Car sales have plummeted in China and Asia as Chinese economic growth slows down and its stock market feels the pain. Autoliv Inc. (ALV.N) (ALIVsdb.ST) – the world’s largest supplier of automotive air bags – might be feeling like a crash test dummy right now. Besides air bags, Autoliv, a Swedish-American company with headquarters in Stockholm and Auburn Hills, Mich.. makes other automotive safety systems, too, and the company might want to fasten its seat belts for a bumpy ride ahead.
Autoliv earns about one-third of its revenues from Asia and 16% of revenues from China. That number is likely to take a big hit. Analysts have already been lowering estimates in the past 90 days for the fiscal quarter. However, they may not have lowered estimates enough as a negative StarMine Predicted Surprise of 4% indicates that they may still miss those lowered estimates.
Source: Eikon/StarMine
Driving more slowly
As you can see in the chart above, the I/B/E/S consensus has fallen by almost SEK 0.15 (Swedish Krona) to SEK 1.48. The SmartEstimate is lower at SEK 1.42 with the latest estimate revisions going lower than the consensus. Just 90 days ago, there were more buy and strong buy recommendations than there were hold and sell recommendations. Now the opposite is true, with just four buy recommendations and four hold recommendations, one sell and even one strong sell recommendation. Analysts have also lowered their price targets for Autoliv by $12 to $119 in light of the recent decline in stock price. Those price targets may be taken lower too.
Source: Eikon/StarMine
Putting the brakes on growth
Five years ago, operating margins were just over the 12% mark. They now languish below the 8% mark, below the industry median. While Autoliv has done well in diversifying to a global customer base, which may soften the blow this quarter, China still remains a major headwind.
In fact, on the last earnings call, CEO Jan Carlson pointed to “increased uncertainty in China around the light vehicle production and underlying market conditions. So far this year, there has been a steady decline in the light vehicle sales and production growth rates, while the negative trend of higher new vehicle inventories that began in 2014 has continued. In addition, we now see certain customers expanding summer shutdowns or reducing working hours during quarter three in an attempt to balance inventories with lower underlying demand.” Sounds pretty grim in China!
Those negative comments on China arrived even before we saw the Shanghai stock market swoon over the past week. That will likely make the outlook even gloomier.
Carlson also pointed to weakness in South American markets. Europe is likely to be the only bright spot for earnings for Autoliv, and from the looks of it, it may not be enough to compensate for China and South America. Looks like Autoliv’s earnings might need a little safety equipment of their own this quarter.
Receive stories like this to your inbox as they are published. Subscribe here and follow us @Alpha_Now on Twitter or check out the Eikon blog. If you are looking to access our data or analytics, register for a free trial.
