Aptiv Earnings: Results Show Solid Improvement as Chip Shortage Lessens

Narrow-moat-rated Aptiv APTV reported second-quarter earnings per share before special items of $1.25, $0.24 above the $1.01 FactSet consensus estimate and $1.03 higher than the $0.22 year-ago result. Second-quarter revenue also beat consensus by 8%, rising 28% to $5.2 billion from $4.1 billion last year due to solid flow-through on volume growth, new business launches, and contributions from acquisitions of Wind River and Intercable, partially offset by periodic supply chain disruptions from the chip shortage and unfavorable foreign exchange. Excluding currency, acquisitions, and divestitures, organic revenue climbed 25%, exceeding a 15% increase in global light vehicle production weighted to Aptiv’s customer base by 10 percentage points.

Despite continued headwinds from the chip shortage, increased commodity cost, higher labor cost, and other inflationary cost pressures, second-quarter adjusted EBIT was $530 million for a margin of 10.2%, more than doubling from $213 million with a 5.3% margin in the prior year. Free cash flow was $313 million versus negative $112 million in the prior year on improved earnings, reduced capital spending, and working capital discipline.

Management raised 2023 guidance with full-year revenue expected to be $19.95 billion-$20.25 billion ($18.7 billion-$19.3 billion prior) and adjusted EBIT of $2.075 billion-$2.175 billion (previously $1.92 billion-$2.08 billion) for a margin of 10.4%-10.7% (prior 10.3%-10.8%), primarily attributable to an increase in assumed global LVP to up 3%-4% from down 1%. We had thought that prior guidance was light and had already forecast $19.5 billion in revenue and $2.077 billion in adjusted EBIT. We raised our estimated revenue to $20.0 billion and adjusted EBIT to $2.10 billion. Due to the time value of money and changes to our model, we increased our fair value estimate by $4 to $164. The 4-star-rated shares of Aptiv currently trade at an attractive 33% discount to our new fair value.