Slide performance. is to business environment. of And with development in quarter challenging business second call, for we E-Systems' us. efforts E-Systems. improvement. month, new further connectivity seasoned in we as expertise provides recent executing the efficiencies earnings were a our our Carl is highlights. in respond proven not executive Driving and software the our It's told a further our plan of to joined areas Esposito, right X production to President Last products On are you our DNA. accelerating Carl skills to all leader we

On laid provide early our in quarter also our we the year. will update comprehensive call, E-Systems progress framework our it next out position a of continued to profitable for improve performance for growth. and our We detailed second plans

the most leadership experienced in We have history. our now team E-Systems

an based joined E-Systems Yee veteran, in Mike in key area Asian the in is executive our role the is market. a role Shanghai Mike of welcomed electrical Head to month, automotive we efforts and and division. play enhance in growth in [ph], improvements E-Systems team. China. new Sinn our accomplished in Carl, addition the In business, Last with knowledge an of he growth to leads profitable expertise industry distribution driving recently our as Balsei, is deep extensive and which Asia. has automotive in the an and profitability Sinn pivotal He

E-Systems in future. strong management for additions, position recent the team we as Mike place in Sinn and well deepen Carl, well and already have other us as the

right organizational the addition having the right we people, In also have to structure.

profitability and into We customer greater have ensure program. by financial reorganized product segment, and region, returns visibility E-Systems to

As profit to low-return I growth and expanding committed areas in and earnings exit with we and topline on said potential our call, noncore are last product lines.

incremental We software pursue sales margin and offer continue and opportunities services expansion to data potential. that in electronics,

about our future wire to their with of other leverage efforts potential very our OEM I'm engineered capabilities. and excited business. needs for partner increase business we manufacturing increased and also our meet terminals vertical the own of components connectors as sourcing very promising, integration The to and our is in harness customers our

markets a industry that is Xevo benchmark On that in front, prestigious happy world I'm Award, Hyundai United one as the partnerships the with around innovation. Hyundai's to will number Also, the technology platform in Xevo's the launch to for that commerce for States Europe. named PACE and And recently in such XXXX finalist has as continue Hyundai in report vehicle award to agreed new only been Kia grow. recognized vehicles a the with

the excellence first in awards Power was consecutive for proud awarded Seat Quality luxury and year extremely they operational placing our and a J.D. I'm segments. market mass focus of testament quality. Finally, two the continued Lear vehicle the second are vehicle Award, these on and sweeping categories to

counsel, you hand miss friendship. will gratitude to in most miss all Corporation to Jeff, importantly outstanding my -- his for But over and the Jeff. I express to before him retirement. wish you sincere We his XX Lear's best years Lear We'll I it I his want leadership, his you. of do wise

it. deserve Jeff. absolutely Thanks You

Jeff Vanneste

respected Ray. as It's most have as company Jason, retirement, I I of for hand great Thanks the to thanks And worked a professional note the happy capable hands. a that and and been entire and my I known have CFO in an leave life. very the Lear's job role privilege proud I to transition am life. CFO, professional for to such serve to to team. I and his honor whole Lear the person

quarter CFO a third guide results. Jason, will our of review next Now our financial

Jason Cardew

U.S. X%, our from major XXXX. shows greater market down Slide all Lear's X% the vehicle or quarter. standpoint, against dollars production continued in top X% third down Europe approximately the the of Jeff. North for From programs XXX,XXX China global currency in and the vehicle America were Thanks, to X down with production units In quarter. down was than the regions XX%. currencies down a weaken major each quarter

Turning X. to slide now

quarter, all the exchange declines were driven $X.X by major production offset by markets million and business. partially our foreign in X% year, down sales negative last of $XX or billion, from For the new impact

exchange of Excluding the of points acquisition were sales flat three foreign impact above and of Xevo, the growth market. reflecting

down on operating lower margins million, operating quarter. million earnings primarily in platforms. X% $XXX Our production Core Lear the were due $XX to volumes were

million, million free $XXX $XXX quarter cash in was flow compared to Third XXXX.

from the and third of impact margins our billion, the variance Despite in year-over-year sales strike the adjusted quarter in the Slide quarter operating Seating XX XXXX. segment. explains the up sales third quarter the in of $X.X customer, in were X% largest

platforms, XX performance. last backlog, including Excluding due were lower by points exchange, sales foreign the growth X.X% impact in year to impact American from from lower increase Lear is margins down X%, offset by of the the production increased representing sales strike-related six impacts of The on sales. driven on market. by of points volumes the basis above North operational partially strong growth offset Seating partially

as on E-Systems platforms year-over-year segment. offset and backlog billion, partially currency the for quarter as headwinds. from XXXX. sales adjusted The Lear walk These by Slide as of third well decrease XX operating quarter down are $X.X as provides in the volume sales our were third Sales X% quarter from third by in the declines Xevo was the well growth driven acquisition. margin

lower primarily impacted impacted investments support economics. of agreements as performance elevated continuing negatively margins was by by year, in first the backlog, in costs the and in volumes and key the labor from on commercial second to Net we've reached mix half quarter. quarter the were well margins the effects Lear E-Systems X.X% quarter were other as Consistent unfavorable platform with programs. our

XXXX. of of Slide flow shareholders XX as cash percentage a shows our to return free since capital

average the free last XX% returned of five of buybacks form have share years, Over to on investors. in the flow dividends we our and cash almost

the After competitiveness. has improve Our product our not to and changed. customers, process expand cost support first, our philosophy investing and in business allocation capabilities capital our

that to focused sales And committed strategic our are add and to making capabilities maintaining third, product shareholders. metrics acquisitions we to cash Second, excess investment-grade credit diversification. offer returning

full our forecast. of approximately reduction assumptions. IHS Cadillac be forecasting production industry currency and units XXXX production its shows represents global vehicle million IHS XX our global July is to as assumptions X% a platforms Slide This to for X.X production volumes, our down year-over-year. or year X% compared

of We XX%. base internal At America production in our our and in is China sources, volume guidance, down X%; down Europe estimates, than top XX%; including updated schedules production our IHS platforms outlook customer assumption more in our and midpoint for the North down on forecasts. several

production customer, result financial sales the platforms, Lear lowering we $XX.XX our for XXXX. year the provides XX strike financial addition Slide offset full estimated outlook at X% of largest billion, on including Primarily of outlook. be partially the a lower down business. the our the our from of were by our impact strike, XXXX outlook, to as new of midpoint At updated XXXX are from reflecting

outlook $X.XX sales of our the are impact be the expected to foreign billion. the at acquisition Excluding down XXXX operating year-over-year. expected to X% of exchange and midpoint are Xevo, of be Core earnings

Our updated capital cash lower lower partially flow earnings, reflects free for guidance our outlook by primarily expenditures. offset

and experienced Since XX earnings significant full in we volume year outlook, outlook changes the from our in strike we and the production. vehicle other further summarizes global declines July. the in sales have provided from loss Slide July

These in prior factors, approximately decline global with combined U.S. against X%. versus dollar, the the a result outlook of weakening sales of currencies our impact

primarily favorable includes which Our performance, compensation by have operating by partially net earnings volumes, been margins lower impacted lower and offset incentive production expense.

segment from at in the mid-X% margin now primarily the year down full the year approximately In Seating full the our E-Systems, On mid-X% of is reflecting basis, outlook, impact in the a X% we range. outlook strike. unchanged prior margins forecast range,

we steps mitigate Though instituting in aggressive discretionary materially including financial further are the affect strike results, impact taking spending. the reductions XXXX will our to

reflects updated outlook result the these efforts. Our of

turn it now remarks. back will some to concluding Ray I over for

Ray Scott

Jason. Thanks,

results what experienced despite the third remain. the But management we environment. Now delivered current challenges turning environment. navigate XX. team successfully quarter, that can we've Without of accomplished. In I'm to have challenging macro slide question, in the solid an we financial summary, proud

take And now, we'll questions. be happy to your

Operator

from Lache with Wolfe ahead. Research. Thank first your of comes Rod line please question Rod, [Operator you. the And go Instructions]

Rod Lache

just could the of you I revenue Good morning my guidance. your hoping, for everybody. first to Thanks change clarify question. taking all, was

Your prior $XX.X $XX.X was to million $XX for billion guidance billion now and revenue you're to billion. $XX.X

$XXX see could that million taken I off. So

million. impact And adjusted was FX million $XX $XX it looks probably you've like like platforms or down looks it European a X%, about and some

So that Or strike? Hyundai is how give us QX more insight between million left. $XXX of much bit over how that or the has a into and you spread QX? the little strike a little Could of just GM kind

Ray Scott

Yes. Sure.

describing the through guidance, on if process And, of the sort me issuing obviously, strike GM have Let just thought we conversation. has bit first updated been outlook. the would by been start vote prior providing our different a our little went on completed this to

And so, time this wider in is year. largest given that particularly ordinarily we we GM North in have at America, range kind than of would a the customer, our

And in the five third of GM so, at the we assumed weeks fourth would what to that's the that lose strike quarter top-end production and is in the weeks range we've and weeks of quarter. the seven two

And week of we today. strike so, we're as completing sixth now sit the here

vote of of the takes of it is additional We ramped as results result up. the we've to range the today. expect get assumed later at one loss the a to the what week production And there's of time that end high hear

assumption to that's of we set told the has the range. Now, what our That's that us. top-end simply not GM used

The weeks bottom-end assumed range, to additional loss the due production we've of strike. three GM of the

pass and not three continue, to negotiations were So if to down the today we're additional for were the protected vote weeks.

So middle revenue. weeks that's assumed the lost effectively production of we've and, at about $XXX range, of loss million eight-and-a-half of Rod, the

kind The strike of grown on has were the weekly became impact impacted. as continued facilities of as as the Mexico more eventually impacted, as strike

lost week each the million now strike of million $XX And revenue. so, to of is $XX

the missing the revenue walk on piece to that's So your guidance.

Rod Lache

Okay.

the is quarter. basically clarify, to in just a you if the tonight lose strike So over month

the So the that, aside than It bit you're a quarter. adjustments. million impact of more assuming quite $XXX looks maybe in the currency Am like from something missing I even and there?

Ray Scott

Yes.

high-end today our high-end to of and week We've to loss passed of the next they production if the of ramp production additional even that is vote as back would up represent opportunity production range. able resume week, is range. guidance assumed the an GM one So our at

Rod Lache

to E-Systems? Okay. could turn, look be quarters? expecting earnings? prospects just going here bit recovery us Thanks How in for a little presumably about spend from that year there couple start you the that benefit is to $XX are of and to the restructuring time bridge the productivity next clarifying and you color of that. And your Xevo of bit the would prospects little of and talking next over line then So item in When for on savings some million over becoming give to that there? you to neutral expect the a

Ray Scott

why tell and we've a we've strong without in ever on. had things the put best you experience is establishing from I there's near-term, was don't take question team mean, I'll here down kind step going medium-term, E-Systems, that and longer lot a in it Rod, they're that through the team you team term this a management and an near-term, think one mean, I focused into it Yes. of the and I break on. obviously, in standpoint back E-Systems the place

putting The capital. in lot to or about second improve actions. business And did focusing we're in back then XXXX-XXXX, It asked was similar return on which in I Seating disciplines, very turn place that we're points. and back down that money. more in was Seating billion of part remember you and E-Systems a doing that similar XXXX-XXXX, go lost We asked the the turn about what near-term invested if go that And the of was to on very around. $X.X I was are things was XXX basis and the

the strong driving track -- on so investment in capital. return as putting near-term team, invested And on definitely as a far management discipline we're

business about an for being issue talked we that staying expert hired we've operations, as China our an and at us improving and at focused. looking Looking

well Our that one nice a -- launches. we're I mean, well. extremely and take really plants the are to doing running job extremely thing that are at note plants running

opportunity. with power our the and Cs and in there's harnesses I'd medium-term higher transition as business. and Ts about. a customers getting talked good and because on get there on other engineered past traction such --engineered harness connectivity this the of change Our within of margin good a -- of being to is what now components We're lot catalogs And more really products The restrictions. we've products electronics lack the really and about one talked wire in major to say able our right we've

Our different now. customers a completely have mindset

validation are we're that some through testing, getting The some doors actions are open there's that we because we're requirements nonetheless, to That But that track here. you take making time very we're and and stuff. good have progress good progress. of go progress making very design making some and alluded there. type will on restructuring to resourcing good And the very

the and business overall about target. done term we'll going then portfolio, the we talked that generating exit looking we've at. obviously returns good type making and be The a to focused in we're nice we business, Longer really that's be returns product considered of to stay job

I to a period XXX it's mean nice the job. on a million. what just of And data platforms. thing the of integration, want is and April the XX mention really the then from platform Xevo we're is I and one of One continuation million was vehicles last I vertical time software up think short doing

those And going to are longer paying so term. dividends start things

and prior segments, when look about the I we experiences were with management that -- team E-Systems and different to different of you our And XXXX-XXXX of XXXX we're going place in some some in the far and I overall where looking at times and But at in the E-Systems go these take of strong of Carl, in takes will at some think hit they're you're can we're to at in issues too. ahead the -- walk through product? the seating kind where -- the improving in I've in in then had and getting we'll as two of traction ways as room time the a thinking will margin back differentiation

Carl Esposito

to output around particularly is everything I something product new and that differentiates of lot that offerings In think strong medium-term management launches a electronics really the systems. And become of side broader make Absolutely. products. the of outlet product electrification the those that power from and the we portfolio Lear the

then integration see to as greater vehicles in density, things. components power And greater those electronics opportunity charging of integrate have improved electronic the we those further customers for of and performance. the power terms We

the term And of so the a on longer you'll deeper see integration subsystems make the and that electronics we power today.

In electrification around XX% terms connectivity. of business the this been year have wins new of and

where currently the market in playing is is place going. right So the

with connectivity really like And We're to As many first the services. we'll first We'll longer deliver industries. and so we're XG-embedded around connectivity that connection. there the with Xevo as I mentioned, like think software automotive the and services software help and connection. services term other transform help be things use the to X.XG-embedded data going enable first And gas is there. Ray position

applications, The services one growth fact, RFPs stand-alone software first in the stand-alone we've our in software, received from for customers. of

work from portfolio And we're and services road for we're seeing software aspect. only but on their there hardware, the not interest a software perspective. as that the the product we maps, So developing

really excited good both E-Systems. on we're it's mid-term team. longer-term for to So And about future the the be the and

Ray Scott

before through the think after great, ever all aspects we're Carl. a in to don't want that important. it financials, different kind we've it my over of the to lot answer better Yeah. here on question to this, going of Jason, from is and There's Jason I because experience position. That's and your turn been I go I

an there's us And awards and and very won the talking I'm electronics This an absolute for It's about I'm things significant with on of confident talking customers to we've is the that I some a amazing continue business business doors power connectivity. in right profitable drive And this recently us business. for vertical in we opportunity to to think this real past haven't play are now systems. the opportunity had in open. these It's integration. to in

we're really customer and capabilities and every And with our really that and developing, we've And with we're I impressive. doing all EXO positive with contracts. go is software Xevo, really up what and Arada the that or is it to about some nice talk picked

of never a is this explanation. want so position. Rod and And done why before. to through we're twice there's I've all type of We've lot go in this doing things been I this an

on, And discipline the of business in of And the that then product good lineup we an kind years. about Jason want over I we the business. really looking give focused you team that next the the at I place, we're that feel have see how so several playing overview out

Jason Cardew

Rod. points the Hey, a in -- question was that attributed to year full a saw Maybe quarter in what performance the related XXX it's in starting basis net think performance margin about with third and part points that basis year-over-year to agreements was is second we the I of your we quarter. have quarter, in effect. net Similar that quarter second compression, E-Systems the in to there of we pricing released third that XXX the

third first, different quarter: bit changed little launch our than higher Two quarter. were in second in that engineering quarter things the a that were the cost costs and

second XX commodity XX so a was about about little costs higher similar to were basis a points. year-over-year was quarter basis And bit that headwind that points

that the been the contractual explanation so offset to agreed the remaining to reductions improved. piece our previously in ability of is quarter, had I what saw improvement price And on the so

in savings So programs, the approved quarter. commercial all on planned performance cost our negotiations, cost reduction

was so And headwind year-over-year. a less of that

we to Carl's Now E-Systems in the -- operating publicly putting X.X% range. already, we've in some this of said sort medium-term see margin XX% near Ray and and around looking and out numbers that the of sort comments,

more see increasing new benefit XX end the to businesses out months mature of And lower so, range opportunities or that vertical gradually one, Ray several referred the as next two, some see customers with looking it's things: the likely as we of benefit so and there. of the and we these integration margins we to; over in improve that of the

see able our get on some changeover sector, cycle. the a see programs from cost massive also Once that programs deploy mature -- launch finally you that margin through programs, benefit our the your to And besides opportunities core some we again, reduction the have our of in on volumes finished we we've segment. that And digested production fact reduction that. you're in and more

and over And designed excess so partially profile take that program is the business improve our to margin restructuring out of time. some capacity

see restructuring operating us highlighted that out. the this That to improve business help of just and a to plus it's margins get us XX% back in you've margin out that's And -- looking the near will And further we level program. there. bit certainly term allowing mix longer-term

Rod Lache

Great. very Okay. detail. appreciate That's helpful. the I

lot next in couple longer-term we pretty be get to that the points quarters Just of though mitigating the of and internal clarify of restructuring kind that headwinds more of start things to bridge you on of you starting are in kind a these of terms execution, should mid-term the look so couple in basis XXX opportunities of compress or attractive. next to and focusing But some and quarters mentioned? year-over-year as productivity efficiency,

Ray Scott

a early lots stage this provide It's there's XXXX bit guidance moving at of Yeah. and parts. to

we'll call get so detail more January when guidance. on into that earnings our our in formal provide fourth And we quarter in

Rod Lache

you. Got

you. Thank Okay.

Ray Scott

Yeah. Thanks Rod.

Operator

Brian with Barclays. from Your the Johnson comes line next question of

Brian Johnson

sets versus questions. of inventory could so up first recognizing or how spread follow-up quarter ready the And just of half be half? ramp rebuilds housekeeping on going you're potential I bit your catch Yes. XXXX. Good is Do production for two you to year? of not also sense customer major on up a One, broad this little a first and it production have have quarter morning. the in quite guidance, to through if first your

Ray Scott

Yeah.

how obviously of that's be what It's they're to we all been volume they till with going the their to -- how the announce of accelerating they and they're in And a respect prefer Jason really in news I'd quicker limited caught ramp our I this going guidance. conversations Motors do kind and back for back looked back details good as get up, we've And General launch. to in in slower we've come gotten how obviously, stage. ramp and mentioned to they haven't at far As it call how they the back us. mean, strike up. might will at back wait

Brian Johnson

question. related Okay. SUVs And that change I'll to follow-up the going of year. over? and were strikes just The Seating next Any over a on of slated affect then a how ask that timing to the sense are change

Ray Scott

Jason. on Go

Jason Cardew

Yes. Yes.

We are that quarter in change not that. We've change of heard expecting next for meaningful launch happen about plan a the year. a in nothing second in expecting the SUV. to We're the

Brian Johnson

Okay.

Second set of questions.

really the Just around Seating business.

price asking midsummer downs happened price have customer pushing investors and Lear your been are customers in with Some electronics given that the for in competitors frankly negotiations a major the approaching our Seating price in alternatively assembly higher up having is components, and industry? still enjoys which or competitors some just-in-time that's benefiting or major in ROIC of the the walk to segment either

Ray Scott

decisions any start in quarter customers me our seen benefited our Seating. changes and downs. customers made E-Systems both with last I price let for in and requests longer-term I E-Systems, haven't with have in from growth. know the some already us our Well relationships the in productivity we which

in I to to how pressures good business of our shareholders. and design. VAV willingness will respect have term downs a things are downs cost say and a the that our more In was with I've of and value our seen some that to behaving So to decision make differently they with price for create customers with look longer at to respect grow

system chain how can had our been conversations look on and with that the good customers collaborative alternatives? ourselves we where downs. efficient whole really of on reduced some more can to that. can pride a cost, we and supplier I more there a really at be It's but Are nothing we price things them? value and there the do help Are as have we

on very that recognized cost we benchmark. And the good our technology at which I we've been believe we'd is Something work something by and optimization, for are we that. customers internally which have we're

I reductions for and offset we because with of those up think us, which negotiating. that so help seen And that good they're at we're pick that that programs type and our have share is customers can good things I volume things work

that were do do that's product a referring during So just And or time. awarded picked I point, we Conquest in have area to that I during takes a nice not Even life some us. week Conquest some resourcing we cycle think Business think -- this for some your or up positive other Business. Customers about product Seating I that like talked time. a sign

So we're awards the in and starting very next see of been coming that's for to us. positive generation

hope And to see that to happening. so I continue

Brian Johnson

you. Thank Okay.

Ray Scott

Thanks, Brian.

Operator

next is the Emmanuel, Bank. with Deutsche question from Rosner line of Emmanuel Your is line open. your

Emmanuel Rosner

morning. good Hi,

Ray Scott

morning. Good

Emmanuel Rosner

Good morning.

I side So future of Can you or from impact business the the Or what a couple pushed of bit on of $XXX low out a quarters? E-Systems. production sort $XXX -- on global questions year-to-date bit maybe think in $XX at was the the that little on talk probably walk around was Is sort on million. The basis like being And million. volume? going a we're backlog the about this the little there? million revenue contribution only of even sort into on is the some or lower delayed

Jason Cardew

Yes.

China look reductions. for terms that back So company year. about E-Systems in We total and brought has about our those January the talked billion $X.X come from of come XXXX backlog for down. $XXX this backlog million brunt you And other the down harder And been backlog we've market primarily has in seen their in for composition in going backlog Asia E-Systems any has to than the XX% And lower China. hit if is which this of production of volumes. of year's at was slated about by

is and ramped segments have up and lower year. combination some been of really to year out this some slower that that have pushed seen a production we've programs impacted and what so delayed And programs next both volumes, that's

of and bit and sort as XXXX backlog for we be And continuing we at the backlog, next trend expect this see year a to look that do we than our do lower year.

cut at As of you and of what X% IHS XXXX, our volume December outlook and contributor cut to in same we the back globally And for next backlog, experienced this year issues we look that. year. Lower the this main kind X% step a that production result years when calling established into out XXXX we've if is global was they've year, by of year volumes some back their for next this impact this backlog delayed China and on were year. by into has happen that year year. pushed They've program a had to had some had delays programs and and addition will further XXXX XX% that that meaningful And XX% next both next we unfortunately year the in that XXXX.

us we third look help year will in of as do that the backlog, that formally we out Now, January. update when that into

positive we've the in two second three-year We've of result side side, that seen much quarter in the in backlog E-Systems business Ray window, mentioned, the quarter. is initial the development agreements on our of but new negotiated seen benefit a wins we positive it's third nonetheless. starting developments the the to commercial of On outside positive albeit as that

seen the reported electrification core of really the a business We've strong connectivity build amount on pipeline and and there. in

electrification win sourced XX% to of about year this targeted sort to we $X.X XX%. continue has of that's billion, $X.X with share which of and to billion billion grown consistent core pipeline have and for connectivity We been in our talked actually $X of

segment. uptick So that's year longer-term will we're as see Ray of well, the mentioned in of an and benefit million awards starting had the Conquest Conquest we've that awards. that to $XXX growth this as positive extremely Seating And in over

and we as also the OEM aspects field will some term already production you that the offered from at of to decouple are longer software [Technical that look think as services data I services broadly Difficulty] through rates vehicles. in

another of growth new as again, exciting E-Systems. And so in aspect we look to that's areas

Emmanuel Rosner

secondly, on the detail. the E-Systems And margin. all appreciate then I

So, as end basis in agreement part was goes commercial specific be piece that helpful I before you Does I the different in year through basis? us about impact or that, XXXX? terms just through of well. at year-over-year point quarter. to the the a lot understand discussion? go-forward Or it least quarter walks probably of that would in carry of the about, fourth you think on the color from think give the you of XXX for the do Can talk how that

Ray Scott

Yeah.

So earlier the that reached the lifetime we those year, in agreements. agreements are

carry but offsetting the the tell this next continue of and X% a they've year, fourth higher-end third effect this will business, what price next annual reduction down in orders programs sort in the so a been carryover early year. of range also about to progress year. that, and talked and we're at towards year in the that We been to range So next historically, the into but yes before they expect and like, this too the has onto cost X% E-Systems that implemented year some with made we to that quarter quarter I looks there we highlighted is in of purchase

Emmanuel Rosner

Thank you. Great.

Ray Scott

Yep.

Operator

with Suisse. question next of Levy will line Your Dan the Credit from come

Dan Levy

Good Hi. morning.

Ray Scott

morning. Good

Dan Levy

questions. on decremental on for taking questions the a or of Thanks margins Wanted just just ask in to general. couple

pretty that's typical. decrementals strike to wanted worse than start to something in slide, larger probably something given margin a on maybe the literally strike, this – case production that's the be from I noticed halt flat volume that's would here XX volume/FX X%. a going the I going just is much First, where in end the impact your your conversion. I to ground presumably from that production on the down XX% GM to believe that's have GM highlighting slide expected

give on would the that And on, there going higher Or So, we if looked of the you to handle decremental get could capacity production you have at are business. typical business? piece you GM inefficiencies? properly? just to incremental like any ramp subsequently, are looking the margins that color have what potentially as in some XXXX on be Do margins

Jason Cardew

Yeah.

margins E-Systems of year to to First of to XX%, and are XX% the XX% North business our our America Seating we've similar this in described variable is in terms GM and most XX% what business. vertically previously integrate in some

Also, – So, ability conversion the pointed it's of higher varying platforms, volume to a in with the of that do the bit FX of as it's the to take to dilutive of addition, on loss difficult that's in more sort to as reductions a you've nature given that that. going that as our result pushes a of And and bar sort sub and variable on chart skew the range well out, bit number margins. as the pushes little volume there. other end up we and of costs that the out have

the of a the a as little Seating side, GM margin think maybe on is of sort to I mentioned and the because in integration. about normal So, way vertical of range higher the level

would or in be that And production back from that to terms and slightly less. margin Sunday the overtime benefit volume incremental of how on comes we the certainly year may Saturday extent next

profiles both we be result some generally, the But think As I of a shrinking have line with in margin variable segments. of that, business should costs. would

Dan Levy

Great.

Okay. then gauge trying margins, I follow-up just on or second And downside you. Thank a risk. guess to

not As know we're XXXX, XXXX you're guidance. looking I providing into

Europe extent through in is industry. arise to that COX the have obviously, how volatility emission question related we the to the regs or continued flow and may could what China To maybe the that

And your regions? do either by give Just typical pressure in you a whether -- or decremental of mitigate it's in sense those options any margins of what us of China. downside sort Europe to have

Jason Cardew

Yes.

I in European think we've globally. our little in Maybe margins vertical past about lower Europe in we with are line Seating integration less than have segment averages. bit little talked in general, a a bit the in the that

of higher more a because maybe business And business talked of and we terminals little of with integrated higher floor the are in end little some vertically of other connectors E-Systems lower volumes mature on China, the have there. business range our kind Europe. of E-Systems strong a and loss into the effect the we the and programs we've skewed in than about mature a

-- response that the to out, footprint, capacity offset volume. of as effects we And do or to sort in try continue XXXX. lost lower-cost is And to we're moving taking restructuring of to doing that that our we'll repair facilities the and into what look

we the And is increased, about next call. outlook us that restructuring to annually. about program our $XX up talked year And for $XXX benefit XX% expected to that savings our million quarter second million took in to of million. We year this roughly $XX

to that stage. year expect continue we so at the case would be this next And

Ray Scott

did to issues next can bit In respects different you approach can And just some happen mention what we're And a we this. to happen. to taking few very year. a could add that we're And assuming do. a little they proactive more

we're countering about and consolidating two and taking we're then the at Seating efficiency. divisions the between in What's we between having And our plants, E-Systems drive -- where our great both steps those efficiencies can two driving for make manufacturing to sure divisions. example, we're in looking

the negotiating volume all continue can then consolidate of event contractual we that that is gets where start at and their customers productivity. logistics hitting reduced. have the customers, call through in lanes negotiations a we in to and looking our the we in with We're our negotiate obviously that event now We're aren't we right our that productivity, lever volumes

The the looking we two can region. synergies divisions a can't between we have that overlooked at within We're how be down share platform. resources then to And the either. globally

to so management opportunity sales engineering, great down And program we a have continue costs. this drive for us our to

light And type having reductions. any of in of uniqueness the of some us help respects so the in two divisions,

right that preparing And so now. for we're

looking about team have We spending. item within this. talked that line at our continuous Jason together to costs. We discretional is put We're every a meetings. dedicated

more But to we of getting at two real business divisions. obviously opportunities And have some the advantage that We're between unique mid-to longer that. drive we're term taking aggressively.

a pulling. levers are lot different there So, we're of

and we're within any sensitive to quickly. reacting volume. Obviously very changes And we're acting

Dan Levy

it. that’s I helpful. you, thank appreciate very Great,

Operator

of line Sinkevicius question next Morgan the Your Armintas comes Stanley. from with

Armintas Sinkevicius

for you thank question. the taking Great,

up. a creates more helpful. be picking would that here, thinking conversation maybe and wondering I'm harnesses if you bit electrification just that towards it an you've transition terminals to product connectors for around opportunity as portfolio accelerate ahead talked like wire is seems And the Just from away the about,

Carl Esposito

wiring, The charging terminals connect I into complementary. onboard high-voltage very think chargers. the is that aspects electrification our our push wiring, is systems, very connectors. And complementary action between the

when look we complementary. at broader think, holistically, very opportunities business So at the can very vehicle content we at we per it's across look I what capture that those forward, going portfolio, really so

Jason Cardew

advance And the Armintas time in terms two. These X.X are typically of between more in the production. in frame X.X awarded to and medium long-term. years programs of is this

margin But this it's expect had would we winning E-Systems the overall And so, And a as improve there bit. up. business a side. that ramps we've year of success lot of little out profile in to in that

not a of less to XXXX, year, It's maybe not so so. begin next it to certainly that. a some we're a more see meaningful we'll impact, In -- little little or going watch

Ray Scott

we nice won just electronics side side, Carl, power walked just electronics a the bit very returns. And in of gave business had some this morning. just a But bit and us that nice news of on

Jason's to And point window. but outside a bit so little it's the --

not we are to design. -- our in Carl with when very And a agile I with really conversations. all that's good we've had actually we're some and ability some But there's niche for And design we fit why and we say when been nice black out capabilities. mega-tier respects been in nonetheless I a flexible box supplier I'm meeting in come And Lear. with have the customers. that And have the they have confident, be

confident And electronics with I'm position it's within we'll feedback. a so and been nice met very really we've the that's paying like positive customer said And really that I off power well. have connectivity.

very the point, to power the now we it we want lot One looking us out to right Jason's product. we're around the with of a that there's best we're very what to does vehicles and the a be We're business position different quotes best all -- point out because selective. at said on, there to like And time take position want I be with electronics. ourselves customers, more selective for best to in don't little world. we quote customers But bit with with, thing the

been customers' has it but positive -- our so perspective. from overwhelmingly And

Carl Esposito

currently number in think the trust Ray want had opportunity software want levels into has, impressed in really visit they're customers with and relationships I their I've connectivity of customers with and the how the vehicle. we with and future deep roadmap And to the a and product that Lear company. to integration our and the align on deeper side, of vehicles understand going on Lear customer the and portfolio

exciting. So it's really

Armintas Sinkevicius

that have the agreement on quarter then you maybe E-Systems weighed And there Right. margins. last commercial near-term,

lower there backlog the the provided XXXX. than to in would regard some with that it XXXX nice sounds it perhaps will backlog You But like help mentioned that XXXX. on be color

So in agreement how commercial the did further business? that drive get do comfort we fact

Ray Scott

Yeah.

this in of our our we all put customers agreements me window. First with business let of potential that are year for place backlog that the outside that clarify were

a XXXX dividends a of more way positive the not think it's you so long-term. already term it’s It And to effect. want for if near-term relationship about And a relationship was that's continuing it paid this us. in in to – grow that business about

mentioned, we window. very already said We've Jason established I a good though pull element some are offsetting here lot an our we at at element there's contracts. We how do was they're But three-year our a through productivity. different are internally. of like getting Unfortunately that of levers the we like too efficiencies. outside There time of

VAV so margin door on more also things it opened program, help that this will our profile. sharing near-term And impact improve the us other and

that of has working those with were deals cutting thing right are we out already from And our those do. term And seeing the margin will actions already. we worked more place today. still dividends we're those absolutely customers, term. are and those to our paying are with the and how in Longer our short But benefits impact customer changed which

Armintas Sinkevicius

Appreciate Great. it.

Operator

next Michaeli line Your with is question from the of Itay Citi.

Itay Michaeli

Great, thanks. Good morning.

question. margin and revenue one one had Just

expectations. some in happening Or quarter? in fourth strike? And your back the GM going the GM to the revenue Is your ex in First, the third the can looked then third what that in third the some revenue, hoping quarter? GM the like what effect seeing you in the quantify second that Also also are internal to strike pressure half of quarter ex entirely quarter. is strike your guidance the you're relative

Jason Cardew

Yeah.

because example, of case so quarter, E-Systems that and impacts the the isn't impact $XX about impact less continue third in plants third And some in million component strike a the the little side, the quarter, for of some offsets the It's of margin third build in the so inventory as quarter. bit. both significant fourth the the we on GM the the to in revenue third So and quarter.

is quarter, the fourth out the impact to much Looking more significant.

and margin, bit If a than impact on XXX about you basis E-Systems. the impact it's margins, little half on second about points XX more look at the that on Seating

high would in the high So at to in second absent mid sevens, the X% sevens strike, the and of Seating half we in year in been have GM the E-Systems.

Itay Michaeli

I million, of I change GM. it. a million guess Got ask bit the is you think mentioned earlier $XXX Out differently. $XXX and little about

quarter of entirely So impact pressure of million, you the that other that some also internal fourth relative is kind $XXX in third the in the expectation? your quarter? Or to initial

Jason Cardew

in That's Yeah. largely the quarter. fourth

we quarter little came had third stronger than in bit a anticipated. The actually

were So per uncertainty both are in around we And exchange just quarter. fourth the is impact given that the a foreign range week. and conservative impact all our the the bit volume strike how in impact the and meaningful

reductions in we that have to have have all in some customers end range. the factored into to low do yet announced And volumes that be additional of built so the

Itay Michaeli

about going helpful. has look kind a think the that I margin, segments back to declining last incremental XXXX just question beyond? few been that last contribution If at quarters. That's the think Is both it should the smaller? And of margins. perhaps incremental backlog I my of how we incremental margin then itself somewhat And over backlog and backlog just being the function into in

Jason Cardew

business we've general in new In segment been on with rolling our line Yeah. margins. overall

have segment the the And of margin of look. the in example line for rolling and that's business because skewed number general, But have business can that in E-Systems we've quarter. on. Sometimes meaningful segments it real the not in just a lost both is is net in in the with a today. the quarter on rolling be in revenue It's bit that we -- impact a business off margins $XX rolling business you million

Itay Michaeli

That’s it. Thank all helpful. Got you.

Operator

with McNally the is question line from next Evercore. Your Chris of

Chris McNally

of Hi one. I guys. verify. wanted just Thanks to real couple quick so times, One much question. It's answered for been a the

number. year but want guidance, backlog lower sure, more adjusted comments $X give going I XXXX, this than than official that the you're that's roughly or billion make it's adjusted less. for to the not the to roughly for know, making lower number you're So, just I

Jason Cardew

correct. That's

Chris McNally

adjustments been Asia, we is made. performance sort -- lost And been we that think about you words of then I platforms. talk Great. volumes In the disappointing have there's basically the backlog really of these push, moved. some Can have the Okay. mean it question about are always that it's on when of a versus E-Systems,

So to it's volume this really just or around year haven't XXXX backlog those not lower. are doesn't been right launches so more of It's -- into its and quasi-lost the the they lost go pushed meaning XXXX.

Jason Cardew

delays program. that other impacting a exit speaking, loss-making case Asia. backlog. in generally E-Systems Asia. and in But in say factors we've of I'd the program that the part of than been what's in China was decided more That's that there's There's to it's

to and helpful forward. So been been XXXX couple business that that's a volume canceled on that's going to impacted basis volume launching of lower has launched. modest There in the backlog has profile that a general, have as just is a well the will continuing zero But business negative be probably number. the the one-third or programs roughly it call margin of it on of be whether is that that

Chris McNally

us to should and items. we just to we're in mid-X% we still we we sort in the or low X% and even the savings things going range? margin things like mention, of Okay. potentially detail If out about do in multiyear. profile are it the to you cost sounds you're of Great. on going and you're going of Or the to until volume that on doing year give about E-Systems. restructuring that's the we list about you Could that get kind the a base But range? talked mid-Xs the sort just the XX% of expect -- further back more on some a the out some levels of XXXX that a in think the get program be of sort going, is in movement then slow sort discretionary of think is stay two And

Jason Cardew

Yes.

saw third year. the stabilized is I of of are side you that try look by But think that -- would GM the the uncertainty mid lot And environment. right to what see in a high lot more like you all to can lot we our second production point think, call clarity foolish plans out production margin to confidence the of and next to sort half we in be absent And a were it's For I guide year. in encouraged on what still, of I next we give we in favorable we for even year, early uncertainty. of the more quarter E-Systems reasons, year. and too to think there's for strike what operating Xs. developments what given that think, it's quarter in mean, terms number I next a in try We our some this January I and now, fourth what the an the and macroeconomic looks we'll environment to in customers' on maybe us are have the

growing of our than success in because that And anticipated. mentioned, connectivity. segment won and initially had do electrification we I engineering as some elevated Also, spending more I we business year we have in this think

so, a for bit little next a about And there's as that a think headwind of of year. result

presentation. up I'd one margins, thinking the And so you then, guidance, about guidance the factor that we formal overall far provided in come point that company dialogue, just haven't in terms in block that next of to but year, this just

the that those year compensation the of two headwinds next are of each we significant those pretty about reduction discretionary It in expense. was XXXX we Both had profile and $XX well. buckets. of million about see incentive that think spending in half of and as company You'll margin as

Chris McNally

obviously, was second the the get -- just XX -- think Xevo but in margins last of But on I'm that the I a E-Systems will half, drain it you much in technical, Xevo in more, half? basis how points the on or was some then And margins annualize. something second drag because just E-Systems

Jason Cardew

year, the basis full XX it's points. So about

just the quarter, So hiring the up came third timing our than originally it's in little ramping than a really little what SG&A we of anticipated. bit a side. that's the better anticipated better and we on bit In

for did what that the for And had this slightly see outlook anticipated. we improved so, we initially from year Xevo

Chris McNally

so Okay. Great. you, much. Thank

Jason Cardew

You’re welcome.

Operator

from line Joseph RBC come Capital the with will question next of Your Spak Markets.

Joseph Spak

is margin Or good within pullback my have XX that on just you that And basis you I question. of performance. think in sort the Slide think guidance But in sort some spending. XX, discretionary and you about Hey may talked improvement performance points masked. from touched comp the of part morning. that's that of on revision And mentioned the of I all But underlying incentive also it? because E-Systems being -- improvement of

of part the break that XX? wondering So can further. also just you I'm is down if bit a that little

Jason Cardew

And would I Yes, the half with performance and you taken impact is of businesses sort other could so extraordinary we've portion year say of of that the of half One incentive comes other the GM the back portion improvement that than compensation into think the next other and more reductions. given I of half measures strike volume it. split and underlying categories. is is two sort other in the that temporary

Joseph Spak

think at how key your Mercedes performance The I one a all another quick I profit one. their issue mean pretty on the -- programs. that Okay. with has mean impacted had visible SUV? I just of launch

Ray Scott

-- launch. it's -- it's yes, Mercedes hit side. on it's the definitely But great launch Yes, the complex is a cost us very

Joseph Spak

is done And or--? that

Jason Cardew

us. than up little originally for had platform we ramped slower that's bit It's term what anticipated. a Longer fantastic a

as program that But of prospects full We about it's complicated. had mentioned, slower costs next the of up Ray seen to year excited for volume. gets allocation As it ramp-up. slight we're once a result very the launch

Joseph Spak

GM I are one Okay. Xevo talked the customers they And saw the there. What And automotive a quarter in is putting we about the just marketplace. And picture bigger into know to implications Xevo. have deal of this you on for then infotainment one Android strike last there? like

Ray Scott

do to want little--? give John, Yes, a you

John Absmeier

Yes Yes. sure.

implications. aren't actually there any So,

press their vehicle unique release one and being services in from to of platform If in commerce. said going they applications you actually they're keep GM, those look the the

So, is Xevo market. the the underlying platform that of

richer. making see the services more as we So, it ecosystem complementary

Joseph Spak

you Thank much. Okay. very

Jason Cardew

you. Thank

Operator

Jefferies. question next David Kelley Your of is from the line with

David Kelley

Good squeezing morning in. me guys. Thanks for

off quarter the with backlog there that or quick impact to the which year. to and a I'm accelerated volumes that's comments in customer this Was backlog. your of year? stepped and the throughout trying related anything the the just unique ramp-up driving Just question up square stepdown Seating on industry specific in

Jason Cardew

in the David to Are you year's this impact referring backlog?

David Kelley

Yes.

Jason Cardew

the the Seating in so And beginning what of been initially at $XXX about impact year. from reduction has we million expected the million, a of $XXX

XXXX driver where North talked the ramp-up really than anticipated biggest is what back some that key in the in that the is and programs year. that relates start next of biggest it's reduction comes single more E-Systems. in America the about of So, we've of driver historically But these of slower and volume ramp-up to some so

more we've cautious a programs in looked step industry back at and taken of also specifically volumes and on overall region But sort globally on volumes a keep and mind that and we're in bit the each the in backlog.

have programs offset benefit of of this a sort will those of had year. And slower so some kind ramp-up the of that that carryover

David Kelley

Anything one portfolio E-Systems last review? ongoing? quick one. and I still to great. is it. Okay, from appreciate a And the out Or call that

Ray Scott

Well, plan some and great right components more Seating We'll still season. that have come have one I in areas detailed we of overall businesses ongoing now. those back portfolio a to that yes, in was product like we the engineered that's with said in play right

So, the have more date. ongoing a is work later and in we'll obviously

David Kelley

perfect. you. Okay, Thank

Ray Scott

you. Thank

Operator

Murphy from final Lynch. please line Merrill ahead. the question our with John of John, America will go And of come Bank

John Murphy

you. Good give much congrats a I've And just definitely want miss you morning. Jeff. to quick seen will of not I to

We've well. been in North in some your the guys and of volumes. the sort and in GM America supply global you base pressure First the more tier that and as in disruption talked more question, sort schedules about and of hearing about Europe stress

there you're risk how Just curious we about should what seeing doing to and that you're mitigate think going what forward.

Jason Cardew

well. Yes, surprise resilient It's we industry very GM given see much it down. base. portfolio. suppliers impact But massive distress a be on seen strike volumes how our have certainly off held we've wouldn't some to supply very in the seen very Even our little of impact with come have

for I it for by preparing been were the that. issue but So, surprised we've really the been We pleasantly base, stress think an in supply hasn't us.

Ray Scott

issues manufacturers to designs our approved relative I made some alternative the comments the we general closely seen and we've us E-Systems and alternative have give in with think very customers to ability validated chip we've on in work getting the obviously sourcing.

do so, related keep supply of very items distressed type or base. a And we any within supplier close eye the other on

our some those and particular construction in obviously customers take quickly move to. And can forward to components or engineered we that find we'll cases, optional

probably significant more ended. significant got within that's chip issues but strike, more issue and due E-Systems on So, that just general Jason manufacturers. to Like is the said relatively the probably

John Murphy

can have why you hit mean margin some Okay. X.X% and a or E-Systems macro you're When next looking it XX you mostly months That's to that XX looking have on we're kind XX if factors, if were other you're on factors not I major XX%? of would there we question. why we exact on would about the range, stay at think know or the very top of swing giving hit should key I are is guidance. about? X.X% focus XX% of we out, to an helpful. then to second months. just you're the And But, think for talking sort

Jason Cardew

Ray four where range rate, coming ramp success the to side. are XX is over already or the vertical that months -- determine ourselves think It the there. XX does years. that on as that couple there we mentioned, integration We're I to One seeing three of to up. going find take opportunities the factors are and some

takes little And so time. a it bit of

be to going a driver. That's

to we that an in We portfolio. with of have of the key customers improve factor. be a our takes are with That to going time, is new some seeing now the level opportunity success but margins

factor, capacity Our E-Systems. restructuring program across combining is and going to key be a Seating

earlier, adjust also will in mentioned a Ray to As E-Systems cases, volumes lower be the taking some out in factor. to the other specifically capacity production

on. connectivity portfolio making penetration, And will a then on that's out say, in where example XX that we'll software overall. in loss further out. electrification power longer maybe have months focused management factor. then today. program mentioned benefit connectivity we're a electronics penetration the term, areas Those one a of to That's or key months and the exiting going the effects I near-term significant And are out, the we're XX be the

had So, a production improvement. again, Once of things take a it's we to lead little bit to that But volume digest. lot of like to going time. will

is in think third And with step the into in the feel the and that the good quarter we've so stabilizing about here really quarter first The process early far the done in I really third business. what's fourth happened that business. and

John Murphy

very you much. Great, thank

Jason Cardew

Okay.

Operator

have you. any Okay. you Thank do closing Presenters, remarks?

Ray Scott

Yeah.

now. your just enjoy back probably you'll phone your I on a years special you team But you will Jeff, thank send the mean soon. I'm the it's quick, for of Lear real commitment, retirement. Just I it. Donna best the to all know in you're dedication. person. work Wish sure you very

Jeff Vanneste

Thanks.

Ray Scott

up about what ahead But driving. us, got we're stay love we We've doing. thing team, with but this us. job. And keep company of the really on challenges great we'll quarter, step to job love one outstanding I And the I Lear is

team think have efforts the around forward. Thank drive Thanks. and you great the the everything. for right your to absolutely to I for place we job you this Thank continue plan table. all and in business

Operator

for you joining today's Thank conference.

disconnect. now may You

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