Earnings call: Lear Corporation reports record revenue in 2023 earnings

Lear (NYSE:LEA) Corporation (ticker: LEA), a leading global supplier of automotive seating and electrical systems, has reported a record revenue of $23.5 billion for the full year of 2023, marking a 12% increase from the previous year. In its fourth quarter and full-year earnings call, the company also noted a 29% growth in core operating earnings to $1.1 billion and a 38% rise in adjusted earnings per share to $12.02. The acquisition of IGB contributed to expanding Lear's thermal comfort capabilities and modular seating solutions. The company also secured over $1 billion of new business awards in the E-Systems segment for the third consecutive year. Despite some market underperformance and the impact of a UAW strike, Lear Corporation is optimistic about its future, with a strong sales backlog and continued focus on innovation and shareholder returns.

Key Takeaways

• Lear Corporation achieved a 12% increase in full-year revenue, setting a new record at $23.5 billion.
• Core operating earnings and adjusted earnings per share grew by 29% and 38% respectively.
• The company's operating cash flow improved by 22% to over $1.2 billion.
• Lear's acquisition of IGB enhanced their thermal comfort offerings and modular seating solutions.
• Over $1 billion in new business was awarded to Lear's E-Systems segment for the third year running.
• The sales backlog is approximately $2.8 billion for 2024 to 2026, including awarded programs and new business wins.

Company Outlook

• Lear expects higher sales, operating earnings, and earnings per share in 2024, despite flat industry volumes.
• The company plans to focus on generating cash flow and returning excess cash to shareholders.
• Lear is committed to bringing innovative products to market and maintaining capital deployment strategies.

Bearish Highlights

• The Mexican peso had a negative impact, with a $30 million effect on EBIT and a $0.10 impact on earnings per share in Q4.
• Guidance for the year includes a $70 million impact on operating earnings, primarily due to the peso.
• Lower volumes in electric vehicles (EVs) affected the backlog and operating margins in E-Systems.

Bullish Highlights

• Lear's Seating and E-Systems segments are expected to outperform market growth in 2024.
• Lear Forward initiatives have yielded savings beyond initial targets.
• The company is accelerating automation to address wage inflation and improve efficiencies.

Misses

• Revenue growth in North America and China underperformed the market due to an unfavorable platform mix and the UAW strike.
• Total company growth lagged the market by two percentage points in Q4, but would have aligned with the market if not for the UAW strike.

Q&A Highlights

• Executives discussed the exclusion of the Blazer EV seating from current plans and the potential impact on backlog.
• The winding down of the Ford (NYSE:F) Focus program could negatively affect future growth.
• Lear's mechanical approach to establishing backlog offers potential upside.
• The company is reviewing volume mix assumptions for seating and systems segments due to program changeovers and launches.
• Aggressive share repurchases are planned, with an expected buyback of around $300 million for 2024.

Lear Corporation's resilience in the face of market challenges and its strategic focus on innovation and operational efficiency underscore its commitment to growth and shareholder value. The company's robust financial performance, coupled with its strategic acquisitions and product advancements, positions Lear to capitalize on industry trends and maintain its market leadership.

InvestingPro Insights

Lear Corporation (ticker: LEA) has demonstrated financial resilience and growth potential, as evidenced by its recent earnings report. To provide a more nuanced understanding of Lear's financial health and market position, here are some insights based on real-time data from InvestingPro and InvestingPro Tips.

InvestingPro Data shows that Lear Corporation has a market capitalization of $7.83 billion and a Price/Earnings (P/E) ratio of 11.76 based on the last twelve months as of Q3 2023. This indicates a reasonable valuation relative to its earnings. The company also boasts a Price/Book ratio of 1.62, suggesting that the stock may be reasonably priced in relation to the company's net asset value.

Despite concerns over gross profit margins, which stand at 7.91% for the last twelve months as of Q3 2023, Lear Corporation has maintained its dividend payments for 13 consecutive years, showcasing its commitment to shareholder returns. The current dividend yield is 2.28%, with the last ex-dividend date being December 5, 2023.

InvestingPro Tips highlight that Lear Corporation has a perfect Piotroski Score of 9, indicating strong financial health. Additionally, the company is recognized as a prominent player in the Automobile Components industry, which aligns with its strategic focus on innovation and market leadership.

For those interested in deeper analysis and more InvestingPro Tips, Lear Corporation has a total of 7 tips available on https://www.investing.com/pro/LEA. Subscribing to InvestingPro+ can provide further insights, and using coupon code SFY24 will get you an additional 10% off a 2-year subscription, while SFY241 offers the same discount for a 1-year subscription.

Lear Corporation's strategic initiatives and financial metrics underscore its potential for sustained growth and its ability to navigate industry challenges effectively.

Full transcript - Lear (LEA) Q4 2023:

Operator: Good morning, and welcome to the Lear Corporation Fourth Quarter and Full Year 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please also note, today's event is being recorded. At this time, I'd like to turn the floor over to Ed Lowenfeld, Vice President, Investor Relations. Sir, please go ahead.

Ed Lowenfeld: Thanks, Jamie. Good morning, everyone, and thank you for joining us for Lear's fourth quarter and full year 2023 earnings call. Presenting today are Ray Scott, Lear President and CEO; Jason Cardew, Senior Vice President and CFO. Other members of Lear's senior management team have also joined us on the call. Following prepared remarks, we will open the call for Q&A. You can find a copy of the presentation that accompanies these remarks at ir.lear.com. Before we begin, I'd like to take this opportunity to remind you that as we conduct this call, we will be making forward-looking statements to assist you in understanding Lear's expectations for the future. As detailed in our safe harbor statement on Slide 2, our actual results could differ materially from these forward-looking statements due to many factors discussed in our latest 10-Q and other periodic reports. I also want to remind you that during today's presentation, we will refer to non-GAAP financial metrics. You are directed to the slides in the appendix of our presentation for the reconciliation of non-GAAP items to the most directly comparable GAAP measures. The agenda for today's call is on Slide 3. First, Ray will review highlights from the year and provide a business update. Jason will then review our fourth quarter financial results and our full year 2024 outlook. Finally, Ray will offer some concluding remarks. Following the formal presentation, we would be happy to take your questions. Now I'd like to invite Ray to begin.

Ray Scott: Thanks, Ed. Please turn to Slide 5, which highlights key financial metrics for the fourth quarter and full year 2023. The generated record revenue in 2023 of $23.5 billion, an increase of 12% from 2022. Core operating earnings grew by 29% to $1.1 billion. Adjusted earnings per share was $12.02, an increase of 38%. Operating cash flow improved by 22% to over $1.2 billion, and we exceeded our free cash flow conversion target of 80%. Slide 6 illustrates key business and financial highlights from 2023. The acquisition of IGB increased our thermal comfort capabilities and allowed us to accelerate development of our modular seating solutions. Customer interest continues to grow. We have 15 projects in process with 11 customers to replace individual components with modular solutions. 12 of our customers have agreed to allow Lear to source the thermal comfort components for 18 different complete seat programs. This control allows us to grow the sales of our thermal comfort products and continues to differentiate our complete seat systems from competitors supporting further market share gains. We successfully launched production of the complete seats for the Wagoneer and the Grand Wagoneer, an unprecedented conquest award that we took over mid program. In E-Systems, we won over $1 billion of new business awards for the third consecutive year and are making progress on diversifying our customer base. We won significant awards with General Motors (NYSE:GM) and Stellantis (NYSE:STLA). We won our first wiring program with BMW (ETR:BMWG), and we received additional awards from a large global EV OEM as well as Renault (EPA:RENA) and Geely. Total company sales were a record, while our core operating earnings improved year-over-year for the fourth consecutive quarter driven by continued improvement in E-Systems’ margins. Our strong performance in cash conversion allowed us to accelerate the pace of share repurchases through the second half of the year, we repurchased over $175 million worth of stock in the fourth quarter for a total of $313 million in 2023. Industry publications continue to recognize Lear for our excellence in quality and culture. Including our most recent award last week when Fortune Magazine named Lear is one of the most admired companies for the eighth consecutive year. Slide 7 highlights some of our upcoming key launches in Seating. We have launches in all of our key regions with a wide range of customers. In – the 2024 launches include a combination of next-generation vehicles replacing outgoing models where we are the current supplier as well as several brand-new vehicles. In addition to assembling the complete seat, we provide a variety of vertically integrated components such as foam, trim and thermal comfort products. The Hyundai (OTC:HYMTF) Santa Fe is the first vehicle with a production application for our FlexAir, fully recyclable foam alternative. FlexAir will be utilized in the Santa Fe's third row cap rest. We have a long-standing relationship with Hyundai and are their largest independent seat supplier with about 40% of their external business. We have several launches for BYD (SZ:002594) this year, including the Sea Lion as we continue to expand with a fast-growing Chinese automaker. Turning to Slide 8. I will touch on key product launches in E-Systems. Several programs are launching with Lear's high-voltage and low-voltage wearing and connection systems, as well as key electronic components across all of our key regions. We continue to grow with Volvo (OTC:VLVLY). We supply wiring and electronics on several nameplates across their CMA and their SPA 2 platforms. Electronics sets that the high power junction box are leveraged across both hybrid and fully electric vehicles, providing a balanced exposure across these growing powertrains. Later this year, our BDU will launch on the Ram 1500 REV, solidifying our position as a leader in high-performance BDUs. 2023 was our third straight year with over $1 billion of business awards in E-Systems. Approximately 80% of those awards are programs that are new to Lear, which will further grow and diversify our business over the coming years. Turning to Slide 9. I will illustrate key Lear developed innovations we are bringing to market this year. Late last year, we began delivering production parts for the Intercell Connect Board to support GM's launch of the Ultium platform. Volumes for the ICB will grow with the launch and ramp of additional Ultium-based vehicles. We are leveraging our engineering expertise, along with our molding and stamping capabilities to pursue opportunities to supply ICBs to additional customers. We anticipate these programs will be awarded later this year. Proceeding, we are launching two new sustainable products in 2024, FlexAir, and ReNewKnit. The first commercial application of our FlexAir material will be for the cap rest in the all-new Hyundai Santa Fe. The 29 development projects we have with 13 OEMs for application of FlexAir throughout the vehicle seating system is evidence of the tremendous customer demand for this very innovative new product. FlexAir is 100% recyclable alternative to molded urethane cushion. It provides up to 20% reduction in weight and up to 50% reduction in carbon dioxide emissions. Its open air structure has better cooling and ventilation characteristics than urethane, further improving the performance of our thermal comfort modules. FlexAir is an attractive, sustainable alternative for the roughly $4.5 billion phone market, which we believe will support continued growth of our component business. Lear's exclusive license for automotive application, along with 190 patents we have filed creates a competitive moat around this very innovative technology. We're also starting production for ReNewKnit, which is launching with three different OEMs this year. Our suede alternative is the first-to-market automotive textile that is fully recyclable at the end of its life. We are seeing tremendous interest from our customers for sustainable alternative fabrics. ReNewKnit is also a finalist for the Automotive News PACE Award, once again demonstrating our ability to develop and bring innovative products to market and add value for our customers. These innovative products, combined with Lear's competitive positioning is a leader in seating will allow us to achieve our revenue growth targets while continuing to increase operating margins and financial returns. Now please turn to Slide 10, which shows our 2024 to 2026 sales backlog of approximately $2.8 billion. As a reminder, our core sales backlog includes only awarded programs, net of any lost business and programs rolling off. It excludes pursuit business, net new business in our non-consolidated joint ventures and the roll-off of the discontinued product lines in E-Systems. Due to the slower pace of the industry transition to electrification, we now anticipate lower volumes on several of our key customers, new programs as compared to what we assumed last year. By continuing to win new business, we have maintained a three-year backlog that is a similar size to that of – to that last year despite the significant changes in volume assumptions. The $2.8 billion backlog is roughly in line with last year's backlog and is well balanced across the three years. 2025 is impacted by the assumed roll-off of several ICE vehicles that may or may not come to fruition, depending on the pace of the EV transition. At $800 million, the third year of our backlog is higher than a typical third year. We expect that to increase further as customers continue to source new programs launching in 2026. In addition to the consolidated backlog, the 2024 to 2026 sales backlog at our non-consolidated joint ventures continues to grow. Our three-year backlog at our non-consolidated joint ventures increased approximately 70% from last year to about $650 million. The growth is largely driven by the continued business wins with BYD, which represents more than 50% of our non-consolidated backlog. We continue to win new business with a diverse set of customers. In the appendix of the presentation is a breakdown of our total sales by customer for 2023 and our expected distribution in 2027. It illustrates the continued diversification and growth we have with key customers such as BYD, a global EV OEM and Stellantis. Now I'd like to turn the call over to Jason for a financial review.

Jason Cardew: Thanks, Ray. Slide 12 shows vehicle production and key exchange rates for the fourth quarter. Global production increased 9% compared to the same period last year and was up 7% on a Lear sales weighted basis. Production volumes increased by 5% in North America, 7% in Europe and 18% in China. From a currency standpoint, U.S. dollar weakened against euro but strengthened against the RMB compared to 2022. Slide 13 highlights Lear's growth compared to the market for the full year as well as for the fourth quarter and summarizes our growth relative to the market over the past four years. For the full year, total company growth over market was one percentage point with Seating flat and E-Systems growing four points above market. This was largely in line with expectations as we anticipated the strong mix experience over the last several years to normalize as well as the negative impact of the UAW strike. Looking at our full year growth by region in 2023. Europe growth over market was six points with both business segments benefiting from higher volumes on the Land Rover, Range Rover and Range Rover Sport. New Conquest programs such as the BMW 5 series and Seating as well as new business with the global EV OEM, BMW, Renault and Mercedes and E-Systems contributed to the strong growth in the region. North America revenue growth underperformed the market by four percentage points, driven by unfavorable platform mix and the impact from the UAW strike. In China, revenue growth underperformed the market by three percentage points, driven by unfavorable platform mix. The mix shift to domestic Chinese automakers accelerated in 2023. We continue to win new business with domestic automakers, such as BYD, Geely, Changan, Great Wall and others, which will further improve our customer mix in China going forward. For the fourth quarter, total company growth lagged the market by two percentage points. However, excluding the impact of the UAW strike, total company sales growth would have been in line with the overall market. Looking at our growth over market over the last several years, our average annual growth in each segment has been in line with our long-term targets with seating at four percentage points and E-Systems at six percentage points. Turning to Slide 14, I'll highlight our financial results for the fourth quarter of 2023. Sales increased 9% year-over-year to $5.8 billion, excluding the impact of foreign exchange, commodities and acquisitions, sales were up 5% reflecting the addition of new business in both segments. Core operating earnings were $288 million compared to $265 million last year. The increase in earnings resulted primarily from the addition of new business. Adjusted earnings per share improved to $3.03 as compared to $2.81 a year ago, primarily reflecting higher earnings and the benefit of our share repurchase program. Operating cash flow generated in the quarter was $570 million compared to $537 million in 2022. The increase in operating cash flow was due to higher earnings and an improvement in working capital, partially offset by higher cash taxes. Slide 15 explains the variance in sales and adjusted operating margins in the Seating segment. Sales for the fourth quarter were $4.3 billion, an increase of $306 million or 8% from 2022, driven primarily by our strong backlog. Excluding the impact of commodities for exchange and acquisitions, sales were up 4%. The estimated impact of the UAW strike in the fourth quarter in Seating was $129 million or approximately 3%. Key backlog programs include the BMW 5 Series and i5 and the Dodge Hornet in Europe, the Wagoneer and Mercedes EQV SUV in North America, as well as the Geely Zeekr 009 in China. Core operating earnings improved to $294 million or up $19 million or 7% from 2022 with adjusted operating margins of 6.8%. Operating margins were flat compared to last year, as the benefit of our margin-accretive backlog was offset by the impact of acquisitions and foreign exchange. Slide 16 explains the variance in sales and adjusted operating margins in the E-Systems segment. Sales for the fourth quarter were $1.5 billion, an increase of $164 million or 12% from 2022. Excluding the impact of foreign exchange and commodities, sales were up 11%, driven primarily by our strong backlog. The estimated impact of the UAW strike in the fourth quarter and E-Systems was $44 million or approximately 3%. Key backlog programs include the Chevrolet Seeker and Buick Envista SUVs in Asia, an electric vehicle with a global EV OEM in Europe and North America; Renault a Mitsubishi plug-in hybrid electric vehicles in Europe as well as the Chevrolet Blazer EV and Ford Super Duty truck in North America. Core operating earnings improved to $84 million or 5.6% of sales compared to $64 million and 4.8% of sales in 2022. The improvement in margins reflected our margin-accretive backlog and strong net operating performance, including resolution of key commercial negotiations with customers, facilitating cost recovery and the benefit of restructuring savings. Moving to Slide 17. We highlight our history of deploying capital to drive shareholder value. Over the last few years, we made strategic investments to expand our vertical integration capabilities to support growth and accelerate operational excellence. We will continue to focus on organic and modest inorganic investments that drive improvements in automation and plan efficiencies. In the fourth quarter of 2023 S&P upgraded Lear to a BBB rating with a stable outlook. We also extended the maturity of our $2 billion credit agreement by one year to 2027. These actions further solidify our already strong balance sheet. Our renewed focus on generating cash flow is driving immediate results. In 2023, we significantly exceeded our target of 80% free cash flow conversion, which enabled us to accelerate our share repurchases in the second half of the year. We remain committed to returning excess cash to our shareholders. During the year, we repurchased $313 million worth of stock, reducing our shares outstanding by 4%. Including dividends, we returned approximately $0.5 billion to shareholders in 2023. $175 million of shares were repurchased in the fourth quarter, more than the first three quarters combined. This share count reduction will help accelerate EPS growth in 2024. Our current share repurchase authorization has approximately $900 million remaining, which allows us to repurchase shares through the end of this year. Please turn to Slide 18. Last year, we introduced the Lear Forward plan. The plan is focused on driving efficiencies in our plants and across our segments. We executed several programs through the course of the year that improve efficiency and increase the long-term flexibility at our manufacturing facilities. To optimize our low cost footprint, we continued to expand our North African operations. We recently opened a facility to expand our connection systems capabilities to support our European operations and started initial production of thermal comfort products at a second facility. Building on the progress we made in 2023, this year, we will continue to focus on increasing the level of automation in our plants to drive further efficiencies to help offset global wage inflation. The acquisitions of Thagora and InTouch have resulted in increased efficiency, reduced waste and improved quality. We have a pipeline of organic and inorganic initiatives that our teams focused on executing in 2024. The Lear Forward plan generated cost savings of more than $50 million in 2023. We estimate the opportunities we are pursuing in 2024 can generate an incremental $50 million in annual savings, with larger savings anticipated in 2025 and beyond. These initiatives, combined with commercial recoveries are critical to helping offset the impact of global wage inflation. Actions taken through the Lear Forward plan also help maximize cash flow generation. By realigning our capacity, we can adjust to changes in production schedules and reduce capital intensity of our business. This was evident in our 2023 results as our capital expenditures were 2.7% of sales, well below our average over the last five years of roughly 3% of sales. The projects we implemented in 2023 helped us achieve free cash flow conversion of 90%, well in excess of our 80% target. Slide 20 provides detail on our outlook for 2024. Now shifting to our 2024 outlook, Slide 19 provides global vehicle production times and currency assumptions that form the basis of our full year outlook. We base our production assumptions on several sources, including internal estimates, customer production schedules and S&P forecast. At the midpoint of our guidance range, we assume that global industry production will be 1% lower than in 2023 or flat on a Lear sales weighted basis. Our global production assumptions are generally aligned with the latest S&P forecast. From a currency perspective, our 2024 outlook assumes an average euro exchange rate of $1.09 per euro and an average Chinese RMB exchange rate of RMB7.15 to the dollar. Now turning to Slide 20. Slide 20 provides detail on our outlook for 2024. Despite our expectations for flat industry volumes, we’re expecting our fourth consecutive year of higher sales, operating earnings and earnings per share. Our revenue is expected to be in the range of $24 billion to $24.6 billion. At the midpoint, this would be an increase of $833 million or 4% over 2023. This translates to growth over market of 4% for the total company, with E-Systems growing 5% and Seating growing 3% over market, respectively. Core operating earnings are expected to be in the range of $1.155 billion to $1.305 billion. At the midpoint this would apply an increase of 10% over 2023. Adjusted net income is expected to be in the range of $730 million to $840 million. Restructuring costs are expected to be approximately $125 million. Our outlook for operating cash flow for the year is expected to be in the range of $1.275 billion to $1.425 billion. And our free cash flow guidance at the midpoint is expected to increase to $675 million. At the midpoint of our outlook, free cash flow conversion would be approximately 86%, a second consecutive year in excess of our 80% target. Lear’s strong focus on generating cash allows us to maintain a strong balance sheet, while making organic and inorganic investments to strengthen our business as well as to fund share repurchases to significantly reduce outstanding shares and drive growth in earnings per share. Slide 21 walks our 2023 actual results to the midpoint of our 2024 outlook. Year-over-year revenue is expected to grow by more than $800 million and adjusted margins are expected to improve by 30 basis points, due primarily to our margin accretive backlog and strong net operating performance. Positive net operating performance reflects the benefit from our Lear Forward plan and other performance improvements, partially offset by elevated wage inflation and the negative impact of transactional foreign exchange. Wage inflation is expected to be approximately $90 million greater than what we experienced in 2023 and transactional FX is expected to be a headwind of approximately $70 million, primarily as a result of the strengthening of the Mexican peso. The E-Systems segment is expected to continue its recent performance improvement trend with operating margins expected to increase by approximately 100 basis points in 2024. Seating operating margins are expected to increase modestly, reflecting the continuing benefit of our margin accretive backlog as well as the execution of our thermal comfort strategy, partially offset by the impact of lower volumes on existing platforms. We’ve included detailed walks to the midpoint of our guidance proceeding, any systems in the appendix. Now I’ll turn it back to Ray for some closing thoughts.

Ray Scott: Thanks, Jason. Please turn to Slide 23. 2023 was a key year of strategic execution. In Seating, we closed the IGB acquisition, providing additional capabilities to our thermal comfort portfolio, which further strengthens our industry-leading competitive position. We are in validation with 11 customers for our thermal comfort modular solutions. Bringing these solutions to market will accelerate the adoption of thermal comfort features more broadly to a higher volume vehicles and into second and third row seating. In E-Systems, our execution and focus on efficiencies drove margin improvement throughout the year. We continue to focus on our core products aligned with industry trends to further improve our margins. We expect both business segments to improve growth over market performance in 2024, and we are confident in our long-term growth over market targets in both Seating and E-Systems. We implemented Lear Forward initiatives, which yielded savings in excess of our initial targets. Our focus this year is on accelerating automation to address wage inflation and improve efficiencies in our plants. In 2024, bringing innovative products to market and executing our strategy will allow us to continue to return capital to shareholders and position Lear for a long-term success. And now we’d be happy to take your questions.

Operator: [Operator Instructions] Our first question today comes from Rod Lache from Wolfe Research. Please go ahead with your question.

Rod Lache: Good morning, everybody.

Ray Scott: Good morning, Rod.

Rod Lache: Two questions on the guide. Just first of all, versus the second half of 2023 run rate and looking out to 2024, you’ve got about $1.1 billion of revenue growth at the midpoint, and your segments are expected to deliver about $120 million of additional EBIT. Is that roughly the conversion rate that we should be expecting now as more of the growth is coming from backlog, maybe 10% or 11%? And can you maybe just, Jason, in the past you’ve given us a pretty helpful bridge on how you get to the targets, the 7% total company, 8% segments. Can you just refresh us as we look out beyond 2024, how that sort of looks?

Jason Cardew: Yes, Rod. As the backlog is the primary near-term driver of growth and revenue, we would expect that to convert sort of 10% to 12%, I think we’re right in line with that with our guidance for this year. We do believe that there is room for volume increases on existing platforms and those will continue to convert at our typical variable margin in both segments 15% to 20% in Seating and 25% roughly in E-Systems. As we look at this year, we’re not anticipating volume increases on existing platforms. In fact, we have included volume reductions on a number of existing platforms in our guidance, largely aligned with the S&P forecast. So there’s definitely room for that to improve even this year and certainly beyond this year. In terms of your question on 2025, Rod, I really want to stay focused on 2024 at this stage. The last time we talked about 2025 was the middle of last year. In Seating, we talked about 8% at our Seating Investor Day. And there’s two things – two or three things have changed since then. One, wage inflation and transactional FX. A little bit more of a headwind than what we had anticipated at that point. EV volumes and the transition to EVs are a little bit slower than what we had anticipated. But we’re also moving faster on automation and efficiencies in our plants and active negotiations with our customers. So it’s a little bit difficult to try and call 2025 with pinpoint accuracy at this stage. We’re super focused on delivering or exceeding our 2024 guidance in both businesses.

Rod Lache: Okay. Thanks for that. And just aside from production, maybe you can just give us a little bit of color as you look out to 2024. What are the biggest potential sources of upside or downside versus the midpoint of your plan?

Jason Cardew: Yes. As we look at our guidance for this year, I think one of the biggest challenges we have is in regards to wage inflation. So maybe just spend a minute on that. As we’ve talked about in the past, it’s sort of 3% or 4% annual wage inflation is sort of normal. We offset that through our efficiency programs in our plants, and it’s certainly running considerably beyond that at this stage, roughly 2x what we’ve experienced historically. And if you look at our businesses, just kind of taking a step back, the impact ranges from negligible on a business like electronics, which has almost no labor, it’s automated, JIT seating, it’s a relatively modest impact. But our more labor intensive businesses like cut and sew trim, which is 35% of the Seating headcount, wire assembly is 90% of E-Systems headcount. Those are where we’re seeing the greatest impact. Those also tend to be businesses that have model pricing with our customers, with explicit assumptions around labor rates, which gives us a path to eventually recovering that either directly this year or as those programs turn over, certainly we would expect full recovery. And we really think that 2024 represents the peak in terms of the impact of wage inflation because globally inflation peaked last year and now you’re seeing the full effect of that in our labor costs. And so we would expect that to moderate next year. We did see higher labor inflation last year as well. Just kind of look at from 2022 to 2023, we had a step up of roughly $60 million. We managed to offset that largely through four initiatives. In addition to our normal efficiency programs, we had an aggressive restructuring program, moving work from Eastern Europe to North Africa, from the border of Mexico further inland, through automation, the acquisitions of ASI, InTouch and Thagora, really aggressively deploying automation, the Lear Forward plan, which is improving capacity utilization in North Africa and Mexico, and then customer recoveries, passing that through to our customers. So I think there may be some upside to the assumption we’ve made around economics, either in terms of the absolute cost or the recovery. And in addition to that, what we’re doing in terms of our automation programs. And Ray could talk a little bit more about that. I mean, there’s no one more focused and passionate on this topic, I think, in the industry than Ray.

Ray Scott: Yes. Rod, I’ll share some stories with you too, next week publicly. But I couldn’t been in our facilities. And I think the technology, the innovations, the things that we put in place, when you talk about upside, I think that’s a potential accelerator. What I’m seeing with the pilot lines we put in place around the areas Jason mentioned, our labor focus priorities are around trim and wiring. And what I saw in our wiring facilities, we’re automating and doing a great job with some of the efficiencies that we’re getting in our plants. And to mention, I think what’s important, too, the capital that we’re looking at is significantly lower cost. So it’s not only improving from an efficiency within our plants, the capital that’s coming online is significantly lower than what we’re seeing from traditional capital. So we’re getting two, I think, really good benefits. You saw that last year in our capital spend. And I think that’s going to continue to accelerate. I think the negotiations with our customers. We take a very balanced approach to the year starting off in January. We’re in heavy discussions with our customers on all kinds of different issues relative to the pause in EVs to what we’re seeing with labor economics. I think we’re balanced. I think some of those, we’re going to be very aggressive on those I think could help significantly quicker than maybe than the second half of this year. But we do take a balanced approach in the beginning. I think volume. I think we’ve looked at volume very conservatively. I think right now our customers are retrenching a little bit with this pause in EV. We’re hearing a lot from our inside the customers of how they’re going to look at their powertrains, what that might impact as far as ICE vehicles. We’ve gotten some feedback that they’ll formalize it here in the near future. If ICE continues to accelerate in some of our platforms that we’ve been a little bit more bearish on, because that’s the information we have. That’s a nice little tailwind for us. So, I think we have some opportunities here, but we are pushing very aggressively, but we do have a very balanced approach, especially coming out in January, Rod. We’ve been absorbing a lot of these EV changes quickly and then really giving a little bit more bearish [ph] look to what the alternatives will be. And so that could be a nice boost for us.

Rod Lache: Great. Rod Lache

Jason Cardew: Yes.

Operator: Our next question comes from Dan Levy from Barclays. Please go ahead with your question.

Dan Levy: Hi, good morning. Thanks for taking the question.

Ray Scott: Good morning, Dan.

Dan Levy: Hi good morning. Wanted to go back to continue the line of questions on the guide. And maybe you could just comment a bit on two components in there. One is, I think you said $70 million of FX in there. Is that just purely transactional? Does that just reflect hedges unwinding? And maybe you could talk about; I think you mentioned it briefly on the commercial recoveries piece. But what are you assuming as far as pricing within each of the segments? Is this returning to the typical, call it, 1.5% price downs in Seating, 2-ish percent in E-Systems. So maybe just some commentary on the pricing environment as well.

Jason Cardew: Sure. Let me start with FX. And it may be helpful just to kind of take a step back and explain our transactional FX exposures overall in our strategy. So the Mexican peso is our most significant exposure by far. We have had a little more than $1 billion. I think $1.1 billion is the exposure last year, that grows to $1.2 billion or so in 2024. And we have a very effective hedging program, which really protected us last year and also helps us again this year. And that can go through all the details of the program for competitive reasons, but I will say generally, we layer on hedges on a multiyear basis. And at the beginning of last year and again the beginning of this year, we had hedges in place for roughly 85% of our exposure, including the peso. And this – again, that served us very well last year in particular. Transactional FX on the Mexican peso negatively impacted operating margins and earnings last year by 10 basis points and $20 million, respectively. So it was fairly insignificant in terms of the operating margin impact. There was another $10 million of exposure on balance sheet-related FX expense that hit in the other line, which impacted EBIT by another $10 million. So the Mexican peso overall between operating earnings and other expense impacted EBIT by $30 million last year. And the balance sheet portion that was really loaded – back-end loaded in the fourth quarter where there’s a lot of volatility with the peso – and that really weighed on earnings per share, it’s about a $0.10 impact. Overall, FX was a $0.10 impact on earnings per share in the fourth quarter. As we look out at this year, overall, our guidance, as we talked about in the prepared remarks, includes $70 million impact on operating earnings are just under 30 basis points, 31 basis points in Seating, a little over 20 basis points in E-Systems. $60 million of that $70 million is driven by the peso, which we’ve assumed will average about 17.25 [ph]. So the exposed portion, the 15%, we’ve assumed a rate of 17.25, that’s pretty much where it’s been trading over the last several months. And then we’ve assumed a further $30 million of impact on our balance sheet exposure. So the guidance includes $100 million total transactional FX impact of which $60 million or 60% of that is peso related. Lastly, I think it’s important to highlight that the peso appreciation is also embedded in our labor inflation. And so as we’re talking to our customers about recovery of this kind of excess wage economics, there’s an FX component of that as well. And ultimately, as those models reset to reflect current exchange rates, current labor rates, we would expect the full recovery of that to take place. So some of that this year and then some of it beyond this year. And that’s a little bit of what’s weighing on Seating margins and really margins in both segments in 2024. So you’re not seeing the full benefit of all the operating improvements because it’s being diluted by both wage inflation and transactional FX. In terms of our customer price downs, we’re expecting a similar environment in 2024 than what we experienced in 2023. Your math is pretty close there in terms of 1.5%, maybe a little bit less than that. But it’s important to note that there’s a basket of issues that you’re negotiating. And so there may be some direct reduction of that as a result of our labor inflation discussions, FX discussions, low volume discussions, EV program delay discussions and even lingering commodities that have not been recovered from the prior year. So all of that is in play as we negotiate with our customers. But if you see this year playing out, you have that contractual price down that’s baked into your first quarter outlook. You had the effects of wage inflation largely hitting at the beginning of the year and that will weigh on margins at the start of the year. And then throughout the year, we look to claw that back through those negotiations and through the execution of our operating improvement plans.

Dan Levy: Great. Thank you. And as a follow-up, I wanted to ask about the EV strategy. And I see on your slide that talks about the strategic initiatives there’s a comment here realigning resources under E-Systems, realigning resources due to changes in EV volumes. Maybe you can just talk about what specifically you are doing within E-Systems to align to this new environment. How much was weaker EVs wait on the backlog? And you issued this 8% target on E-Systems margin. How much does lower EV environment limit your ability to get to that 8% 2025 target in margins? Thank you.

Jason Cardew: Yes. And certainly, the biggest factor that led to a lower 2024 backlog and to a certain extent, the 2025 backlog is our assumptions around electric vehicle volumes, the timing of launches. So in 2024, in particular, we had guided to $1.5 billion backlog. It’s now $1.2 billion. I would say, within our guidance range, that could be anywhere from $1.1 billion to $1.3 billion, just depending on how closely the customers are – achieved their ramp-up schedules and their volumes, which are still in flux. And so that – yes, that is weighing on the backlog a little bit here in 2024, and it’s weighing on operating margins a bit in E-Systems probably more so than in Seating. And similar to the question Rod asked earlier in terms of 2025, I don’t want to get into a pinpoint margin discussion on 2025. What we’ve talked about publicly of late with these systems is an 8% target. I think in a recent investor conference, I talked about 2025, 2026, maybe pushing that out a little bit just because of the lower EV volumes in the near term. And so as the year progresses, we’ll provide more color on 2025, but certainly, that – the lower volumes will have an impact on E-Systems margins there. In terms of what we’re doing in response to the lower volumes, it’s a combination of operating actions and commercial actions. And we’ve – you see what happened with capital spending at the end of last year. We had guided to $675 million. We spent $50 million less than that. We went back to every single program, not just in E-Systems, but in Seating and reevaluated the deployment of additional capacity and found tremendous opportunity to pause a lot of that spending. So that will really help kind of near-term returns in both segments and I think, better positioned us for a slower ramp up. And we’re doing that in collaboration with our customers. Our customers are being very open about changes to their plans and they’re working with us to try and slow down that capital deployment so that they don’t have that excess capital and the supply base to worry about as well. And so – and then there’s a commercial negotiation element to it as volumes are lower certainly, we’re having discussions with all of our customers about the impact on fixed overhead and investments that had been made previously that will result in higher prices until those volumes come back.

Ray Scott: I also think what was important, and we talked about this with E-Systems is simplifying the product portfolio and seeing a little bit this even before it occurred. I mean, obviously, it was a much more dramatic pullback or pause as big call with EVs, but we were ahead in some respects of really limiting what capital we’ll be deploying. And I think equally as important where we’re investing our capital – our dollars and then also scaling certain products. When we talk about a BDU, it can be a very scalable program across multiple customers, same thing within IGB. And so I say it all the time, not trying to be everything to everybody investing in all kinds of different solutions, but being very, very disciplined and selective on where we will deploy capital and being very good at it. And I think that’s helped us. I mean we still have more work to do, like Jason said, on the commercial negotiation with some of these more dramatic changes within EVs, but we have that type of relationship with our customers that we are seen as an expert. And we didn’t deploy capital at the request of a particular volume to hit a run rate. It was very, very selective, intentional. And so I think that helped. But simplifying that product portfolio in E-Systems has really helped us as this pause has come at us over the last really three months.

Dan Levy: Okay. Thank you.

Operator: Our next question comes from John Murphy from Bank of America. Please go ahead with your question.

John Murphy: All right. Good morning guys. I got three very quick ones. First, if I said that global wide vehicle production was going to be up roughly 2% this year as opposed to down 1% and took the midpoint of your range, it would probably add about $700 million, maybe just a little bit more to the revenue outlook. If you think about that incremental $700 million and assume all else equal, what kind of contribution margin would you ascribe to that? I mean, because when you look at the low end and the high end of the range, it’s indicating a 25% contribution margin, Jason, just trying to understand what you would think of on something like that. And assuming a lot of this is coming in existing programs that do better than you – you’re forecasting right now or the industry is expecting?

Jason Cardew: Yes. So, we would expect – if volumes on existing platforms come in $700 million better, we would convert it at 15% to 20% in Seating and 25% or so in E-Systems, depending on the underlying profitability of the platforms that come back, the level of vertical integration that we have in the platforms as well. I would say that some of that volume would be on backlog programs, though, John, so that may convert at a little bit lower rate. in that first year of production sort of – 10% to 15% probably. And that’s where some of the guidance range is earmarked for, so to speak, is some of the uncertainty around these new EV platforms. The other factor and the reason for a little bit higher conversion on the range is the commercial negotiations around inflation and the pace at which we can deploy our automation projects to offset wage inflation. So, we’ve got a little wider range than we normally would have. It’s fairly tight in seating sort of 6.7% to 7%. But in E-Systems, it’s a little bit wider range, 6% at the top; let’s say 5% to 6% or 5.1% to 6%. Any systems to sort of account for the impact of those commercial negotiations and the pace of deployment of automation.

John Murphy: That’s very helpful. And then a second quick one here on the backlog. It seems like you guys have dinged and hit the backlog reasonably hard for EV push down and out, but have not taken the liberty and have not seen this necessarily from your customers of backfilling that lost volume with ICE programs. Is that a fair statement in the way you’ve approached the recoup of the backlog is not a backfill or a significant backfill of these ICE vehicles actually transacting and being sold and taking the place of those?

Jason Cardew: Yes, that’s effectively what we’ve done because it’s a fairly conservative approach, but we’ve taken our customers’ guidance in terms of their plans to balance out some of their ICE platforms as they ramp up their EV platforms. And then we’ve taken a bit of a conservative view on the volumes of some of the new EV platforms. So, we may have sort of double dipped a little bit there. I’ll just give you a couple of examples. We have the Blazer ICE seating, but we don’t have the Blazer EV seating. So GM’s plan as it sits right now, has the Blazer building out next year. So that’s a backlog hit in seating that may get pushed out. And there are several programs like that, for with the Aviator. That is assumed to build out the launch. The ICE launch is as we need to be in a different plant that we – where we don’t have the production contract. So, I think that is sort of maybe a hidden upside to the 2025 backlog because of our sort of mechanical approach that we follow when we establish the backlog if the customer tells us the program is building out, then we take it out of backlog. Another example on the systems side, the Ford, the focus is assumed to begin winding down in 25 [ph] and it’s gone in 26. There isn’t a replacement for that at this stage. So that’s a negative to the backlog. So there’s a handful of programs like that, that could lead to some kind of underlying upside in the backlog when we post that number 12 months from now.

Ray Scott: Yes, I think our customers do over the – probably the first two quarters to start clarifying the specifics around those type of situations. And we did take, like Jason said, a more balanced conservative approach given the information we have. And if there is movement, and that said, not formally, but informally, we’ve gotten some feedback that they are internally across the board looking at how they’re going to position between hybrid electric vehicles and the continuation in some cases, the ICE vehicles. And what’s nice about the continuation of ICE vehicles, those are usually longer in the tooth. We’re usually doing a really nice job efficiently. And so we’re with you. We hope to keep running those things. So – but we will – I think we’ll get more clarity over the next couple of quarters here as they start to kind of rebalance their own internal strategies.

Jason Cardew: John, just to add one comment to that. And with both businesses sort of being power trade agnostic. If that happens, I think it’s generally positive for us to raise lastly just to reinforce that running that capital for a year or two years, three years longer than we initially planned. It’s good for operating margins, good for ROIC and on balance, good for Lear overall.

John Murphy: I definitely agree with you. And then just lastly on the buyback Jason, what was the average price you bought back the shares? I apologize, in the fourth quarter? I missed that. And as I look at the operating cash flow expectation for this year and just apply that 22% cap allocation you did last year, it looks like there’d be $300 million, maybe a little bit more in buybacks that might be earmarked. I mean, I know you’re not doing it that directly, but it seems like that would be the number. So what was the average price in the fourth quarter and the buyback number you would think of for 2024?

Jason Cardew: Yes. I’ll start with the second part as the guys in the room scramble to find that number for; I think it’s in the mid-130s. So, we would – we fully expect to continue to be aggressive in buying back stock and to be opportunistic as there’s sort of this dislocation in value in the near term. And if you look at the free cash flow, we’re going to generate in 2024, which is greater than 2023. There’s no near-term M&A of any significance on the horizon. We do have a term loan. We could take a look at that’s tied to the IGB acquisition, but we’re – no rush to pay that down. So, I think share repurchases sort of in that 4% of shares outstanding again range is a reasonable target. Of course, we’re being with our Board next week, that’s a Board decision. And we’re certainly advocating for that and the Board has been very supportive of that in our recent meeting. So, I’d expect that to continue.

Ray Scott: Yes. Our focus is driving free cash flow. And we’re going to convert at our target or higher, and we’re going to return it to the shareholders. I mean we’re going to – what’s nice is right now, we talk about innovation technology on the plant floors. We acquired some small tuck-ins with [indiscernible], ASI, InTouch, and boy, they made a dramatic difference. And it’s not extremely costly when we talk about this capital deployment; we’re doing it at a lower cost. And we’re seeing that capital come in significantly lower, and we’re deploying it in a life or with new launches. So, we’re going to be very, very focused on our working capital, how we’re converting our cash flow and we’re in a really good position. We’ve been doing this for several years. So when I’m going out the plant and seeing this, what’s really nice in this WS launch, we just went through unprecedented, never done before in the history of Seating. We had our capital. We wouldn’t even take the capital from our competitor because it was that bad from a throughput standpoint and how it was working within their facility. We launched that plant with our technology innovation, low capital cost, much more efficient. We produce more output than they could produce ever produced in their three years of trying to hit their daily volumes. And what was great about it. And Frank’s here, the team did a remarkable job was our quality from our customers, said it was superior to our competitor that was producing those parts for years. And so that gives me excitement, because I’m looking at this technology in the plants and the more manufacturing company, we produce parts. That acceleration of innovation technology that we’ve been driving for multiple years is starting to really take hold. And it’s about – we don’t need anything. We’ve made some nice acquisitions. There’s nothing on the horizon like Jason said. And we’ll walk out this meeting. We’re going to go to how we’re going to drive more cash flow. So that’s what we’re going to stay focused on.

Jason Cardew: And John, your first question there, $135.67 was the average price in the quarter.

John Murphy: Ray, just that WS program, that’s a Grand Wagoneer and the Wagoneer’s what you mentioned in that takeover. That’s what you were just discussing guys.

Jason Cardew: Yes. Yes.

John Murphy: I appreciate it.

Ray Scott: Thanks, John.

Operator: Our next question comes from James Picariello from BNP Paribas (OTC:BNPQY). Please go ahead with your question.

James Picariello: Hi. Good morning, everybody. Just to focus on this year’s volume mix assumptions relative to a flat global production outlook, Seating’s volume mix is going to be down almost two points. The systems down almost four points. Can you just help unpack a little more that the key drivers here for both segments that informs the underperformance first market?

Jason Cardew: Yes, James, I can give you maybe just some highlights of some of the key platforms that are driving that. And some of it is temporary. For example, in Seating, the Audi Q5 is lower year-over-year. It’s going through a changeover this year; we would expect that volume to eventually come back. With Stellantis, the Compass volumes are lower. Their launch of that Wagoneer S in the same facility. And so that’s offsetting some of that volume that sits in our backlog. We’ve got Mercedes SUV in our Tuscaloosa plant, both ICE and EVplants are seem to be lower. And in Europe, Audi A6 and then some of the Opelprograms that we’re on are lower. In China, there’s a changeover of the Mercedes E-Class. That’s an important program for us. So volumes are lower this year. It seems to be lower. And some of this is, again, just kind of aligning with S&P making adjustments where necessary for customer insights. But those are the big drivers on the seating side. And these systems – it’s – you’ve got kind of a mixed bag. So with Ford, you have some that are up like the Maverick, the Bronco Sport and Escape that helps the Mackie, however, is down pretty significantly. I think we have had it down 33%. That’s a pretty good significant program in E-Systems. So that’s weighing on the number. Focus is lower in Europe. Audi volumes are lower in Europe. In China, SAIC signings in China. Some of the Volvo/Geely volumes are a little bit lower on certain platforms, Polestar (NASDAQ:PSNY) 2 is down, Lynk & Co is down. Those are the big kind of big drivers as we look at our volume assumptions in each of the segments.

James Picariello: Right. That’s super helpful. And then just a follow-on, on that point. Thinking about 2025, obviously, you’re not going to give my 2025 guidance. But just for the Seating business, you’re calling for a $500 million contribution in new business backlog for 2025, right? That would be just under three points growth over market off of the 2024 guide. It sounds as you just went through the seating key platforms that are influencing 2024. My question is, can we think of four points growth over market for Seating as an achievable rate for next year? Or not necessarily? Just any thoughts on that. Thanks.

Jason Cardew: Yes. Growth over market is difficult. It’s choppy. It’s volatile. And we saw a perfect example of that, even just kind of within 2023 started out decent and got worse as the year progressed as there were some mix shift with certain customers. So I think it’s important to kind of take a step back and look at the business over a longer time horizon. And over the last four years, we did deliver, as we highlighted in the prepared remarks, four points of growth of market in Seating, six points in E-Systems. As I look out over the next five years, I do see this may be uncertainty around the transition to EVs weighing on growth over market a little bit. I do see in E-Systems as we wind down some of our noncore products that will temper growth in the kind of near to medium term. But if I look out five years, I think four points of growth of the market in Seating, six points of growth of the market in E-Systems in the long run is very achievable. And in Seating, the catalyst for it now, in the past, it was conquest wins primarily, and we do have some benefit from that in the future, but a lot of it is from modularity in – what we’re doing with thermal comfort, what we’re doing with new innovative products that we highlighted like FlexAir and ReNewKnits. So just take FlexAir, for example. Foam is a $4.5 billion market. We have a relatively small share of that today, less than 10% of that market. We see FlexAir potentially displacing polyurethane film at least in second and third row applications and maybe in all seatback applications over a period of time. We’re going to dominate that market. That could be a $500 million business for us five years out. It would be $1 billion business for us long term. We continue to look for those kind of $1 billion component businesses. We started back in 2015 with weather. That’s a great business for us. Now we have thermal comfort, a $600 million business that we acquired will be a $1 billion business in 2027. We’re on our way there. FlexAir may be something that meets those levels of growth as well based on initial customer interest in all the environmental benefits associated with it in performance benefits associated with it. So I think that structurally, the underlying drivers of growth in Seating are stronger today than they’ve ever been. Our path to getting more jet market share is very clear, and we’re confident in the long-term growth prospects of that business.

James Picariello: Appreciate it. Thanks.

Operator: Our next question comes from Emmanuel Rosner from Deutsche Bank. Please go ahead with your question.

Emmanuel Rosner: Thank you very much. My first question is about the EV backlog. Just so we get a little bit of a better understanding of, I guess, to what extent this was derisked for like EV volume assumption. Are you able to quantify for us how much of the backlog is currently tied to EV platforms in E-Systems and as well as in Seating. Overall, like now that you essentially reduce these volume assumptions, what percentage of your backlog vis-a-vis at this point?

Jason Cardew: Yes. Even after those adjustments, electric vehicles are still the most prominent new vehicles launching over the next three years. And so in Seating, it’s about 57% of the backlog of the new programs rolling on and E-Systems is 75%. And that’s not just electrification revenue as we define it, which would be high-voltage wiring or electronics products that are unique to electric vehicles that would include low-voltage wiring on electric vehicles. So it’s still – despite the fact that we have significantly reduced the volume assumptions and the timing of the launches, it’s still a prominent and significant part of the backlog. And – and so our belief is still that the transition to electric vehicles is happening. It may happen more slowly than what was previously anticipated, but there’s still a significant shift that’s taking place. It may ultimately end up being a lower percentage of the market than many had expected, but it’s still a significant part of the market, and it still dominates our customers’ new program launches in the near term. Now if you say you don’t believe that, that level of penetration is going to happen with EVs. I think the flip side to that is a few of the questions earlier highlighted, is that some of these ICE programs that we’ve assumed are going to balance out are not going to balance out or they’re going to run at a higher volume than what we’ve assumed for a longer period of time. So we’re definitely in a transition period. It’s difficult to project what’s going to happen. We’ve tried to be balancing our assumptions at this stage and clear in our guidance. But it’s difficult predict, Emmanuel.

Emmanuel Rosner: Yes, that’s helpful. And then one quick follow-up or point of clarification around some of the cost headwinds, especially labor cost inflation. I guess on – on a full year basis, do you assume that you recover these from customers? Or is that – would there be a lag? Or is there like a portion that you expect that you will be responsible for? I guess I understand that it takes time and there’s a process and negotiation, et cetera. But I guess, net-net, does that remain sort of like a headwind?

Jason Cardew: Yes. I think that’s – going back to what we talked about earlier, historically, wage inflation was 3%, 4%. And our efficiency programs in the plant would offset that as well as, in some cases, a little bit more than that, and that would contribute to offset our customer price reductions each year. That was kind of the old model. That 3%, 4% is now twice that. And I don’t think that necessarily continues, as I look out 2025, 2026, 2027, but in 2024, it is. And so what we’re – what we believe we should recover either this year or this year or next year, is that kind of excess labor inflation beyond that historical normal level that we have seen and the economy has experienced for decades. And so that’s sort of the philosophy. And so I don’t want to make it as simple as this, but roughly half of it, we’ve got to offset through our cost reduction programs, automation, restructuring, shifting the footprint, better utilization of our facilities and then the other half has got to come through some form of recovery either this year or next year in order to preserve the margin trajectory and the margin growth that we expect to achieve this year and next year.

Emmanuel Rosner: I guess in this year’s guidance, do you assume a net headwind from labor cost inflation under recovered? Or do you assume that – the piece that you need to recover from your customers is being recovered?

Jason Cardew: Yes. I think, yes, it would be a net headwind for this year in the guidance. We’ve talked in the past about generating 50 to 100 basis points of net performance. We’ve guided to less than that. And I think you could certainly attribute the shortfall to a combination of the transactional FX impact as well as unrecovered wage inflation. It’s not quite that precise, but I think that’s a fair perspective.

Ray Scott: And I think the way I categorize it and discuss it too, is that even though we have past practice in some of these negotiations and historical understanding or baseline of how we get recovery. We base our guidance on that. Now we’re in for a much different number as far as getting settled within the year and that – there’s timing elements to that. Obviously, we’re pull on productivity or pulling on volume, all these other things. And so we’re going in above what the net difference would be for negotiations based on past practice. Some of them are in models or some of them are discussed in other settlements. And I think in addition to that, we have a lot more control around the automation within our facilities. Like Jason mentioned earlier, 35% of our labor is in our trim. And we are just on one of our facilities. And in our own control, we’ve been able to automate, which has always been something that because of variability with the trim covers, we’ve done a nice job of bringing in very sophisticated innovation to automate that equipment. That’s in ours. Now accelerating that faster is another nice opportunity for us. And so we’ve been somewhat conservative on how we roll that out but those are opportunities that I think would improve the overall number as we look at it today.

Jason Cardew: And as we’ve talked about earlier, that’s one of the factors that could drive us into a different spot in the range. So at the high end of our guidance range, if we do better than anticipated, certainly, that would be an attributing factor to getting – Seating to 7% and E-Systems to 6% this year.

Emmanuel Rosner: Really helpful. Thank you.

Jason Cardew: You’re welcome.

Operator: And ladies and gentlemen, we’ll be concluding today’s question-and-answer session. I’d like to turn the floor back over to management for any closing remarks.

Ray Scott: Yes. Thanks, Matt. I’m sure everyone on the call now is just the Lear team. I just want to again thank everyone for their outstanding job in 2023. And like we always discussed so what now what? We got some challenges ahead of us this year, but we know what we need to do, and I appreciate all the great work we’re going to do this year to hit our targets and achieve them. So thank you for everybody for all your hard work.

Operator: Ladies and gentlemen, that does end today’s conference call. We do thank you for joining. You may now disconnect your lines.

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