Autoliv Misses On The Top And Bottom Line
Autoliv (NYSE:ALV) is a manufacturer of automotive safety equipment specifically for the OEM market. It’s products range from airbags to seatbelts and steering wheels to child safety seats so it is no wonder the company saw a major downturn in business this year. When the COVID-19 pandemic struck automakers around the world shuttered their plants effectively shutting down business for this company.
On the top line, revenue fell by -51.4% and missed consensus by 2.8%. Weakness was more pronounced on the bottom line, both adjusted and GAAP EPS missed by large margins, due to decreased efficiencies related to shut-downs, production levels, and pricing-power. The only good news for the quarter is that costs related to engineering new products remain high, a sign the industry still plans to release updated models later this year.
No Autoliv Guidance, But …
Autoliv has refrained from giving guidance like so many other companies this year but, like so many other companies, has given positive commentary. Basically, the rebound is already underway. Revenue declines have been steadily improving from April’s low -65% through June’s -20% and expected to turn positive by year-end. Notably, operating cash flow did turn positive in June highlighting an increase in demand fueled by economic reopening.
“Encouragingly, operating cash flow turned positive in June. It is also positive that our customers' sourcing activities and model launch plans are close to unchanged. Our engineering support for these activities remains high, even though there are some limited new model launch delays. I am also pleased that order intake for the first half-year was in line with last year.”
Looking forward, there are a number of factors the company is watching that will impact profitability this year. The company expects profitability headwinds from lower replacement sales of airbags, costs relating to “factory of the future” investments (ultimately a great thing) and higher depreciation and amortization. The company expects profitability tailwinds from cost reduction actions such as the Structural Efficiency Programs and strategic initiatives outlined at the CMD 2019, along with the execution of the strong order book and lower raw material costs.
That’s One Hot Autoliv Catalyst
Autoliv share’s saw one of the hardest corrections in the market and, in the time since, one of the weaker rebounds. One reason for this is the dividend. The company decided to cut the dividend earlier this year as a cash-saving measure and it is working. The salient point for investors is that the suspension was not and is not intended to be permanent and will be reinstated. Looking at the balance sheet, cash, and liquidity position the company could easily pay the distribution now.
The most likely scenario is for management to reinstate the payment during the next fiscal year, the fiscal year 2021, beginning at the end of December. Based on the last payments, assuming the company reinstates at the previous rate, the yield will be close to 3.65%.
Considering the company’s cash position, the outlook for rebounding, and the projected payout ratio for 2021 there is no reason for investors not to expect the dividend will be reinstated at its previous rate. The bottom line? Autoliv is going to bring back its payment sooner rather than later and when it does it will be one hot catalyst for share prices.
Autoliv The Technical Outlook: Bullish, With A Caveat
The technical outlook for Autoliv is generally bullish but there is a caveat. The rebound hasn’t been strong, price action has been struggling with resistance, and the indicators are mixed. This set up could result in a bearish reversal but that depends on what the market thinks of the automotive rebound. Right now, support is still above the short-term moving average so the risk is to the upside. A fall below the moving average may signal a reversal but even so, strong support is still present near $61.
Bulls will need to see this stock move higher before committing any more money. A move above resistance at the $71 level would be a trigger if prices could hold the level at the close and the indicators fall in line. In that scenario, price action could move up to its 2019 highs by the end of the year or early in 2021.
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