Lear 2026 Q2 Earnings Call

Please go ahead. Thanks, Jamie.

Good morning everyone. Thank you for joining us for Lear's Second Quarter 2026 Earnings Call. Presenting today are Ray Scott, Lear President and CEO, and Jason Cardew, Senior Vice President and CFO. Other members of Lear's Senior Management team have also joined us on the call. Following 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 two, 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 three. First, Ray will review highlights from the quarter and provide a business update. Jason will then review our second quarter results and 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. Please turn to Slide five, which highlights our key financial metrics for the second quarter. Lear continued its momentum in the second quarter, delivering meaningful year-over-year improvement across all metrics. Sales increased 3% to $6.2 billion, driving record first half revenue of over $12 billion. Core operating earnings were $313 million, a 7% increase in the quarter, and approximately 9% for the first half of the year. Adjusted earnings per share reached $4.28, a 23% increase from the second quarter of 2025, building on the strong growth we delivered in the first quarter. Operating cash flow increased 55% to $461 million, with free cash flow increasing 69% to $288 million for the quarter. Slide six summarizes our key business and financial highlights for the quarter.

We continue to execute on each of our four strategic priorities, 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 $2.9 billion of business awards year to date, with more than $2.3 billion in Seating and over $500 million in E-Systems. Over 50% of this business is for new and conquest programs. Our leadership in Seating continued this quarter, highlighted by a significant set of awards with Audi. Two of the programs are conquest wins of existing vehicles in Europe, and a third is for a future program in North America. In addition to complete seats, each program includes ComfortFlex application, combining our lumbar and massage.

FlexAir will also be incorporated into the third row of one vehicle. Winning these awards required an extraordinary effort. Ultimately, it was our industry-leading automation capabilities, combined with our track record of quality and efficiency, that secured these wins. One of our largest awards in recent history. Additional Seating wins include complete seats for a Hyundai program in North America, as well as ComfortFlex awards with BMW and a North American EV automaker. In total, we won seven new awards for ComfortFlex and FlexAir applications this quarter, bringing our total modular and innovative seat product awards to 45. Automotive News recognized Lear's leadership by naming our modular thermal comfort systems a finalist for a 2026 PACE Award. Our momentum with Chinese automakers continued in both segments.

Leapmotor awarded us a complete seat program for their expansion into South America, an important win as Chinese automakers grow their global footprints. In E-Systems, we continue to drive growth in our core products by securing a wire harness awards in a luxury Chinese automaker, BAIC. We continue to accelerate our capabilities through IDEA by Lear, particularly in automation and digital tools. During the quarter, we opened our Rochester Hills Advanced Manufacturing Integration Center, hosting both customer visits and our first investor visit with an overwhelmingly positive response. This facility showcases some of our key product and process innovations while serving as a working manufacturing facility. Notably, the FlexAir award announced today will be produced there. The progress we have made across these strategic pillars is driving our financial performance. Our strong first half has given us confidence to raise full-year guidance for revenue, operating income, and free cash flow.

We will cover the specific revisions later in the call. Growth over market was approximately two percentage points for the total company in the quarter, despite headwinds from program roll-offs, such as the Escape and the Corsair, and the wind-down of our non-core E-Systems products. Seating grew approximately three percentage points above market. Total company margins expanded 20 basis points year-over-year, while E-Systems margins expanded a significant 90 basis points, driven by a strong 155 basis points of net performance. Seating net performance was 40 basis points, in line with our full-year target. These efforts collectively drove free cash flow growth of $117 million in the quarter, which supports our capital allocation strategy focused on accelerated share repurchases. We repurchased $100 million of shares in the second quarter, bringing our repurchases in the first half of the year to $175 million.

Given our strong cash flow and first-half execution, we are raising our full-year repurchase target to at least $350 million. The combination of strong financial results and disciplined capital allocation continues to drive consistent earnings per share. Our second quarter EPS increased by 23% year-over-year, reflecting our continued commitment to creating value for our shareholders. Our second quarter outperformance and full-year guidance raise are a direct result of our consistent execution across our key strategic priorities. Slide seven provides a further breakdown of our progress on delivering long-term revenue growth and margin expansion. Nearly half of our year-to-date Seating awards have been for new or conquest programs, providing a strong foundation for future growth. In the quarter, we secured the most significant Seating conquest opportunity in our 2026 pipeline with the Audi business win. Our remaining 2026 pipeline is robust, including several new and conquest opportunities.

Over 90% of the year-to-date business awards in E-Systems have been for either new or conquest programs. In the quarter, Lear was awarded a replacement wire program with Renault, which included additional content previously supplied by another supplier. Several key new and conquest opportunities are expected to be awarded in the second half of this year. The rollout of our thermal comfort modular solutions continues to accelerate. The seven wins this quarter bring our total ComfortFlex, ComfortMax, and FlexAir awards to 45, with 17 programs currently in production and an additional 11 launching by year-end. Our strategic focus on Chinese automakers continues to generate new business. The Leapmotor award marks our first win with a Chinese automaker in South America, opening additional opportunities we are currently pursuing in that region. In E-Systems, we secured awards with a luxury Chinese automaker and a non-consolidated award with BAIC.

We remain on track to deliver $75 million in IDEA savings this year. Having achieved approximately $35 million in the first half, with savings expected to build in the second half. Restructuring savings from last year's investments, combined with actions this year, are expected to total $80 million. Through the second quarter, we have generated $50 million in savings, more than half of our full-year target. Our first half net performance keeps us on track to achieve our full-year margin expansion targets. Seating delivered approximately 25 basis points in the first half, while E-Systems is ahead of their full-year target, having generated approximately 100 basis points. Our IDEA by Lear savings and efficiency gains are expected to accelerate in the second half to help us achieve our full-year net performance targets, which supports margin expansion in both segments.

Turning to slide eight, I will provide an update on two key initiatives that highlight the strength of our IDEA by Lear framework. During the quarter, we opened our Advanced Manufacturing Integration Center in Rochester Hills, a facility to showcase our industry-leading capabilities in automation and digital tools across both Seating and E-Systems. The transformation began with the installation of our fully automated ComfortFlex and ComfortMax seat and FlexAir assembly lines. Customer feedback was extremely positive, but we envisioned something bigger. We expanded the center to highlight examples of automation we are deploying across our global facilities. While some are prototypes, some are production-ready and being rolled out across many of our manufacturing plants today. We added displays showcasing digital tools and automation of components in both Seating and E-Systems, as well as just-in-time seating assembly.

One highlight of the tour is a demonstration of our automated wire taping capability technology we gained through the acquisition of StoneShield. To put this into context, nearly 20% of our direct labor and wiring is in tape application alone. It is one of the most attractive areas to automate and one of the most difficult. We are planning to launch the first production application next year. In Seating, we are highlighting our 2D and 3D automated sewing capabilities. Like taping and wire harness assembly, trim cover sewing is a labor-intensive operation. We have over 18,000 employees in our trim cover sewing operations globally, so the opportunity is significant. Automated 2D flat sewing is in production today. We have over 200 automated sewing cells globally, reducing our labor in these applications by 50%.