(ALV) Autoliv Remains Neutral

We reiterate our Neutral recommendation on Autoliv Inc. (ALV) which is one of the well-known manufacturers of occupant restraint systems for automobiles and has a product portfolio comprising primarily of safety airbags, seat belts and steering wheels. The company, based in Stockholm, Sweden, operates through two principal subsidiaries: Autoliv AB and Autoliv ASP.

Autoliv released its 2011 first quarter results on April 20, 2011.  The company reported net income of $181.5 million or $1.93 per share, up 43.4% year over year from $126.5 million or $1.39 in the year-ago period. Consolidated sales improved 23% to $2.11 billion, reflecting an upside of 6% due to acquisitions and 3% due to currency translation effect.

The company is expected to witness improvement going forward given its near-term plans. Autoliv has continuously expanded in low-cost countries, including Romania and China, to meet local demand and consolidate manufacturing from high-cost countries. These have helped the company to reduce costs and fight competition from other big manufacturers of automobile protection products.

Autoliv expects consolidated sales to grow by 15% for the full year 2011, backed by an organic sales growth of 8%. Acquisitions are expected to contribute 2% to the overall sales growth. Operating margin is expected to reach 11.5% in the year.

Moreover, the company’s cash position has improved to $605.2 million as of March 31, 2011 from $302.3 million in the year-ago period, implying further scope for potential investments. Besides, long-term debt declined to $639.9 million as of March 31, 2011 from $820.7 million in the prior-year quarter.

However, the company is highly exposed to customer concentration risks. The company’s top three original equipment manufacturer (OEM) customers – Ford Motor Co. (F), Renault-Nissan and General Motors Company (GM), who account for 18%, 12% and 11% of total sales, respectively.

The company is also expected to face some short-term supply constraint from Japan due to the natural disaster in March, 2011. As result, the shares of Autoliv Inc. are maintaining a Zacks #3 Rank, which translates into a short-term Hold rating.

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