Lear, a major supplier to Ford and General Motors, is tempering expectations for its second-quarter earnings while revising its 2019 financial outlook downward due to economic headwinds and production cutbacks by key customers.
The seating and electronics supplier lowered its full-year revenue outlook by more than $1 billion, to between $19.8 billion and $20.3 billion, from a previous projection of $20.9 billion to $21.7 billion. Year-end net income is now projected to be $885 million to $965 million, down from a $1.1 billion to $1.2 billion previously.
Lear shares closed Tuesday down 4.1 percent to $129.74. GM is Lear's largest customer, accounting for 18 percent of the supplier's business in 2018, followed by Ford at 16 percent, according to Lear's annual 10-K report filed with U.S. regulators.
The expected revenue and profit reductions stem from lower production by key customers, partially offset by new business, the company said in a press release. Core operating earnings will fall to 7 percent of sales, compared with 8.3 percent of sales in 2018, the company said.
Lear, the first major supplier to signal its second-quarter performance, released some preliminary results ahead of its official report later this month. The supplier expects second-quarter revenue of about $5 billion, down 10 percent from the same quarter in 2018. The company also said it expects second-quarter free cash flow of about $265 million, and share repurchases to total about $160 million.
"Previously, we indicated that we anticipated an increase in industry production volumes in the second half of the year and an associated improvement in sales and earnings," CEO Ray Scott said in a statement Tuesday. "We now believe general macroeconomic and industry factors will continue to put pressure on sales and earnings throughout the remainder of 2019."
Scott said the company continues to undergo restructuring to reduce costs and improve efficiency. The company will increase its restructuring costs by $60 million to $200 million to reduce capacity. Scott did not indicate whether that capacity reduction would include layoffs.
Lear plans to permanently close its plant near Detroit in Taylor, in a move that will affect 76 employees, according to a WARN notice filed with the state of Michigan last month. Lear is shifting work from the Taylor facility to one in Traverse City, Mich., and said it is offering affected employees the chance to transfer, the company said. The layoffs will start Aug. 12.
Lear ranks No. 8 on Automotive News' list of the top 100 global parts suppliers, with worldwide sales to automakers of $21.1 billion in 2018.