Autoliv CEO Defends Steep Fourth-Quarter Margin Jump As Analysts Press On China
Analysts questioned how much of the implied fourth-quarter step-up is secured and why China turned negative organically.
Autoliv CEO Mikael Bratt defended a much stronger fourth-quarter margin on the company's third-quarter earnings call Friday, after analysts questioned how much of the improvement is locked in. The airbag and seatbelt maker narrowed its 2026 adjusted operating margin guidance to around 10.5%, the low end of its prior range of around 10.5% to 11%.
Pressing on the implied fourth quarter
An analyst from Wolfe Research said the guidance implies a fourth-quarter margin of around 14% and asked how much of the recoveries behind it are already secured. A Bank of America analyst said it implies around 400 basis points of outperformance versus the market, well above prior quarters, and asked what supports the acceleration.
Bratt said the fourth quarter is seasonally the strongest, helped by engineering income and Mobility Global's forecast of about one million more vehicles than in the third quarter. He said the third quarter came in slightly better than the company expected in July, and that the momentum carries forward. "We move into the fourth quarter here with confidence," he said.
He also said the cost pressure continued through the year, which makes it "very tight" to lock in the full effect of customer compensation before year-end. That, he said, is why the company sits at the lower end of its range.
Adjusted operating margin in the third quarter was 9.7%, 30 basis points lower than a year earlier, on net sales of $2.7 billion.
Why China turned negative
Asked by the Bank of America analyst why China turned negative organically in the third quarter, Bratt pointed to light-vehicle production. Exports had offset much of the drop in domestic sales, he said, but that cushion is now limited.
Mobility Global has cut its fourth-quarter outlook for Chinese light-vehicle production to a 9% decline. Even so, Chinese automakers made up 58% of Autoliv's China sales in the quarter, against 46% a year earlier, Bratt said. He said Autoliv's sales to them exceeded their production growth by almost 20 percentage points.
Cost headwinds and cash returns
Autoliv, which makes airbags, seatbelts, steering wheels and other passive safety systems, said new headwinds since January total about 170 to 180 basis points. It expects to offset most of them through cost cuts and customer compensation. Gross raw material costs hit operating income by $42 million in the quarter.
The company repurchased shares in the quarter and kept its operating cash flow guidance at around $1.2 billion. Capital spending is now expected at around 4% of sales, versus less than 5% before. About $1.9 billion remained under its buyback authorization at quarter end.
Deutsche Bank, in a pre-earnings note, ranked Autoliv second among suppliers.
Autoliv holds an investor day in Shanghai on April 26 and 27, 2027, and reports fourth-quarter results on Friday, January 29, 2027.
Sources
- Autoliv, Inc. (ALV) Q3 Earnings and Revenues Miss Estimates — Yahoo Finance
- Autoliv (ALV) reports earnings tomorrow: what to expect — Yahoo Finance
- Autoliv Inc. (NYSE:ALV) : Ptab Cases :: Law360 — law360.com
- Why Autoliv (ALV) is Poised to Beat Earnings Estimates Again — Yahoo Finance
- Top Auto Suppliers: Deutsche Bank’s Picks Ahead of Third Quarter — Yahoo Finance
