Lear Corp at KeyBanc Capital Markets Industrials and Basic Materials Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Yes. Yes. A lot to dig into. I guess, first off, I mean, you mentioned the chip shortage. There are plenty of OEM downtime announcements to point to but we did just get GM's very positive announcement yesterday morning. So I mean, the second quarter is slated to be the most challenged. We're 2 months in. How are things trending from Lear's standpoint?

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Okay. Great. That's super helpful. A lot of great detail there. I guess focusing on seating and maybe just the top line. The growth over market this year is well above what you're targeting over the midterm. So we certainly have the favorable dynamic of content, just favorable program mix, right? The content mix is strong. What else is there -- what else is kind of driving that outgrowth within Seating? And I've gotten the question, we all have the question, does this favorable content mix this year pose a major headwind, some form of a headwind next year as the full slate of models are back in production? How should we be thinking about that?

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Got it. And then on E-Systems, right, basically the inverse, right? I mean -- and you already alluded to many of these points. But growth over market is going to trend below what you would be targeting over the midterm. Clearly, the chip shortage is in play. And so my question there is, is Lear -- is Lear E-Systems having trouble procuring the chips that you need? Or is it just your more so your OEM customer exposure and their own chip exposure?

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Yes. No. I mean that's all -- those are all good green indicators. How about if we kind of dig into the margin side of things. I mean, obviously, you just gave great second quarter color. You feel good about your full year guidance. But if we dig into maybe the segments, as of last quarter's conference call, both segments should -- it seems as though should get to a solid normalized run rate by the fourth quarter, right? So as we think about next year and beyond, what is the right trajectory to be -- to have in mind for Seating and E-Systems? Where do we kind of -- where should we land for the full year this year? And should we really be using that fourth quarter as a good trajectory from there?

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Yes. I won't -- I'm not going to try to pin you down to your 2022 industry production outlook. But given how depleted the inventory levels are in North America, right, we got the SAAR trending in that 17 million to 18 million range, which was really inconceivable 9 months ago. I mean, why would industry production only be up 5% next year if you have strong demand on top of the need to get inventory levels back up? I mean that's specific to North America, but I think that's also probably playing out in Europe. So yes, maybe we could just -- if you don't mind, digging into the regional kind of thoughts there.

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Yes, for sure. Okay. Higher level per seating. I mean by objective measures, right, Lear has the best run seating business globally. Others compare their performance to yours as kind of the industry benchmark. So can you discuss the maybe the trajectory of Lear's market share over the last several years? Where you want to take it 5 and 10 years from now to start?

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : A lot of great color there. One follow-up. Is there any common thread to the type of conquest awards you've been able to win? Meaning, do those -- do you win a new customer relationship through the JIT only piece first? And then you have to kind of earn your right into a complete seat vertical integration type of relationship? Or not necessarily because it kind of just run the gamut?

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : That's super helpful. You mentioned China. A major competitor of yours, as we all know, just announced a significant realignment in China. What doors potentially open up for Lear from this? The majority of -- is the majority of your Seating business in China through your JVs? Or is it mainly consolidated? And is there an opportunity to further consolidate those businesses? Or is part of the M&A strategy maybe to go up to the China market? Curious your thoughts on...

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Got it. I probably want to spend the rest of the time on E-Systems. The company hosted a very insightful E-Systems day back in late March. You shared 2025 targets, right, $7.5 billion in revenue by 2025, 10% operating margins. In my view, certainly, electrification leads to the secular story for the segment getting to $1 billion by that time frame. I think you have about $725 million already booked based on your last slide deck that you shared. So can you walk us through the significant content opportunities for Lear around electrification, right? Because there's -- folks are -- have various familiarity with the business and just some of the key programs that you've already won.

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Well, that's really helpful. I mean on the topic of scale. I mean E-Systems for Lear was never the largest player within the products that you're in, right, whether it's wire harnesses, electronics, T and Cs. So does scale matter even less so now as the industry shifts toward electrification? Or is it a scale game and you intend to fully compete on that level? How should we be thinking about that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 04, 2021 / 1:20PM, LEA.N - Lear Corp at KeyBanc Capital Markets Industrials and Basic Materials Conference (Virtual)

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Got it. And just one point of clarification. The battery disconnect award with GM, is that across the entire Ultium platform? Or is it specific to EV trucks and like commercial -- like commercial vehicles? How should we be thinking about that platform?

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Yes. I'm just going to run a minute over because I think we should end with this question. Given how strong Lear's balance sheet and free cash flow profile is, I mean, how should we be thinking about cap allocation, returning excess cash to shareholders from here? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 04, 2021 / 1:20PM, LEA.N - Lear Corp at KeyBanc Capital Markets Industrials and Basic Materials Conference (Virtual)

Question: James Albert Picariello - KeyBanc Capital Markets Inc., Research Division - Analyst : Got it. Well, Ray and Jason, thank you guys so much. This was really great.