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Lear Net Income Dips On Revenue Hike

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SOUTHFIELD (WWJ) – Lear Corp. (NYSE: LEA), a global supplier of automotive electrical and seating systems, Friday reported net income of $137.3 million or $1.60 a share, down from net income of $145.4 million or $1.45 a share a year earlier.

The income per share is higher despite the decline in net income due to stock buybacks, which reduced the number of shares outstanding from 100.6 million last year to 85.6 million this year.

Revenue was $4.11 billion, up 12 percent from $3.67 billion a year earlier.

Net income fell because of increases in the cost of sales, selling, general and administrative expenses, interest expenses and income taxes, which rose faster than sales.

The company reported “core operating earings” of $224 million, up 13 percent from a year earlier, and “adjusted earnings” of $1.62, up 20 percent from a year ago. Core operating earnings is pretax income before equity income, interest, other expense and other special items. Adjusted earnings represent diluted net income per share attributable to Lear, adjusted for restructuring costs and other special items, including the tax effect on those costs and special items. Special items include restructuring, the costs of a proxy fight, insurance recoveries, labor-related litigation claims and acquisition costs.

In the second quarter, global vehicle production increased 3 percent from a year ago, including increases of 11 percent in China and 6 percent in North America. Europe and Africa industry production was up 2 percent compared to a year ago. While the European industry continues to be below trend, this was the first quarter without a year-over-year decline since the fourth quarter of 2011.

“Lear performed well in the second quarter, with sales and earnings growing faster than global industry production,” said Matt Simoncini, Lear’s president and CEO. “Our strong financial position allows us to strengthen and grow our business while improving our cost structure. We plan to maintain a balanced approach of investing in the business and returning excess cash to shareholders in order to drive shareholder value.”

In the seating segment, net sales were up 10 percent to $3.1 billion, reflecting higher production on key platforms, the addition of new business and the Guilford acquisition. Adjusted segment earnings were $178 million or 5.8 percent of sales. Earnings decreased from last year, primarily reflecting the impact of key program changeovers, partially offset by the increase in sales. A reconciliation of adjusted segment earnings to reported segment earnings, as determined in accordance with GAAP, is provided in the attached supplemental data pages.

In the electrical power management systems segment, sales hit a quarterly record of $1 billion, up 20 percent, driven primarily by the addition of new business and higher production on key platforms. Adjusted segment earnings were $101 million or 9.7 percent of sales. Earnings increased from last year, reflecting the increase in sales, as well as improved operating efficiencies.

In the second quarter of 2013, free cash flow was $74 million, and net cash provided by operating activities was $202 million.

During the second quarter, Lear executed an $800 million accelerated share repurchase program and retired 11.9 million shares of its common stock. The specific number of shares that Lear will ultimately repurchase under the ASR program will be based on the daily volume weighted average price of Lear’s common stock during the term of the program. The transaction is expected to be completed no later than March 2014.

After the completion of the ASR program, Lear will have $750 million remaining in its existing share repurchase authorization, which will expire two years after the completion of the ASR program. Since initiating the share repurchase program in early 2011, Lear has repurchased 27.1 million shares of its common stock. This represents a reduction of approximately 25 percent of its shares since we began the program.

Lear also increased its full year 2013 financial outlook for net sales, core operating earnings, tax expense and free cash flow.

Net sales in 2013 are now expected to be approximately $15.8 billion, up from a range of $15 to $15.5 billion previously predicted. Core operating earnings are expected to be $750 million to $800 million, and free cash flow is expected to be approximately $300 million, both up $25 million from the prior outlook. Interest expense is expected to be about $80 million, unchanged from the prior outlook.

Pretax income before restructuring costs and other special items is estimated to be in the range of $675 million to $725 million. Tax expense, excluding the impact of restructuring costs and other special items, is expected to be in the range of $200 million to $215 million, resulting in an effective tax rate of approximately 30 percent. Adjusted net income attributable to Lear is expected to be in the range of $440 million to $475 million.

Pretax operational restructuring costs are estimated to be about $50 million. Adjusted capital spending is estimated to be approximately $450 million. Depreciation and amortization expense is estimated to be about $285 million.

Key assumptions for the 2013 financial outlook include industry vehicle production of 16.2 million units in North America, up 1 percent from the prior outlook, 19.2 million units in Europe and Africa, up 1 percent from the prior outlook, and 18.7 million units in China, down slightly from the prior outlook. Lear’s financial guidance is based on an average full year exchange rate of $1.31/Euro, up 1 percent from the prior outlook.

To listen to a replay of a conference call discussing these results, visit the investor relations link at http://www.lear.com, or call (855) 859-2056 in the United States or (404) 537-3406 internationally, using the pass code 98484082.

Lear employs 113,000 people in 36 countries.

In the six months, revenue was $8.06 billion, up from $7.31 billion a year earlier. Net income was $245.8 million or $2.71 a share, down from $279.5 million or $2.76 a share a year earlier.

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