Lear (LEA) Q2 FY26 earnings call: guidance and Q&A

Why is the downward conversion on lost volume so heavy in H2, and what other factors (like tariff refunds) are at play?

Jason explained that the heavier downward conversion is due to unusual factors like tariff refunds ($190M higher H2 revenue with no earnings), and the combination of new business rolling on with new fixed costs and existing platforms rolling off at variable margins. He also cited the fiscal calendar change and GM's full-size truck changeover as unique H2 impacts. Strong net operating performance is still anticipated in H2.

“If you look at the change in operating income relative to sales first half to second half, it does appear to be heavier downward conversion than you would ordinarily expect. And there are some unusual factors that are driving that even outside of volume backlog and the wind down you have, for example, the impact of the tariff refunds. So you have a $190 million higher revenue in the second half versus the first half just because of that with no earnings attached to it.”

asked by Dan Levy · answered by Jason Cardew

When will net performance outweigh volume/mix dynamics to drive overall margin expansion, particularly E-Systems' path to 8%?

Jason detailed a robust 2029 backlog, with 2028 also solid, driven by new business awards and IDEA by Lear. He noted near-term headwinds for 2027, including $235 million in noncore electronics wind-down and anticipated production volume pullbacks on key platforms. He expects 40 bps net performance for Seating and 80 bps for E-Systems in 2027, underwriting multi-year margin improvement, with steady improvement in E-Systems margins from 2027-2029.

“We're not happy with where margins are right now in that business. We've made meaningful progress in the first half of the year... But as we get through that sort of next couple of years, complete the wind down, you'll be able to more fully see the margin power potential in the systems of net performance. And so it's not likely in '27, but as you progress through that '27, '28, '29 time frame, we do expect steady improvement in operating margins, any systems in particular and really for the company overall.”

asked by Dan Levy · answered by Jason Cardew

What is the remaining cushion in the full-year guidance, and how much is China weakness influencing the guidance raise?

Jason stated that the magnitude of the guidance raise was primarily tempered by the pervasive weakness in China, which is now assumed to continue into H2. He noted that if China's demand recovers or North America's truck market remains strong, the company could reach the high end of guidance. The low end protects against broader economic weakness.

“The only thing that has changed, Joe, from sort of mid-second quarter and from our first quarter earnings call, is the magnitude of the weakness in China. And so that is really influencing the magnitude of our guidance raise. And had it not been for the sort of pervasive weakness in that market, we likely would have raised guidance a little bit more today and also probably would have felt better today about the high end of the guidance range.”

asked by Joe Spak · answered by Jason Cardew

Does the Leapmotor win utilize existing excess capacity in South America or require major new investment?

Ray confirmed no major investment is required as Lear has available capacity. He emphasized that the win, like the Audi win, was driven by Lear's technology, innovation, and efficiency capabilities. Jason added that Lear is the largest seat supplier in South America and the program will be built in a Stellantis facility where Lear already supplies seats, limiting capital investment.

“No, there's no major investment required. We do have capacity that's available to us. But I think something that's been an important ingredient that not only Leapmotor, but with Audi was our capabilities, our technology or innovation.”

asked by Joe Spak · answered by Raymond Scott

How should investors think about the company's organic growth capabilities and CapEx to revenue through the 2028-2030 period?

Jason expects a return to historical growth above market (3-4 percentage points) in the 2028-2030 timeframe, driven by recent business awards. He does not foresee a meaningful change in CapEx intensity, remaining around 2.8% of revenue, as increased automation investments are offset by efficiencies from manufacturing integrator acquisitions. Ray added that internal manufacturing of capital equipment reduces costs by 20% or more.

“I think if you look out to that '28, '29, '30 time frame, what we're seeing at this stage is the potential to return to our historical growth above market profile, so call it 3 or 4 percentage points of both above market.”

asked by Itay Michaeli · answered by Jason Cardew

Any unusual volatility expected in Q3 vs. Q4 margins, particularly with the GM launch?

Jason indicated that normal seasonal reductions in revenue and volumes will weigh on Q3 margins. He provided Q3 revenue guidance of $5.8B-$5.9B, with Seating margins in the low to mid-6s and E-Systems in the low 4s. Q3 margins are expected to be lower than Q4 due to summer shutdowns and commodity pricing dynamics.

“Yes, Colin, I think that the normal seasonal reductions in revenue and volumes that we see in the third quarter will weigh on the third quarter margins in both segments. We're not providing a pinpoint guidance by quarter today, but I can sort of frame up the way we're looking at the third quarter. We would expect revenues to be $5.8 billion to $5.9 billion in the quarter.”

asked by Colin Langan · answered by Jason Cardew

Clarification on the message regarding 2027 revenue growth, given the backlog and headwinds. Is limited organic growth expected in 2027, followed by acceleration?

Jason confirmed that limited organic growth is expected in 2027 despite a backlog of over $700 million, due to the $235 million wind-down of noncore electronics and anticipated production volume pullbacks on key platforms (JLR, Ford Explorer, Stellantis Grand Wagoneer, GM trucks). He reiterated expectations for a return to growth above market in 2028 and even more so in 2029.

“I think your last comment is right. It's -- we do expect limited growth in '27 despite the more than $700 million backlog for the reasons you just articulated, and then returning to growth above market in '28 and even more so in '29.”

asked by Emmanuel Rosner · answered by Jason Cardew

Frame the magnitude (volume/revenue) and start of production for the Audi win, comparing it to previous record wins.

Jason stated the Audi launch is towards the tail end of 2028, with programs ramping through 2029 and into 2030. He quantified its magnitude as "about 75% as large as our largest conquest award that we announced at the end of last year," representing "multiple hundreds of millions of dollars of revenue," with the biggest backlog impact in 2029.

“Yes. So that launch is towards tail end of '28 and programs ramp up through '29 and into' '30. One of the 3 programs, I think, launches in 2030. And in terms of magnitude, we don't want to put a pinpoint number on it, but it's about 75% is large as our largest conquest award that we announced at the end of last year. So it's multiple hundreds of millions of dollars of revenue. I'll say that.”

asked by Emmanuel Rosner · answered by Jason Cardew