Lear (LEA) Q1 2026 Earnings Call Transcript

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DATE

Friday, May 1, 2026 at 9 a.m. ET

CALL PARTICIPANTS

• President and CEO — Raymond E. Scott
• Senior Vice President and CFO — Jason M. Cardew
• Vice President, Investor Relations — Timothy Brumbaugh

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TAKEAWAYS

• Revenue -- $5.8 billion for the quarter, representing a 5% year-over-year increase, with growth in both Seating and E-Systems segments.
• Core Operating Earnings -- $297 million, up 10% from prior year, driven by higher volumes and favorable mix.
• Adjusted EPS -- $3.87, marking a 24% increase and the highest quarterly EPS since fiscal Q1 2019 (period ended March 31, 2019).
• Operating Cash Flow -- $98 million, up from a use of $128 million last year, resulting from improved earnings and better working capital performance.
• Share Repurchases -- $75 million repurchased in fiscal Q1, with a full-year target pacing toward $300 million.
• Seating Segment Sales -- $4.4 billion, up $253 million or 6%, with organic sales rising 3% on volume gains for several vehicle platforms.
• Seating Segment Margins -- Adjusted operating margin reached 6.9%, up from the prior year due to higher volumes, favorable backlog mix, and operational performance.
• E-Systems Segment Sales -- $1.4 billion, up $9 million or 1%, with organic sales flat as new launches offset vehicle program build-outs.
• E-Systems Segment Margins -- Adjusted earnings margin increased to 6.1% from 5.2%, supported by higher volumes and improved operational execution.
• Backlog Growth -- Two-year (2026-2027) awarded business backlog increased by approximately $250 million, with a three-year (2026-2028) increase of $400 million from new wins.
• China Awards -- $280 million in business awards secured with Chinese automakers across both segments, driving accelerated launch cycles and near-term backlog contribution.
• Innovation and Automation -- Disciplined deployment of "Idea by Lear" initiatives generated approximately $70 million in first-quarter savings, with a $75 million annual savings target and new digital efficiencies implemented in manufacturing.
• Tariff Policy Impact -- Revenue reduced by $243 million in fiscal Q1 and expected to total a $285 million reduction for the full year versus last year, without impacting earnings; $175 million was due to a one-time reversal of IEEPA-related recoveries.
• Commodity and FX Pass-Throughs -- Higher commodity costs, mainly copper and foam chemicals, and favorable foreign exchange rates offset much of the negative revenue impact from tariffs.
• Seating Modular Solutions -- Four new ComfortFlex and ComfortMax awards added in the quarter, with 38 total contracts signed, including with BMW (XETRA: BMW), Audi (XETRA: NSU), and Geely (HKEX: 0175), demonstrating customer adoption of modular seating innovation.
• Restructuring-Driven Savings -- $26 million achieved in fiscal Q1, with total annual restructuring savings expected to reach $80 million.
• Q2 Guidance -- Expected revenue between $6.1 billion and $6.2 billion, with projected Seating margins in the mid-6% range and E-Systems margins in the low-5% range.
• Capital Allocation -- Targeting free cash flow conversion above 80% for the year, supporting ongoing share repurchases and dividend payments.
• Customer Diversification -- Recent wins with General Motors (NYSE: GM), Audi, FAW Toyota (SSE: 601777), Dongfeng (HKEX: 0489), SAIC (SSE: 600104), Geely, and BMW enhanced the mix and diversity of future revenue streams.

SUMMARY

Lear Corporation (NYSE:LEA) reported expansion of both total and segment-level profitability as operational and automation initiatives delivered solid margin progress despite revenue headwinds from tariff adjustments. Sharply accelerated business wins in China and new awards in power distribution for global OEMs broadened the firm’s customer mix and enhanced short- and long-term backlog. Full-year revenue guidance remained unchanged as positive FX and commodity pass-throughs balanced tariff-driven reductions, with management maintaining a cautious posture amid global macroeconomic and geopolitical uncertainty to protect against potential downside in industry production. Strategic capital allocation continued, with strong free cash flow supporting substantial share repurchases and an 80%+ targeted conversion rate.

• Management signaled a conservative approach in guidance, directly citing uncertainty from "the situation that is going on with Iran, inflation, and what demand is," while expressing confidence in internal execution.
• CFO Jason M. Cardew stated, "the first quarter margins benefited from this change in tariff policy, so that reduction in revenue creates a bit of an artificial boost to the margins in the quarter."
• Backlog advances were described as front-loaded, with CFO Cardew noting, "There is a little bit of that $250 million that will hit 2026," highlighting a shorter award-to-launch timeline, especially with Chinese automakers.
• President and CEO Raymond E. Scott underscored competitive positioning and technology as drivers for recent mid-cycle conquest wins, especially in wire harnesses and modular Seating platforms, emphasizing, "It is very rare when we get these conquest wins that are mid-cycle. They do not do that because they are happy and content. They are doing it very strategically, very intently."
• “Idea by Lear” and automation-related initiatives remained central to the operational cost reduction targets and key customer wins across both main product divisions.

INDUSTRY GLOSSARY

• IEEPA: International Emergency Economic Powers Act; prior basis for certain U.S. import tariffs, later struck down, resulting in one-time revenue accounting adjustments.
• Conquest Award: New business gained by taking share from a competitor, often on an existing or mid-cycle vehicle program.
• Backlog: Value of new business awards scheduled to launch within a defined future period (e.g., two- or three-year), representing incremental contracted revenue not yet realized.
• Idea by Lear: Lear Corporation's framework for driving operational excellence and digital automation to support cost and process efficiencies.
• ComfortFlex/ComfortMax: Lear-branded modular seating solutions that integrate advanced comfort and electronic features.

Full Conference Call Transcript

Operator: Good morning, everyone, and welcome to the Lear Corporation First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key. 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 would like to turn the floor over to Timothy Brumbaugh, Vice President, Investor Relations. Please go ahead.

Timothy Brumbaugh: Thanks, Jamie. Good morning, everyone, and thank you for joining us for Lear Corporation's first quarter 2026 earnings call. Presenting today are Raymond E. Scott, Lear Corporation President and CEO, and Jason M. Cardew, Senior Vice President and CFO. Other members of Lear Corporation'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.leer.com. Before Raymond begins, I would like to remind you that as we conduct this call, we will be making forward-looking statements to assist you in understanding Lear Corporation'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-Ks 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, Raymond will review highlights from the quarter and provide a business update. Jason will then review our first quarter results and provide an update on the full year. Finally, Raymond will offer some concluding remarks.

Following the formal presentation, we would be happy to take your questions. Now I would like to invite Raymond to begin. Thanks.

Raymond E. Scott: Now, please turn to Slide 5, which highlights key financial metrics for the first quarter. We started the year strong, delivering significant increases in both revenue and earnings in the first quarter compared to last year. Sales increased 5% to $5.8 billion and core operating earnings grew by 10% to $297 million. Adjusted earnings per share were $3.87, a 24% increase from 2025 and our highest quarterly EPS since Q1 2019. Operating cash flow improved significantly to $98 million for the first quarter. Slide 6 summarizes some of the key business and financial highlights from the first quarter.

Our strategic priorities remain focused on four key areas: extending our global leadership in Seating, expanding E-Systems margins, growing our competitive advantage in operational excellence through Idea by Lear, and supporting sustainable value creation with disciplined capital allocation. During the quarter, we continued our momentum of winning key awards in both Seating and E-Systems. Our most significant E-Systems award, announced in March, was with General Motors, where we will supply wire harnesses for the full-size SUV programs starting late 2027. This is a major new win for Lear Corporation on a key GM platform. Our execution track record and automation capabilities gave GM the confidence to award a portion of this program mid-cycle.

This award positions Lear Corporation to win additional content on subsequent generations of GM's full-size SUV platform. During the quarter, our E-Systems team was also awarded the power distribution module for the next-generation electrical architecture with a key North American automaker. Our power distribution module proactively detects electrical issues to help ensure critical systems continue to operate. This capability is essential across all powertrains, particularly as new vehicles adopt software-defined architectures, electrification, and advanced driver assistance technologies. This award leverages our PACE award-winning technology and establishes Lear Corporation as an industry benchmark and trusted leader in this fast-growing strategic segment.

Another key award in the quarter was for a high-voltage power distribution unit with Audi for a new program in North America, continuing our momentum in power electronics. These awards build on the reputation that we have been developing across our customer base. As these new programs launch, our E-Systems revenue will improve customer diversification. We are accelerating our growth with Chinese automakers in both segments.

In E-Systems, our collaboration with Seating to leverage key relationships, as well as investments designed to strengthen our local engineering capabilities, enabled us to secure wire harness awards that will generate consolidated average annual revenue of $140 million, surpassing our new business awards with Chinese automakers for all of 2025 in just the first quarter. Key wins include conquest awards with Dongfeng and SAIC, as well as new business with Geely. These programs launch as early as mid-2026 and are accretive to our two-year backlog we announced in February.

In Seating, we secured complete seat awards with BAIC, Dongfeng, and Geely in China that will also generate average annual revenue of approximately $140 million, a portion of which is in our non-consolidated joint ventures. In addition, we are in a strong position to secure business with two Chinese automakers expanding their production in Brazil. We also continue to see additional opportunities with Japanese automakers. In the first quarter, we were awarded a new program to supply complete seats for FAW Toyota in China through one of our non-consolidated joint ventures. In Seating more broadly, the pace of awards for our thermal comfort modularity is accelerating.

In the quarter, we won four new awards for ComfortFlex and ComfortMax seat solutions, bringing the total to 38 for these innovative products. Two awards are with BMW in Asia, one combining lumbar massage and another combining heat, ventilation, and seatbelt reminders. We also won our first module awards with Audi in Europe, combining lumbar massage, and our ComfortMax seat solution with Geely in Asia. Two programs launched during the quarter, with 12 additional programs launching through the rest of this year. These awards extend our leadership in Seating and also customer adoption of these modular solutions. We expect adoption rates will continue to accelerate as these solutions become more pervasive.

Many of these new business awards launch this year and next, particularly those in China, where the time from sourcing to launch has significantly accelerated. This increase in our 2026 and 2027 two-year backlog is approximately $250 million, improving our near-term growth outlook in both business segments. We are accelerating the capabilities we are developing under our Idea by Lear framework, particularly in automation and the use of digital tools. Progress is being made at our Rochester Hills Advanced Manufacturing Center, where we will showcase some of our key product and process innovations, and we continue to implement these capabilities into our current manufacturing processes.

The Orion facility supporting GM's expanded full-size SUV and pickup truck production is utilizing Idea by Lear from the start. Leveraging our process-related acquisitions, approximately 80% of our capital is being developed and deployed in-house, including 100% of our advanced robotics and vision systems. This demonstrates how we are using Idea to reduce manufacturing costs and improve profitability from day one, rather than implementing cost savings initiatives over the life of the program. In E-Systems, we validated and launched two differentiated wire automation solutions internally developed by our most recent acquisition, StoneShield. These solutions deliver Lear-specific competitive advantages by improving cycle time and productivity in seal insertion and heavy gauge crimping. It was a strong quarter both commercially and financially.

Revenue in the quarter increased 5% year over year, with growth in both segments, even after the reduction in revenue resulting from changes in tariff policy, as well as the impact from the end of production of the Ford Escape, Focus, and Lincoln Corsair. Stronger conversion on higher volume and continued momentum in our underlying net performance drove improved margins in both segments and for the total company. Free cash flow improved by $5 million in the quarter, allowing us to take advantage of the attractive stock price and accelerate our share repurchase program.

In the first quarter, we repurchased $75 million of shares and continued to repurchase shares throughout the quiet period, putting us on pace to buy back over $300 million in the year. This combination of strong financial results and our disciplined capital allocation plan has driven consistent earnings per share growth. Our first quarter EPS increased by 24% year over year, a truly remarkable accomplishment by the team and a clear indicator of the value we are generating for our shareholders. Slide 7 provides an update on key metrics to track our progress on expanding margins and generating long-term revenue growth. The pace of awards is normalizing after several years of delays as customers adjusted their production portfolio strategies.

This gives us much better visibility into our pipeline of future opportunities. In the quarter, we secured several conquest awards for seat components such as surface materials. The pipeline for complete seats awards is concentrated in the back half of the year, very similar to the pattern we saw in 2025. For E-Systems, we are seeing increased conquest opportunities in wire harnesses, particularly as competitive landscapes have shifted significantly due to strategic actions and operational performance of key competitors. In the quarter, we won three conquest awards for wire programs, two in Asia and one in North America. Two of these awards were for wire harnesses previously supplied by a key competitor.

We also won a small conquest award in electronics for a second North American automaker. These wins will generate approximately $200 million in average annual revenue and represent about a third of our increased two-year backlog. We see additional conquest opportunities expected to be sourced throughout the remainder of the year. Awards for our thermal comfort modular solutions are accelerating. New wins with Audi and Geely bring us to 17 unique customers for ComfortFlex and ComfortMax seat solutions. Notably, approximately half of the revenue from this quarter's thermal comfort awards will come from modular solutions. The collaboration between Seating and E-Systems combined with the strength of our local teams continues to drive new business with Chinese automakers.

In the quarter, we won new business in both segments with the same customers like Dongfeng and Geely, clearly illustrating the synergies between our two business units. Our continued investments in Idea and automation are expected to generate an additional $75 million in savings this year. The first quarter delivered approximately $70 million in savings, putting us well on track to achieve our target, with savings expected to build throughout the year. Our teams continue developing innovative methods to drive efficiency. For example, our Seating team held a global inventory workshop during the quarter to leverage digital tools that will improve supply chain and inventory efficiencies, ultimately enhancing future free cash flow generation.

We also held our Lear AI Olympics in North America. Over 400 hourly and salaried operations employees participated, generating more than 100 AI projects with solutions throughout our manufacturing value stream. This grassroots event exemplifies Lear Corporation's innovative culture, empowering employees to identify and drive efficiency improvements in all facets of the business. As Idea continues to mature, we see our employees developing and participating in new and innovative future events. Restructuring savings from last year's investments combined with actions planned for this year are expected to total $80 million. In the first quarter, we generated $26 million in savings, giving us a strong start towards our full-year target.

Our first-quarter net performance puts us on track to achieve our full-year margin expansion targets, 40 basis points for Seating and 80 basis points for E-Systems. Despite higher engineering and launch costs to support our growing backlog and a challenging year-over-year comparison, our Q1 net performance exceeded expectations. Slide 8 illustrates the significant shift in our customer mix in China. In the first quarter, we secured $280 million in business awards with Chinese automakers across both Seating and E-Systems, ranging from complete seats and thermal comfort solutions to wire harnesses. The speed to market with the Chinese automakers is significantly faster than in other regions. We are seeing request-for-quote to sourcing to launch cycles completed within the same calendar year.

This accelerated pace drove a portion of our $250 million increase in our 2026 and 2027 backlog from recent business wins. Strategically, these wins validate the organizational changes we made in 2023 to bring Seating and E-Systems under the same leadership to better align how we serve Chinese automakers. The collaboration between our Seating and E-Systems teams in that region, combined with strengthening our local engineering capabilities, is helping us win across both segments, often with the same customer. Our ongoing rigorous review of the Chinese automakers' competitive positions and product strategies both inside and outside the country is a cornerstone of our strategy.

We are focusing resources on the customers that have the greatest long-term potential for market success and pursuing programs with the highest risk-adjusted returns and strongest margin potential. As Chinese automakers expand both within China and globally, we believe this integrated leadership model positions Lear Corporation to capture a large share of that growth with a broader, more competitive product offering. Chinese automakers continue to expand production outside of China, particularly into Europe and South America. We are in a strong position to secure business with two Chinese automakers expanding their production in Brazil, which we expect to be awarded within the next coming months.

We are actively pursuing additional opportunities globally with BYD and LEAP Motors, among other Chinese automakers. While we maintain a strong, profitable business with multinational customers in China, our new awards with Chinese automakers are aligning our customers' revenue mix with the country's market share dynamics. We expect Chinese automakers to represent more than half of our 2027 China revenue. And with that, I will turn the call over to Jason for a financial review.

Jason M. Cardew: Thanks, Raymond. Slide 10 shows vehicle production and key exchange rates for the first quarter. Global production on a calendar basis decreased 3% compared to the same period last year. The fiscal calendar resulted in four additional production days this quarter compared to last year, which will offset in the fourth quarter. On a Lear fiscal basis, production increased by 3% in North America and 4% in Europe, while China was down 5%. As a result, global vehicle production was up 3% on a Lear sales-weighted basis. The U.S. dollar weakened against both the euro and the RMB. Turning to Slide 11, I will highlight our financial results for the first quarter of 2026.

Our sales increased 5% year over year to $5.8 billion. Organic sales were up 3%, reflecting higher volumes on Lear platforms and the addition of new business in Seating. Core operating earnings were $297 million compared to $270 million last year, driven by higher volumes on Lear platforms and favorable foreign exchange. Adjusted earnings per share were $3.87 as compared to $3.12 a year ago, reflecting higher earnings and the benefit of our accelerated share repurchase program. First quarter operating cash flow was $98 million compared to a use of $128 million last year, due to higher core operating earnings and improvement in working capital and payments related to commercial settlements for EV clients. Now turning to Slide 12.

Slide 12 summarizes the revenue impacts from recent changes to the U.S. tariff policy. Although there is no earnings impact, we felt that the complexity of changes in U.S. tariff policy and significant impact on revenues warranted further explanation. There were two significant changes to the tariff regime that are expected to result in lower revenue both on a year-over-year basis and relative to our February outlook. OEMs are now receiving import adjustment credits based on a percentage of MSRP for vehicles assembled in the U.S. These credits can be allocated down the supply chain, allowing suppliers to import components effectively tariff-free.

As a result, we had lower pass-through revenue from tariff reimbursements in the quarter, which we expect to continue going forward, as well as from a one-time adjustment for credits applied retroactively. This will also improve cash flow by eliminating the timing lag between paying tariffs and receiving customer reimbursement. Second, the Supreme Court struck down tariffs imposed under the International Emergency Economic Powers Act, or IEEPA. As those tariffs are refunded, we will return the proceeds to customers who had previously reimbursed us. In anticipation of those refunds, we recorded a one-time adjustment in the first quarter to reverse IEEPA-related recoveries that had previously been recognized as revenue.

In 2025, we recognized $194 million in revenue due to the recovery of tariffs we paid during the year. Our February full-year 2026 outlook included a $100 million year-over-year revenue tailwind from tariff recoveries based on the assumption that there would be no changes to the tariffs in place at the time. In the first quarter, the one-time reversal resulted in a $175 million year-over-year revenue reduction, which, when combined with the application of customer credits, led to a $243 million reduction in revenue from what was assumed in our February outlook.

For the full year, we now expect a $285 million year-over-year revenue reduction driven by the one-time adjustment in the first quarter as well as tariff-free imports using customer-allocated credits throughout the remainder of the year. This represents a $385 million revenue reduction from what was assumed in our February outlook. The magnitude of these revenue impacts with no corresponding effect on earnings is a testament to the team's ability to achieve full recovery of tariffs, both in 2025 and 2026. Our strong track record of navigating tariff policy changes and protecting earnings gives us confidence in our ability to continue to mitigate impacts regardless of the policy environment.

Slide 13 explains the variance in sales and adjusted operating margins for the first quarter in the Seating segment. Sales for the first quarter were $4.4 billion, an increase of $253 million, or 6%, from 2025. Organic sales were up 3%, reflecting higher volumes on Lear platforms such as the Jeep Grand Wagoneer and the Ford Explorer and Lincoln Aviator in North America, as well as the addition of new business including the Series M7 in China, the BMW iX3 in Europe, and the Jeep Cherokee in North America. Adjusted earnings were $305 million, up $25 million, or 9%, compared to 2025, with adjusted operating margins of 6.9%.

Operating margins were higher compared to last year primarily due to higher volumes and the mix of production by program, a margin-accretive backlog, and net performance, partially offset by the impact of foreign exchange. Slide 14 explains the variance in sales and adjusted operating margins for the first quarter in the E-Systems segment. Sales for the first quarter were $1.4 billion, an increase of $9 million, or 1%, from 2025. Organic sales were flat as higher volumes on Lear platforms, including the Ford Expedition, Bronco Sport, and Lincoln Navigator in North America, were offset by the build-out of the Ford Escape, Focus, and Lincoln Corsair reflected in our backlog.

Adjusted earnings were $86 million, or 6.1% of sales, compared to $74 million and 5.2% of sales in 2025. Higher operating margins were driven by increased volumes on Lear platforms, net performance, and the impact of foreign exchange, partially offset by the build-out of the programs reflected in our backlog. Slide 15 provides global vehicle production volume and currency assumptions that form the basis of our 2026 full-year outlook. Our production assumptions are based on several sources, including internal estimates, customer production schedules, and S&P forecasts.

At the midpoint of our guidance range, we assume that global industry production will be down less than 2% on a Lear sales-weighted basis, driven by lower volumes in our largest markets, North America, Europe, and China. From a currency perspective, our 2026 outlook assumes an average euro exchange rate of $1.17 per euro and an average Chinese RMB exchange rate of 6.91 RMB to the dollar. Slide 16 reaffirms our outlook for 2026. Our first quarter results were strong and the second quarter is trending favorably, putting us on a trajectory to deliver results between the midpoint and high end of our guidance range.

However, given the uncertainty around the overall global macro environment and potential impacts from the conflict in the Middle East, we felt it was prudent to simply maintain our full-year outlook at this time, essentially protecting for the risk of these events impacting global industry production in the second half of the year. Moving to Slide 17, we highlight the value created through the execution of our disciplined capital allocation strategy. Over the past four years, we have returned more than $1.8 billion to shareholders through share repurchases and dividends, consistently reducing our share count each year.

From 2021 to 2025, cumulative revenue per diluted share grew 36%, while adjusted earnings per diluted share increased 61%, with steady growth in both metrics every year over this period. Performance significantly outpaced both the S&P 500 and the S&P 1500 Auto Components Index. Despite this consistent execution and outperformance, our valuation multiple significantly lags that of the S&P 500. We believe this disconnect reflects an underappreciation of our future earnings power, strong cash flow generation, and disciplined capital returns in an industry experiencing modest growth in production.

Given our current valuation and confidence in our ability to enhance long-term shareholder value, we believe the best near-term use of excess cash is to continue prioritizing share repurchases and our sustained dividend. We remain focused on generating strong cash flow, investing in the core business to drive profitable growth, and returning excess cash to shareholders. In 2026, we are targeting free cash flow conversion of more than 80%, which will enable us to buy back at least $300 million worth of stock, with additional repurchases depending on free cash flow generation and tuck-in acquisition opportunities. As we drive growth and margin expansion, the resulting strong cash flow and our disciplined capital allocation strategy will continue to generate shareholder value.

Now I will turn it back to Raymond for some closing thoughts.

Raymond E. Scott: Thanks, Jason. Please turn to Slide 19. The first quarter was exceptional, demonstrating the strength of our strategy and our ability to execute. Our commercial success continues the momentum from 2025, including the major conquest truck program and the GM Orion plant in Seating, and the $1.4 billion of business awards in E-Systems. Our first quarter key business wins, such as the major GM full-size SUV wire harness award, key power distribution module wins, and growth with Chinese automakers, increase our two-year sales backlog. More importantly, the near-term success winning new business awards combined with significant opportunities to secure new business throughout the remainder of 2026 positions both businesses to generate sustainable revenue growth over the next several years.

Idea by Lear continues to differentiate us. Our automation capabilities are key drivers of new business wins, enabling us to launch at speeds previously unprecedented in the industry. While our competitors are trying to catch up, we will be creating the next generation of solutions, further widening our advantage. Financially, first quarter results were strong across the board: revenue up 5%, core operating earnings up 10%, and adjusted EPS up 24% to $3.87, the highest quarterly EPS since Q1 2019. Free cash flow improved, enabling us to repurchase $75 million in shares, putting us on pace for over $300 million of buybacks in 2026.

We are on track to deliver our full-year net performance targets, 40 basis points in Seating and 80 basis points in E-Systems. The pace of new wins and strong pipeline position us for long-term success. And now we would be happy to take your questions.

Operator: We will now open the call for questions. To ask a question, you may press star and then one on your touchtone phones. If you are using a speakerphone, we ask that you please pick up the handset before pressing the keys. To withdraw your questions, you may press star and two. Again, that is star and then one to join the question queue. We will pause momentarily to assemble the roster. Our first question today comes from Dan Levy from Barclays. Please go ahead with your question.

Dan Meir Levy: Hi. Good morning. Thanks for taking the questions. I wanted to first start with a question on the revenue outlook. You are cutting; there is a negative impact from tariffs; there is a lower LVP outlook; there is a little bit of positive offset for FX. I think you are talking about some positive backlog. Maybe walk through the moving pieces that allow you to maintain outlook? And in fact, I think you sort of gave some implied commentary that there is potentially even some upside on that piece. I interpreted that correctly. So if you could just focus on moving pieces on the revenue side. Thank you. Great. Thank you.

Second, if we could just double click on the margins, please. You just did your best quarterly margin, I think, in something like five years. I know that there are some nuances there that are going on with tariffs and what is happening there. But the guidance does imply a decrease in margins for the subsequent quarters. Maybe you could just walk us through the margin dynamics, what would drive this implied decline in margins? Or is that some form of conservatism?

Jason M. Cardew: Sure, Dan. Just from a revenue perspective, you have highlighted the key drivers pretty well. We have the reduction in revenue due to the changes in tariff policy, which is $385 million. That is largely been offset by two things. One, foreign exchange, so the change in assumptions around the euro and the RMB, among others, and then also the impact of commodity and other pass-throughs to customers. The most notable change there is around copper. We have also seen commodity increases with foam chemicals and with steel, and so there is a pretty meaningful increase in revenue with no corresponding earnings impact as we pass through those adjustments, mostly on a one-quarter lag.

So there is a small leakage from an earnings perspective. In terms of the industry volume assumptions, first of all, we recognize S&P adjusted the overall industry, but we obviously do not sell to every program in the industry. If we look at our mix of programs, there were actually some programs that S&P increased their full-year outlook on, so we have favorable mix that is offsetting a portion of that lower industry volume. And then we also have the benefit of the new business awards that launch starting in the second half of the year, so there is a small incremental revenue from the backlog that also helps offset that industry volume.

Raymond E. Scott: Why do I not go first here, Dan, and then Jason can talk a little bit about it. I think one is, Jason in his narrative talked a little bit about it. Given the uncertainty around how we are looking at the second half of the year, and that can go in a lot of different directions, we are probably conservative if things play out differently. I talked about the momentum and how I felt about this year; now we have the actual facts in front of us as to how we are performing. Think about E-Systems. E-Systems has done a great job. We had some operational issues.

We had some issues relative to the decrease in volume here in North America around the EV market. I feel really good that the majority of that is behind us. The operations are running significantly better. So from a sustainability and durability perspective, the margins in E-Systems are at a better place. In Seating, we are doing a really good job, particularly in Europe, around some very similar situations around volume, cleaning that up. We started the year off strong. I think we are just looking at the second half, and there is a lot of narrative around what the second half brings with the situation that is going on with Iran, inflation, and what demand is.

But I feel really good about the things that we can control. I think it would have been an absolute beat and raise, but we are being a little bit cautious given some of the things that we are being faced with that are outside of our control. The things we are controlling, we crushed. I talk about momentum; now to be able to back it up—what we did in Seating with the truck award, the conquest wins validated our modularity and our technology around automation and the digital changes within our manufacturing plants.

Then, right behind that, with this major conquest win on a mid-cycle program—that is very rare—opening that door on the T1 platform mid-cycle, putting us in great position for the next-generation T2 on a very popular product line. The wins that we saw in China were exceptional. I feel the momentum. I feel really good operationally about how we are performing in both segments. The wins were exceptional, and that is where my head is at. I think we are just being a little bit mindful of what we are being faced with outside of our control.

Jason M. Cardew: And, Dan, I will give you a couple of data points to help round that out as well. It is important to note that the first quarter margins benefited from this change in tariff policy, so that reduction in revenue creates a bit of an artificial boost to the margins in the quarter. It was about 20 basis points in Seating and 40 basis points in E-Systems. We also had a little bit of a benefit from commodities in E-Systems in the first quarter, just the way we account for copper revaluation as copper prices have come up, and then that kind of unwinds itself through the balance of the year.

So, very strong first quarter, but there are a couple of nuances that are important to highlight. Looking at the second quarter, we have a pretty good line of sight now on production schedules and our operating plans, and we feel like the second quarter is going to be strong as well. We expect revenue of $6.1 billion to $6.2 billion in the second quarter. As I look at that year over year, we would be up about 2%, so roughly $100 million year over year in the second quarter. Looking at each of the business segments, we expect Seating margins to be in the mid-6s and E-Systems to be in the low-5s.

E-Systems would be up a little bit from last year, and Seating would be down to flat compared to last year. We also see strong net performance in both business segments in the second quarter. Forty and 80 basis points is our full-year guidance, and that is similar to how we see the second quarter playing out. We also expect very strong free cash flow in the second quarter, likely $150 million or maybe a bit more than that. So the second quarter is set up pretty nicely. That leads to the obvious question: why are you not raising full-year guidance? Raymond explained it effectively. It is really a bit of conservatism on our part.

You may recall the fourth quarter earnings call; when we talked about the full year, we said that the high end of our guidance range effectively represents what our customers' production schedules are and how we see the year playing out. At the midpoint, we had $400 million of revenue protection and then another $400 million at the low end of the guidance range for the unexpected or deterioration in the market that we are not currently seeing, but we protected for that nonetheless. We have not used really any of that protection through the first half of the year.

So if things hold together, we are tracking between the midpoint and the high end of the guidance range for the full year. I think that would help smooth out the progression of operating margins throughout the balance of the year and would make a little bit more sense overall. I just want to reinforce one point that Raymond made around execution. I have been here for 34 years. I have seen good performance and bad performance over that time period. Right now, what we are seeing in both Seating and E-Systems is the best execution operationally in probably 10 years.

It is not just in the segments overall, but in every region and every subsegment, and we have not had that in quite some time. We are not happy with where operating margins are today—there is lots of room for improvement, particularly on the E-Systems side. That consistent execution and operational discipline really is a key enabler to achieving not just the 40 and 80 basis points of net performance that we see this year in Seating and E-Systems respectively, but into 2027 and beyond. The performance of the team is at another level today than where it was a year ago, two years ago, five years ago. It is really a strong performance across the board.

That gave us mixed feelings about whether to adjust the full-year outlook. We have so much confidence and so much momentum; we really wanted to raise—sort of take the low end of that guidance range out. But with all that is happening, with the uncertainty around Iran as Raymond mentioned, we thought it was prudent just to hold serve for now and provide an update. We will have a chance at the end of the second quarter and at a couple of public investor events to provide an update on how Q2 is playing out, and we hope to provide a little more color again on the full year at that point.

Operator: Our next question comes from Colin Langan from Wells Fargo. Please go ahead with your question.

Colin M. Langan: Great. Thanks for taking my questions. Just wanted to follow up on the comments so I understand. You mentioned that tariffs helped margins in Q1. Is that just because the accounting is more skewed on the sales impact in Q1 versus the rest of the year? And then also you mentioned that copper actually helped margins on E-Systems in Q1. That kind of surprised me a bit because I thought copper prices were kind of all over the place; there might actually have been a headwind. So why would copper actually help in Q1?

And since we are talking about raw material, can you remind us what your hedging is on copper in particular and steel and other resins and other commodities? And is there an impact in the guide for a little bit of a pinch on some of those?

Jason M. Cardew: I will start with copper and then move back to tariffs. The way we account for copper and value our inventory, if there is a large change in the copper price, we revalue our inventory. That led to a step-up of the inventory and a benefit to cost of sales in the quarter. That was partially offset by the higher copper prices and the lag of recovery, but it was a tailwind in the quarter. In regards to the tariffs, we had the full value of this refund for 2025 tariffs all recorded in the first quarter.

We had $175 million of refunds between the IEEPA tariffs and the use of credits that our customers have given us applied retroactively to last year. It is about $70 million for IEEPA tariffs and $106 million in Section 232 credits that we are able to apply for refunds. That is the disproportionate impact on the first quarter revenue and margins as a result of that. On hedging, we do not hedge commodities, but we do have back-to-back indexing agreements in place pretty much across the board now. The vast majority of copper, steel, foam chemicals, and leather are all on pass-through agreements.

In certain cases, with steel, for example, the customers are buying that steel for us, so we see no impact from that. In other cases, there is a one-quarter lag or two-quarter lag, and so we are seeing across-the-board increases in commodity costs. The end result in terms of the earnings impact is pretty negligible. It is about $10 million worse than where we were sitting here on the fourth quarter earnings call for the year, but it is a pretty modest impact.

Operator: Our next question comes from Joe Spak from UBS. Please go ahead with your question.

Joseph Robert Spak: Thanks. Good morning, everyone. Raymond, I wanted to go back to some of your comments. You talked about some changing competitive dynamics in wiring, and I was wondering if you could spend a minute talking about how you are positioning Lear Corporation to take advantage of that. I know you mentioned some conquest wins, which sounds pretty exciting. But from your perspective, is it better to win conquest business or really go after some of these new architectures? Do you have a preference there? And, Jason, two quick ones. First, I appreciate all your comments on margin expansion cadence throughout the year. But help me think about the quarter, because you mentioned extra days and extra volume.

Did that also help the margin—did you get a little bit more fixed cost leverage—or is it really just a dollar thing? Second, with the metals Section 232 tariff change, I do not think there is any change there, but it is a little confusing because in some parts there are definitely elements of wiring that are listed in there. Maybe you could confirm that auto wire harnesses are not really impacted by the change, or if they are, that would be great to know as well.

Raymond E. Scott: I think it is a combination of both, really. The conquest opportunities have presented themselves over the last six months. I have been hinting at this or talking about it—the amount of requests we have got for quotes, mid-cycle or next generation. That is something relatively new. I think it is a combination of maybe strategic directions with other companies or performance. Quite candidly, we have gotten a lot of requests for quotes because of lack of performance. I have always said the ticket to get into quote is you have to perform every day around quality and delivery. You have to meet the customers' expectations. Those are more of a recent anomaly that continue to persist.

We still have a significant amount of electrical opportunities when we think about the newer platforms. Some of these new electronic awards are very strategic. They are placed right where we have really good capabilities and competencies. The customers spend a lot of time with us and our capabilities. The electronic wins come in at a higher margin than our overall target margin. They are coming on at a very good accretive level as we start to launch them. The third element is this new ability to gain access to the domestic Chinese. I was just in China last week. It is amazing the amount of opportunities we are seeing, not just in Seating but in E-Systems.

We had a dinner with a key customer and we expanded the relationship to include commercial trucks, both in Seating and E-Systems. That door is more of a recent area. We had more wins this quarter. Hopefully we have the same success we had at the last call—right after we got off we had two significant awards in China. I see that as a really nice opportunity for us to continue to grow. It is the combination of what we have done from a leadership organizational perspective. That door is open and we are seeing significant opportunities. I am excited. It is very rare when we get these conquest wins that are mid-cycle.

They do not do that because they are happy and content. They are doing it very strategically, very intently. Our job on that T1 is to deliver. When that door is open, I hope we can take advantage of it post-delivery and continue to expand our position on the next generation of that platform. That was very strategic. What is good about all this is that we have target margins, we are competitive, and we are hitting what we believe is an acceptable return for our company. It shows that the automation and digital changes we are making in our manufacturing plants, across electronics and wiring, are very competitive. Our reputation is as a leader for quality and delivery.

I am excited about where we are at in E-Systems, but it is across a lot of different areas, not just the conquest wins that are current, but also the new generation of electrical architecture.

Jason M. Cardew: There really are no new tariffs that are impacting us other than you have the Section 122 tariffs replacing the IEEPA tariffs, and that is a bit of a wash—maybe a little bit lower overall. That has been factored into the updated commentary around the impact on revenue for the full year due to tariffs. In regards to your question about the additional workdays, yes, that would benefit the quarter on a year-over-year basis. It really shows up on the volume line. Volume overall was about $190 million, and roughly two-thirds of that is a result of the additional workdays, with the balance being higher volumes on a normalized basis.

It is important to point out that was a positive development for us. We had full-year negative volume/mix factored into the initial guidance, and the first quarter was off to a positive start relative to that. Even normalizing for the workday difference, it is still a positive trajectory relative to what we had anticipated when we issued our initial guidance. On the shape of the year-end margins, that is exactly right. If you think about first half/second half, you have your normal seasonality in the third quarter where you are going to have downtime in Europe. Then you have typically a strong fourth quarter, particularly in China. Historically, China is very strong in the fourth quarter.

That may be a little more tempered for us on a year-over-year basis as a result of the change in the calendar and the impact on the number of workdays in each quarter relative to the prior year.

Operator: Our next question comes from Mark Delaney from Goldman Sachs. Please go ahead with your question.

Mark Trevor Delaney: Yes. Good morning. Thanks for taking the questions. I think your two-year net backlog was $1.325 billion at the end of last year, and you spoke about the new awards adding $250 million. I believe that is all scheduled to ship for 2027. Maybe you could share more on where the backlog now stands. Were there any other puts and takes to it besides the $250 million? And in terms of linearity, can you confirm that the incremental does all ship in 2027? And then on the competitive landscape, you already mentioned the momentum that Lear Corporation is seeing with conquest opportunities in wiring and E-Systems. Could you give an update on Seating?

Last quarter, you announced the largest conquest award in the company's history in the Seating side, driven in part by the automation capabilities that Lear Corporation has. With that award now in place, and what it shows for the industry more generally with what Lear Corporation can deliver, are you seeing additional interest from other auto OEMs that they may also want to take advantage of what Lear Corporation can provide?

Jason M. Cardew: There is a little bit of that $250 million that will hit 2026 and, given the volatility of customer plans, we did not want to put a pinpoint number to it, but it is positive within 2026 as well. That is a comprehensive look at the overall change in the 2026 backlog and 2027 backlog, so it includes some timing changes and other assumption changes that are embedded in that. If we look at it on a three-year basis, if you include 2028 where some of these awards show themselves more fully, it is about a $400 million increase in our three-year backlog.

We did not provide a starting point for 2028, but overall, over that three-year period, the awards received in the first quarter increased the backlog by $400 million. It was an incredibly strong start to the year. As Raymond pointed out, the new development particularly in China is just how short the development windows are and that the gap in time between award and launch is much shorter than what we are historically accustomed to seeing. We are excited about the opportunity to continue increasing the 2027–2028 backlog with awards that happen throughout the remainder of this year.

Raymond E. Scott: There is a lot going on, particularly in Seating, and it is important how we are communicating this. The award you mentioned was very important on that truck platform because it validated the work we have been doing for 10 years. The way we differentiate ourselves—think through all the different acquisitions—is important. We talk about manufacturing our own capital, how we have a modular system, how we are looking at automation and digital changes on the plant floor. That is very attractive to all of our customers. That win was significant because it was based on everything I just mentioned. Think back through IGB, Kongsberg, Intier-like capabilities, WIP automation, the most recent acquisition in E-Systems, ASI, M&N—the list is long.

We have been doing these great acquisitions for over 10 years to really build the competencies and capabilities that we have. Now, in a world where automation and digital are the buzzwords, we have been building on that for over 10 years and we are really putting it in place. What is important is that we had to have contracts—proof points that this is real. The 38 contract wins are because we are vertically integrated and we manufacture the module itself down to the lumbar. We are not partnering or relying on supply agreements.

Customers see the real value in that, and that helps us expand our margins and help our customers with efficiencies and purpose and use within the vehicle. When I was in China last week, it was amazing the content that is going in the vehicles and the need for speed to accelerate technology within the seats. When you have the vertical capabilities like we have, we can meet their timing and specifications and the requirements they are looking for, adaptability, and customer preferences. We built this innovation center really to showcase it to analysts and our investors. The customers have seen it. You are seeing in production the use of automation of a modular system.

It is amazing how that is adapting because the timing could not have been better. Every one of our customers—the domestic Chinese are accelerating speed to market and really wanting to make sure that they are driving a competitive seat system. The traditionals are really trying to understand how they can get to that, and we are showing them what we are doing. We are doing it both with the domestic Chinese and here at home with the North Americans and Europeans. We are being very selective too. The Orion facility was a very targeted approach that will have all of our best capabilities for automation and digital tools.

What we are doing with the innovation centers is to replicate and to speed to market within our production facilities. It is picking up momentum. We were hesitant when we talked about all this—and we have 38 contracts within the modular arena—that we are the only ones doing a modular system where we vertically integrate our own components. It is a differentiator for sure. Frank’s done a great job now in Audi in Europe. Obviously, we are in North America. As this becomes more prevalent, our customers were somewhat concerned, wanting to see it in production first. Now that it is in production, we can take production parts and show them and then walk them through a line.

That is what they did with the truck business we got. They went through an audit. They saw our facilities. Every one of our customers is coming back and telling us, “I have never seen this.” We just had a major OEM come through our facility in Rochester and they said there is no seating company doing what you are doing. Think about the time that we have been doing this—it is over 10 years. We have acquired specific skill sets that have been integrated; that integration takes time. Now we are at full momentum. We will be selective.

The Orion program was a conquest win too because we had a competitor that had a plant sitting right there and we won that business. We are going to be selective on customers, how we position ourselves, and how we invest in a particular platform. But we are definitely differentiating ourselves. We have to do a better job explaining that because it is not a fancy marketing slogan. This is real. We are in production. We vertically integrate. We have the components. The automation in our manufacturing plants is incredible. It has taken off, and I am excited, particularly with the domestic Chinese—they are pushing the market to think differently.

The timing could not be better for what we have been putting in place over 10 years.

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

James Albert Picariello: Hi. Good morning, everybody. Can you speak to the content and margin opportunity for E-Systems as we think about OEMs transitioning to domain-centralized architectures? I assume a portion, if not all, of the wiring awards you called out this morning are on this type of platform. For many folks on the outside looking in, the headline features of these next-gen electrical systems call for dramatic reductions in copper and overall wiring content; it is a much more simplified design. I know it is not that simple. Can you speak to the positive features of these next-gen electrical systems as it pertains to your E-Systems business?

And just to clarify on the tariff recovery reversal, the February outlook embedded a full-year revenue reduction and now it is a $285 million year-over-year reduction, but you are keeping your revenue range intact. Is that just better FX predominantly as a positive offset?

Raymond E. Scott: A couple of things. We mentioned these electronic modules that we won—these are smart products specifically used on these new architectures. We have put ourselves in a leadership position. We will be able to announce a little bit more about the platforms and what we won as we work with our customers, but those are leading-edge electronic systems for this architecture you are referring to. We are in a very good position there. On wiring, we do get asked about significant changes. We have not seen significant changes in wiring. There are different alternative materials and things that the industry is trying to do. Upfront design is key.

We work closely with BMW, and when I talked about the wins that we got around early development of the harness upfront, that is a big ingredient into how you can really save and look at cost savings within the harness program. Usually it is after design that gets put into the vehicle, but with BMW upfront we put our automation tools in place so we could get a more efficient design. We are seeing more and more content added. In China last week, it is amazing with LiDAR and what they are doing with their architectures, which are becoming very complex around features. It is a balance. We are working with alternative materials and alternative designs.

We see it as a combination. For the next level of architecture, we have done a nice job on the electronics capabilities that we have. We keep announcing these new programs. They are very unique to our capabilities and put us in a good position to be a leader in that area within the new architecture.

Jason M. Cardew: Yes, James, it is primarily FX and the pass-through on commodities, particularly copper. That is where the biggest impact is in terms of the copper price change from our original guidance and the pass-through mechanisms we have in place. To a lesser extent, foam chemicals and other commodities that are on these pass-through mechanisms also contribute. That, in addition to FX, is largely offsetting the impact of the reduction in revenue due to the tariff accounting.

Operator: Our final question today comes from Emmanuel Rosner from Wolfe Research. Please go ahead with your question.

Emmanuel Rosner: Thank you. Hi there. Question on the longer-term potential for E-Systems and in particular margin. One of your larger competitors just became an independent company as opposed to being part of a larger one, and that has put a pretty big spotlight on the fact that they are very profitable with very solid margins, with a goal to improve those by another 200 basis points over three years. To what extent is there a similar opportunity for Lear Corporation? Are there different business mix reasons why you could not get there? What are some of the structural differences, and what is the potential for Lear Corporation?

And one quick follow-up on growth over market: with the backlog improving and some of these new things launching even later this year, what would be your best guess on when growth over market could turn more positive for Lear Corporation?

Raymond E. Scott: We just took business from that big competitor and won it at a competitive price, and we are going to make fair returns when we look at returns. We can compete with anyone and generate very similar returns. We have had some operational challenges that we have been working on, particularly in Mexico and particularly around EVs. We did a great job of winning significant business in EV and we have been working through the volume reductions both commercially and operationally. The operational turnaround led by Nick and the team in Mexico has been great. We have really good business within E-Systems. We had some pockets that we had to clean up that were within our control.

The business we are winning is accretive, and we believe that is on pace to continue to get us good returns in E-Systems. We do not see anything inhibiting us from growing our margins, and that is why we put net performance on there. We are confident that we will continue to expand our margins in E-Systems. There is a pace to it because we have some programs that are lower from an assumption standpoint with volume or inflationary costs that we did not completely catch up with commercial negotiations. I have not felt this good about E-Systems and the operational performance and what we are doing until really this last quarter.

I feel good about where we are at with E-Systems, Emmanuel. We can compete against anyone out there, and we have proven it at a good return. Nothing prohibits us except for some of the operational things we touched on that we need to stay focused on and continue to clean up. We are operating at a much better level. We still have room to continue to improve; we are not there. That is going to continue to improve our margins. Another thing that was maybe our Achilles' heel was our ability to grow. Well, we are growing. We had $1.4 billion of awards last year in E-Systems after we pivoted away from what was the North American EV decline.

That was a great year. Then, now, we crushed it—more Chinese awards than we had all last year in E-Systems, and we have a great pipeline right now.

Jason M. Cardew: The only thing I would add is they do have a scale advantage. You have to also look at the portfolio of programs. You may recall when our E-Systems business was at its peak performance, we had a large program—2 million units globally—that allowed for a unique scale advantage and higher margins. They may enjoy a similar phenomenon that skews the margin profile a little bit. As Raymond mentioned, we are super excited about the combination of continued net performance of 80 basis points a year and then getting back to growing the top line after digesting what happened with EVs in North America and the decision that we made to exit certain products.

As you get into 2027 and 2028, you start to see that inflection from these new business awards starting to exceed the impact of the wind-down of the products we exited. Then you get the combination of net performance plus the effective volume/mix backlog wind-down as a number. When you take those together, that is when you see a meaningful move higher in E-Systems margins. On growth over market, if we look at the full year for Seating, we are expecting positive growth over market this year. E-Systems is negative primarily because of the build-out of the Escape, Corsair, and Focus weighing on the top line. As the year progresses, our growth profile improves, particularly in China.

We had negative growth over market in the first quarter in China, which was largely driven by Seating. E-Systems actually had positive growth over market in the first quarter in China. As we look at the balance of the year, the first quarter for our China growth over market is the trough, and it improves based on our volume assumptions and the backlog improvements that we highlighted. For the full year, we think we are pretty close to neutral in China on a growth-over-market basis. After last year being negative, that is a positive development. The momentum is even more important because it is not just this year.

As you look out to next year and beyond, we see an opportunity to grow in line with that market and to have a revenue base that more closely resembles the underlying market share of the customers in that market.

Raymond E. Scott: Thanks, Emmanuel. Okay. Tim, that is it. For the team, again, thank you. We talked about coming out this year with momentum, and we definitely have it. Your hard work keeps reinforcing what that momentum looks like. It was a great quarter, great performance. Thanks to the team around the world. The growth opportunities and the contract wins were incredible. I appreciate all the hard work. We have a lot of work to do and a lot of things that we are focused on that we can control. We have some great momentum, so let us keep it—keep the focus, keep the momentum going. Thank you for a great quarter.

Operator: And with that, ladies and gentlemen, the conference call has concluded. We thank you for attending today's presentation. You may now disconnect your lines.

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