USA: Lear re-evaluates interiors business after second quarter loss
The chief executive of Lear Corporation, the world's largest maker of automotive interiors, has said he is re-evaluating its interiors operation, which bundles carpeting, door panels and other components and delivers them to automakers in a package, according to a Detroit Free Press report.
The paper said the comment by Bob Rossiter came as the supplier reported a second-quarter net loss and Moody's Investors Service cut its rating on Lear's debt to junk status.
The company reportedly said it is considering exiting the interiors business and focusing on more lucrative markets.
According to the Detroit Free Press, General Motors and other car makers say they increasingly prefer to buy parts individually, making Lear's other products, such as seats and electrical systems, more attractive.
"They are backed into a corner on their interiors business," Kevin Tynan, an analyst with Argus Research Corp. in New York, told the newspaper, adding: "I think it is the right move for them to get out." Lear reportedly obtains 17% of its revenue from interiors, 65% from seats and 18% from electrical.
The Detroit Free Press said Lear reported a second-quarter net loss of $US44.4 million as its vehicle-making customers built fewer units.
The loss of 66 cents a share compared with net income of $116 million, or $1.58 a share, a year earlier, the Southfield-based company said in a statement cited by the newspaper. Lear reportedly expects to post a third-quarter loss of 70 cents to 90 cents a share while, for the full year, it has forecast earnings in a range of net income per share of 15 cents to a loss of 25 cents.
Lear reportedly expects to post a third-quarter loss of 70 cents to 90 cents a share, including 55 cents of restructuring costs while, for the year, restructuring is expected to reduce earnings by $1.35 per share.
The Detroit Free Press said analysts in a Thomson Financial survey were forecasting a third-quarter profit of 27 cents a share and a profit of $1.79 a share for the full year.
The paper noted that Lear expanded its interiors business in the last decade as automakers encouraged parts suppliers to deliver more pre-assembled sections of vehicles, moving away from separate components that car makers had to install themselves.
"GM notified parts makers earlier this year it would buy more individual interior pieces rather than rely on one large supplier for its interiors, GM spokesman Tom Wickham said in an interview with the Detroit Free Press. The company had experimented with the idea for the last four years.
The automaker was concerned that larger suppliers weren't passing on savings they extracted from smaller suppliers, Wickham told the paper.
"If the customers are not interested in buying the total interiors, we have to see what we want to do with the business," Lear's Rossiter reportedly said.
According to the Detroit Free Press, Rossiter also said the business was growing more expensive as the cost of plastic rose with crude-oil prices hitting record levels last month.
Lear will also accelerate the transfer of production to lower-cost countries such as Mexico, Honduras and Africa, Doug DelGrosso, Lear's chief operating officer, reportedly told analysts. It plans to close or consolidate 20 plants and cut as many as 7,700 workers, or 7% of its workforce. It expects to spend $130 million in pre-tax costs in 2005 and $120 million in 2006 on the restructuring.
The Detroit Free Press noted that the second-quarter loss included 40 cents a share of costs stemming from litigation, including 25 cents, or $30 million, after a jury said Lear breached an oral agreement with leather supplier Seton Co. - the company is reported to be appealing the verdict.