DETROIT -- Lear managed to churn a profit in the first quarter of 2020 despite a significant impact on production from the global COVID-19 outbreak.
The seating and electronics supplier said net income fell 67 percent to $76.4 million during the quarter while revenue fell 14 percent to $4.5 billion. COVID-19 sliced $900 million of sales in the quarter, the company said in a press release.
Lear's China plants were closed for several weeks in the quarter due to the outbreak that started in Wuhan, China. But while its China operations were reopened by the end of the quarter, "virtually all plants" in North America, Asia (outside of China), South America and Europe were closed.
"Our first quarter financial results were significantly impacted by production disruptions stemming from the COVID-19 pandemic," Lear CEO Ray Scott said in the press release. "Excluding the impact of COVID-19, Lear's results reflect solid financial performance in both of our business segments. While significant near-term challenges remain, I am confident in the strength of our underlying business, long-term competitive position and liquidity."
Scott, however, warned that financial results in the company's second quarter would see a greater impact from COVID-19 due to decreased production.
During the first quarter, global vehicle production was down 23 percent from 2019, with China down 47 percent, Europe down 19 percent and North America down 10 percent, the company said.
To manage the economic fallout, Lear drew down $1 billion of its total available $1.75 billion in credit, suspended its share repurchasing program and issued $650 million in new bonds. Lear also deferred non-plant employee salaries by 20 percent, reduced Scott's salary by 10 percent and other named executive officers' salaries by 5 percent.
Lear's adjusted earnings of $2.05 per share beat Wall Street estimates, $1.08 per share, by a considerable margin. Company shares gained 7 percent in midday trading to $99.24. Before Friday, the shares were down 30 percent year-to-date.
Shares of parts suppliers rallied Friday after stronger-than-expected results suggest the companies may be doing better than feared amid the challenges posed by the coronavirus pandemic.
Besides Lear, American Axle and Tenneco were among the biggest gainers in the sector after all three reported first-quarter results that impressed investors and analysts, though concerns about the second quarter persist. Shares also received a boost on news that manufacturers in Michigan and California may resume operations in the coming days.
The S&P Supercomposite Auto Components Industry Index gained as much as 6.2 percent, while the S&P 500 Index rose 1.5 percent. Valuations in the sector had suffered significantly this year, as investors worried about a sharp decline in car sales and production as people were advised to stay home in order to curb the spread of the COVID-19 infection.
Bloomberg contributed to this report