Forvia Stays Strong Amid Global Auto Production Decline, Sees Stock Surge

Forvia, an automotive equipment supplier, reported third-quarter sales slightly below expectations but outperformed global auto production trends. Despite a significant drop in share price and economic challenges, the company saw a brief recovery following a quarterly earnings update. In Europe, Forvia’s sales improved while facing substantial regional production declines. The company reaffirmed its 2024 revenue targets, although concerns remain regarding visibility for 2025 and ongoing debt reduction plans amidst an uncertain market environment.

(BFM Bourse) – Forvia, an automotive equipment manufacturer, has reported third-quarter sales that align with expectations, surpassing the overall trend in automobile production. In recent years, the automotive supplier sector has experienced significant challenges, including geopolitical strife, health crises, erratic production schedules, surging labor and raw material expenses, and rising concerns about slower electrification alongside increasing competition from Chinese firms.

Forvia, which emerged from Faurecia’s acquisition of Hella in 2022, has not been immune to these issues. This year alone, its stock has plummeted by 57%, and over the past three years, it has seen an 80% drop. Nevertheless, as one Parisian analyst remarked, “In a sector plagued with negativity, sometimes, all it takes is a few reassuring signs for the stock to surge dramatically.”

Despite issuing a profit warning and revising its 2024 outlook downward at the end of September, the stock surged by 11% in a single day, suggesting that the market’s fears had been even more severe.

On Monday, shares of Forvia climbed again, rising 9% around 10:50 a.m. after the release of its first-quarter business results. This positive momentum also influenced other companies in the sector, with OPMobility seeing a 4.5% increase and Valeo rising by 3.6%.

Strong Performance in Europe

The group’s performance wasn’t extraordinary by typical standards. From July to September, Forvia reported revenues of €6.53 billion, marking a 2.6% decline primarily due to notable currency fluctuations (1.6 percentage points). Bernstein highlights that the revenue figures fell 0.6% short of projections. However, when removing the effects of currency and business portfolio changes, the sales decline was only 0.4%, significantly better than the anticipated 2% drop.

This modest decline in sales is particularly impressive against the backdrop of a 4.6% drop in global automotive production during the same time frame, showcasing an outperformance of 4.2 percentage points—a crucial metric in the OEM industry.

Forvia was notably influenced by the economic climate in Europe, where a restructuring plan was initiated at the beginning of the year that includes cutting 10,000 jobs. However, in Europe, the company saw a 4.5% sales increase on a like-for-like basis, even as automotive production fell by 6.9%, creating an impressive outperformance of 11.4 percentage points.

The group attributes this success to robust performance in its seating, interior equipment, and lighting sectors. In the Americas, sales rose by 2.4%, outperforming automotive production by 4.8 percentage points. Conversely, in Asia, sales declined by 9.9% on a like-for-like basis, while production decreased by 3.8%. This underperformance in Asia is attributed to a high base of comparison from the previous third quarter and delays in starting production, as sales to both Chinese and international automakers saw double-digit organic declines.

Future Prospects

At the conclusion of the quarter, Forvia reaffirmed its revenue target for 2024, projecting between €26.8 billion and €27.2 billion. The company also aims for an operating margin of 5% to 5.3%, net cash flow of at least €550 million, and a debt-to-Ebitda ratio of 2 or less by the end of 2024, decreasing to below 1.5 by the end of 2025. Bernstein remarks, “Considering that automotive production dropped by 4.6%, this is a promising report.”

The analyst added, “There’s been no additional poor news, cost-cutting measures are picking up pace, and outperformance is better than expected. They anticipate a return to stronger performance in Asia next year while confirming a path towards debt reduction.”

Despite improved visibility for the remainder of this year, many uncertainties linger regarding fiscal 2025, which management expects to be another challenging year. They have chosen to refrain from further commitments until February, considering recent setbacks. Oddo BHF highlights the uncertainty surrounding the divestment schedule, crucial for debt reduction priorities, amidst a deteriorating environment despite the management’s confidence.

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