Lear Corp. swung to net income of $175 million in its second quarter despite a $1 billion sales hit from production and supply issues that are hurting the business more than executives had anticipated.
The Southfield-based automotive seating and electronics supplier reported $4.8 billion in sales in the quarter, up 95 percent from the same quarter last year, which was marred by COVID-19 shutdowns.
However, revenue fell significantly from the $5.4 billion Lear recorded in the first quarter, due primarily to major customers such as General Motors halting production because of the microchip shortage.
The company lowered its full-year guidance range to $19.7 billion to $20.5 billion in net sales, compared with the $20.35 billion to $21.15 billion it predicted in May.
“Our customers experienced significant production disruptions, which reduced Lear’s second quarter revenue by approximately one billion dollars,” senior vice president and CFO Jason Cardew said in a conference call with investors.
Shares of Lear were up a fraction to $169.69 in afternoon trading Friday.
CEO Ray Scott credited the company’s strong operational performance for counterbalancing financial strains of lost sales and soaring commodity prices.
“For the second quarter in a row, we successfully navigated supply chain shortages and related customer production shutdowns,” Scott said Friday on the call. “While continued volatility of the supply chain is driving uncertainty in the near term, I remain confident that Lear is well positioned to benefit from the industry recovery we expect in the next several years.”
Its free cash flow in the second quarter was $120 million, up from a $611 million deficit in the second quarter of 2020. It reported $3.2 billion in total liquidity, including $1.75 billion available under a revolving line of credit.
Lear said production stoppages, supply chain issues and inflated raw materials costs continue to hamper the business and the industry. Some have navigated the disruptions better than others — seating competitor Adient plc reported a $71 million loss this week.
Cardew said the company is expecting a $175 million hit for the full year from increased commodity costs, the most detrimental being steel. Prices have increased for the past seven months despite analysts predicting them to level off.
“The extent of the disruptions worsened considerably in the last several weeks of the second quarter and has continued into August,” Cardew said. “We expect to see modest improvements in the production environment starting in September.”
GM announced earlier this week it would again pause production of some vehicles because of the semiconductor shortage — a move it was forced to make earlier this year as well. Despite the resulting short-term hits, Lear said it is making deals to set it up for success in the long term.