Lear Corporation 2026 Q3 Earnings Call

Please go ahead. Thanks, Jamie.

Good morning, everyone, and thank you for joining us for Lear's Third Quarter 2026 Earnings Call. Presenting today are Ray Scott, Lear President and CEO, Jason Cardew, Senior Vice President and CFO, and Jared Fedele, Vice President of Finance for Seating and E-Systems, who will succeed Jason as CFO starting in March. Other members of Lear's senior management team have also joined us on the call. Following the prepared remarks, we will open the call for Q&A. You can find a copy of the presentation that accompanies these remarks at ir.lear.com. Before Ray begins, I'd like to take this opportunity to remind you that as we conduct this call, we will be making forward-looking statements to assist you in understanding Lear's expectations for the future.

As detailed in our safe harbor statement on slide 2, our actual results could differ materially from these forward-looking statements due to many factors discussed in our latest 10-K and other periodic reports. I also want to remind you that during today's presentation, we will refer to non-GAAP financial metrics. You are directed to the slides in the appendix of our presentation for the reconciliation of non-GAAP items to the most directly comparable GAAP measures. The agenda for today's call is on slide 3. First, Ray will review highlights from the quarter and provide a business update. Jason will then review our third quarter results, and Jared will provide an update on our full-year guidance. Finally, Ray will offer some concluding remarks. Following the formal presentation, we would be happy to take your questions. Now I'd like to invite Ray to begin.

Thanks, Tim. Before I begin, I want to touch on the upcoming important change to the leadership of our finance organization. After more than 34 years of dedicated service to Lear, Jason Cardew has elected to retire. I want to thank Jason for his leadership, his commitment, and his many contributions to Lear. Jason and I have worked closely together for many years, and not only has he been a trusted partner, but he is also a dear friend. Jason, your next chapter is incredibly well-deserved, and I wish you and your family all the best. Jared Fedele will succeed Jason as the CFO effective March 1st. Jared has been with Lear for 23 years and has a broad global financial and operational experience. He has been working closely with Jason and me for many years and is more than ready to assume the role. Jared, congratulations. I look forward to continuing to work closely with you, and I know you will continue to execute our strategy to deliver improved financial performance and value to our shareholders.

Okay. With that, please turn to slide five, which highlights our key financial metrics for the third quarter. Lear continued delivering meaningful year-over-year improvements across all metrics in the third quarter. Sales increased 2% to $5.8 billion, despite global industry production declining by 2% on a Lear-weighted basis. Core operating earnings were $256 million, a 6% increase, and the fourth straight quarter of year-over-year improvement. Adjusted earnings per share reached $3.71, a 33% increase from the third quarter of 2025, accelerated by our robust share repurchases this quarter. We generated operating cash flow of $329 million and free cash flow of $158 million in the quarter.

Slide six summarizes our key business and financial highlights for the quarter. Our four strategic priorities continue to drive our focused execution, extending our global leadership in Seating, expanding E-Systems margins, growing our competitive advantage in operational excellence through IDEA by Lear, and supporting sustainable value creation with disciplined capital allocation. During the quarter, we continued our momentum of winning key awards in both segments, generating approximately $3.9 billion of net business awards year-to-date, with approximately $3.1 billion in Seating and approximately $800 million in E-Systems. This represents an increase of $1 billion during the quarter, with E-Systems on track for another year of over $1 billion of business awards. Key Seating wins in the quarter include the complete seat, foam, and heat for two programs with a North American automaker.

One award is the replacement of a program we currently supply, and the second is a new award for a future program to support this customer's expansion of their product portfolio for the North American market. Our IDEA by Lear capabilities were instrumental in winning these awards. Lear is the number one seat supplier in India. During the quarter, we were awarded the largest complete-seat program in our long history with Mahindra & Mahindra. The award includes both replacement and incremental new business. Our new awards for ComfortFlex, ComfortMax, and FlexAir applications this quarter bring our modular and innovative seat product total to 47. Program with Mercedes is a conquest award, replacing current lumbar and massage components with a ComfortFlex modular solution. Awards with Jaguar Land Rover include a FlexAir application as well as a ComfortMax solution, integrating heat into the trim cover.

Five modular projects launched during the third quarter, and seven additional programs will be launching during the fourth quarter, accelerating the adoption of our modular solutions in the marketplace. Our momentum with the Chinese automakers continued in both segments. In Seating, we were awarded an upcoming program with a Chinese luxury EV automaker projected to launch in 2028. This program is currently projected to be sold in China and exported to other markets. BYD also awarded us two key programs as they expand their production in Thailand and Indonesia. We currently supply those programs in China. In E-Systems, we won a conquest award with JMC Ford Joint Venture, new wiring business with FAW VW, and two non-consolidated wire awards with BAIC, all in China. We continue to drive growth in our core E-Systems products by securing electronics and wire conquest awards.

The electronics awards is for power distribution box on a commercial and passenger van in Europe with a North American automaker. An additional conquest wire award is with Honda in China. As we continue to grow with Japanese customers, we also retained an important wire program with Jaguar Land Rover in Europe. During the quarter, we released our annual sustainability report, providing an update on our IDEA by Lear initiatives, as well as progress towards achieving our environmental stewardship, social responsibility, and governance goals. Our strategic focus continues to drive improved financial performance despite challenging industry conditions. Total company revenue increased 2% compared to the third quarter of 2025, reflecting growth over market of approximately 4 percentage points. Both segments outperformed the market despite headwinds from the roll-off of programs such as the Escape and Corsair, and the wind-down of our non-core E-Systems products.

With Seating growing approximately 4 percentage points above market, and E-Systems approximately 2 percentage points above market, excluding the impact of the wind-down business, E-Systems growth over market was 5 percentage points. Operating margins expanded 20 basis points year-over-year for the total company, with E-Systems margins expanding 60 basis points, driven by another strong quarter of 120 basis points of net performance. Seating margins grew 20 basis points, driven by 40 basis points of net performance, keeping us on track to deliver our full-year target. Our strong free cash flow generation allowed us to further accelerate our share repurchases. We repurchased $175 million of shares in the third quarter, completing our full-year repurchase target of $350 million. As a result of our strong earnings growth and accelerated share repurchases, our third quarter EPS increased 33% year-over-year.

With our current authorization set to expire in 3 months, we increased our share repurchase authorization to $1.5 billion and extended it through 2029, reinforcing our commitment to returning capital to shareholders. Slide 7 provides a further breakdown of our progress on delivering long-term revenue growth and margin expansion, providing confidence we will achieve our full-year targets. Over half of our year-to-date Seating awards have been for new or conquest programs, providing a strong foundation of future growth. In the quarter, we were awarded conquest programs with Stellantis in Europe and with Honda in Thailand, as we continue to build our relationships with Japanese customers. In E-Systems, approximately 70% of our year-to-date business awards have been for new or conquest programs, continuing the trend from the first half of the year. During the quarter, wire conquest awards included programs in China with JMC Ford Joint Venture and Honda.

The rollout of our thermal comfort modular solutions continues to gain momentum with the modularity and FlexAir wins in the quarter. The pace of business awards with Chinese automakers continues to accelerate. In Seating, our year-to-date awards are estimated to generate over $600 million of average annual revenue, up almost 90% from where we were tracking at the end of the second quarter. This reflects the growing momentum of our global wins with Chinese automakers, including with BYD in Thailand and Indonesia, following our second quarter award with Leapmotor in South America. In E-Systems, approximately 25% of our year-to-date awards are with Chinese domestic automakers, up significantly from 2025. We remain on track to deliver $75 million of IDEA savings this year, with approximately $55 million achieved year-to-date, accelerating through the end of the year, and are on track to significantly exceed our targeted restructuring savings.

Our net performance continues to drive increased adjusted operating margins in both segments. Despite rising commodity and other input costs, Seating has generated 30 basis points of net performance through the first three quarters. We expect a step-up in the fourth quarter to deliver our full-year target of 40 basis points. In E-Systems, we delivered a very strong 105 basis points of net performance through the first three quarters. We expect E-Systems to deliver positive net performance in the fourth quarter, despite increasing copper and launch costs, a testament to our team's ability to execute. I want to spend a moment on slide 8, which provides an overview of our Orion, Michigan facility that will support three of GM's most important nameplates, the Cadillac Escalade, Chevrolet Silverado, and the GMC Sierra.