Lear Q1 Earnings Call Highlights

Key Points

• Strong Q1 results: Sales rose 5% to $5.8 billion, core operating earnings increased 10% to $297 million, and adjusted EPS jumped 24% to $3.87 (Lear’s highest quarterly EPS since Q1 2019), while operating cash flow improved to $98 million.
• Tariff changes hit reported revenue but not earnings: U.S. tariff-policy developments (import adjustment credits and the IEEPA ruling) drove a multi-hundred‑million dollar reduction in reported revenue—Lear now expects about a $285 million year‑over‑year revenue reduction for 2026 versus February assumptions—yet management says earnings are unaffected due to recoveries and customer credits.
• New business and shareholder returns prioritized: Wins include GM full‑size SUV wiring, power distribution programs (including Audi) and roughly $280 million of China awards, lifting two‑year backlog by about $250 million; Lear repurchased $75 million in Q1 and is on pace for over $300 million of buybacks in 2026 while maintaining its full‑year outlook.

Lear NYSE: LEA opened fiscal 2026 with higher sales and earnings, supported by new business wins in both Seating and E-Systems, improved operating performance, and an accelerated share repurchase program. Management also detailed how recent changes in U.S. tariff policy reduced reported revenue without affecting earnings, and said the company maintained its full-year outlook amid macro uncertainty despite strong first-quarter execution.

First-quarter results: higher sales, earnings, and cash flow

President and CEO Ray Scott said Lear “started the year strong,” reporting first-quarter sales up 5% year over year to $5.8 billion and core operating earnings up 10% to $297 million. Adjusted earnings per share rose 24% to $3.87, which Scott called Lear’s “highest quarterly EPS since Q1 2019.” Operating cash flow improved to $98 million versus a $128 million use in the prior-year quarter.

Senior Vice President and CFO Jason Cardew said organic sales increased 3%, driven by “higher volumes on Lear platforms” and new seating business. Core operating earnings improved on higher volumes and favorable foreign exchange, while adjusted EPS also reflected the benefit of Lear’s share repurchases.

Tariff policy changes reduced revenue but not earnings

Cardew spent part of his prepared remarks explaining why tariff-related developments lowered revenue and changed the company’s revenue bridge versus its February outlook, while management emphasized there was “no earnings impact.”

According to Cardew, two developments drove the change:

• Import adjustment credits for U.S.-assembled vehicles: OEMs can allocate credits down the supply chain, allowing suppliers to import certain components “effectively tariff-free,” lowering pass-through revenue from tariff reimbursements. Cardew said this should also improve cash flow by reducing the timing lag between paying tariffs and receiving reimbursement.
• IEEPA tariffs struck down: After the Supreme Court struck down tariffs imposed under the International Emergency Economic Powers Act, Lear expects to return refunded proceeds to customers that previously reimbursed Lear. In anticipation, Lear recorded a one-time first-quarter adjustment reversing previously recognized IEEPA-related recoveries.

Cardew said Lear recognized $194 million of tariff recovery revenue in 2025. The company’s February 2026 outlook assumed a $100 million year-over-year revenue tailwind from tariff recoveries, but first-quarter actions created a $175 million year-over-year revenue reduction. Combined with customer credits, Lear recorded a $243 million reduction in revenue versus what was assumed in February.

For full-year 2026, Cardew said Lear now expects a $285 million year-over-year revenue reduction tied to tariffs, representing a $385 million reduction from the February outlook assumptions. He characterized the lack of earnings impact as “a testament to the team’s ability to achieve full recovery of tariffs in both 2025 and 2026.”

Segment performance: margins improved in both businesses

In Seating, first-quarter sales rose 6% to $4.4 billion, with organic sales up 3% on higher platform volumes and new business. Cardew cited growth on programs such as the Jeep Grand Wagoneer, Ford Explorer and Lincoln Aviator in North America, and new business including the AITO M7 in China and BMW iX3 in Europe. Seating adjusted earnings increased 9% to $305 million, with adjusted operating margin at 6.9%. Cardew said margin improvement was driven mainly by volume/mix and “a margin accreted backlog and net performance,” partly offset by foreign exchange.

In E-Systems, sales increased 1% to $1.4 billion, with organic sales flat. Cardew said higher volumes on programs including the Ford Expedition, Bronco Sport, and Lincoln Navigator were offset by the “build-out” related to the Ford Escape, Focus, and Lincoln Corsair reflected in backlog. Adjusted earnings rose to $86 million (6.1% margin) from $74 million (5.2% margin), helped by volume, net performance, and foreign exchange, partially offset by the build-out impact.

During Q&A, Cardew noted that first-quarter margins were influenced by items that would not persist at the same level, including an “artificial boost” from the tariff-related revenue reduction (about 20 basis points in Seating and 40 basis points in E-Systems) and a first-quarter benefit in E-Systems tied to copper inventory revaluation. He added that Lear does not hedge commodities, but uses “back-to-back indexing agreements” across most major inputs, with only a modest earnings impact versus prior expectations.

New business wins: GM full-size SUV wiring, electronics content, and China momentum

Scott said Lear’s strategy remains centered on extending global seating leadership, expanding E-Systems margins, advancing operational excellence via “IDEA by Lear,” and disciplined capital allocation. He highlighted several awards, including a major E-Systems win with General Motors to supply wire harnesses for a full-size SUV program beginning in late 2027. Scott said GM awarded the business “mid-cycle,” citing Lear’s execution and automation capabilities, and that the award positions Lear to pursue additional content in subsequent generations.

Scott also pointed to an award for a power distribution module supporting a “next-generation electrical architecture” with a key North American automaker, describing the module as proactively detecting electrical issues to help critical systems continue operating. He said the win leverages Lear’s “PACE Award-winning technology.” Scott added Lear also won a high-voltage power distribution unit program with Audi in North America.

In China, Scott said Lear secured $280 million of business awards in the quarter across Seating and E-Systems, and emphasized shorter sourcing-to-launch cycles—sometimes within the same calendar year. He said the company’s first-quarter awards included E-Systems wire harness wins with Chinese automakers that are expected to generate about $140 million in consolidated average annual revenue, and Seating complete seat awards in China expected to generate roughly $140 million in average annual revenue (with some in non-consolidated joint ventures).

Scott also discussed momentum in Lear’s thermal comfort modular offerings, noting four new awards in the quarter for ComfortFlex and ComfortMax solutions, bringing the total to 38 awards across 17 unique customers. He said two programs launched during the quarter, with 12 more expected to launch through the rest of the year.

On backlog, Scott said recent business wins increased Lear’s 2026 and 2027 two-year backlog by about $250 million. Cardew later added that some of that increase will contribute to 2026, and that on a three-year view through 2028, the awards represented about a $400 million increase.

Outlook maintained amid uncertainty; buybacks prioritized

Cardew reaffirmed Lear’s full-year 2026 outlook, saying first-quarter results were strong and second-quarter trends were favorable, putting the company on track to deliver “between the midpoint and high end” of guidance. However, he said Lear maintained its outlook due to uncertainty in the macro environment and potential impacts from conflict in the Middle East. Scott echoed the cautious stance, emphasizing confidence in “the things that we can control” while acknowledging external uncertainty.

Cardew provided second-quarter expectations during Q&A, citing anticipated revenue of roughly $6.1 billion to $6.2 billion and segment margin expectations of “mid-6s” for Seating and “low 5s” for E-Systems, along with expectations for “very strong free cash flow” of around $150 million or more.

On capital allocation, Scott said Lear repurchased $75 million of shares in the first quarter and continued repurchases during the quiet period, putting the company “on pace to buy back over $300 million” in 2026. Cardew said Lear has returned more than $1.8 billion to shareholders through buybacks and dividends over the past four years and is targeting free cash flow conversion above 80% in 2026 to support at least $300 million of repurchases, with potential for more depending on cash generation and tuck-in acquisitions.

About Lear NYSE: LEA

Lear Corporation NYSE: LEA is a global supplier of automotive seating and electrical distribution systems. The company designs, engineers and manufactures complete seat systems, seat components and power solutions for major vehicle manufacturers. Its electrical business delivers modules and components for battery management, infotainment, body and safety electronics, as well as advanced connectivity and electrification solutions.

The seating division develops lightweight, ergonomic seat structures, trim and mechanisms that address comfort, safety and environmental targets.

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