UPDATE 2-Lear posts loss on auto output cuts, higher costs


(Adds details from conference call, background, stock activity, byline; changes dateline from NEW YORK)

By David Bailey

CHICAGO, Oct 26 (Reuters) - Automotive interiors supplier Lear Corp. on Wednesday posted a quarterly loss, pressured by vehicle output cuts in North America and rising raw materials costs.

Lear, whose shares fell 1 percent, said it sees significant risks, including automaker production schedules, volatile prices for resins and other materials due to U.S. hurricanes, and the cost of supporting stressed suppliers.

The company expects earnings and cash flow to turn positive in the fourth quarter and that results will improve in 2006, Chief Executive Bob Rossiter told analysts on a conference call. Lear will provide more details on 2006 in January.

"We have seen tough years in the past, but this is a topper," Rossiter said. "Longer term, this company has an outstanding outlook."

The third-quarter net loss amounted to $750.1 million, or $11.17 per share, compared with year-earlier net profit of $91.7 million, or $1.26 per share.

Excluding impairment and restructuring charges, Lear reported a loss of $6.4 million, or 10 cents per share. On that basis, analysts on average expected a loss of 24 cents per share, according to Reuters Estimates.

Sales rose more than 2 percent to $4 billion, said Lear, which makes seats, door panels and various interior components.

The Southfield, Michigan-based company in June said it planned to cut up to 7,700 jobs, or 7 percent of its work force, over the next two years, shift some production to lower-cost countries and remove excess capacity.

Rossiter told analysts Lear expects seating and comfort features to account for a big part of its business within five years. It expects seating, as well as electronic and electrical products, to growth both internally and through acquisitions.

UBS analyst Rob Hinchliffe said in a note that Lear should be able to generate the solid earnings and cash flow it has indicated in broad terms for 2006.

"The question remains, however: Can Lear's restructuring sufficiently offset the expectation of continued Big 3 share losses and mix shifts?" Hinchliffe said.

The results follow a $44.4 million second-quarter loss for Lear, which has struggled under output cuts by Ford Motor Co. and General Motors Corp. on key large sport utility vehicles and pickups in North America.

Production cuts, commodity costs and high wages and benefits have pressured U.S. parts suppliers in 2005, forcing Delphi Corp. into bankruptcy and driving an out-of-court restructuring at Visteon Corp.

Lear rival Johnson Controls Inc. on Monday said its North American interiors operation also suffered in the third quarter, but the company reported a profit overall because of strength in its European interiors business and growth in its building controls and battery units.

Earlier in October, Lear and private equity firm WL Ross & Co. LLC said they had agreed to form a joint venture to look at acquisitions in the automotive interiors industry, including bankrupt Collins & Aikman Corp.

Lear said it expects to hold a significant minority interest and provide management support for the proposed venture, which would provide economies of scale.

For the fourth quarter, Lear said significant uncertainty precluded a specific outlook. It forecast profit of more than 75 cents per share, excluding restructuring costs of about 50 cents. Analysts on average were expecting earnings of $1.35, excluding items.

Shares of Lear were off 30 cents at $30.21 on the New York Stock Exchange. The stock fell about 44 percent through the first nine months of 2005, compared with a decline of about 2 percent for Johnson Controls and a 1.4 percent rise in the Standard & Poor's 500 index . (Additional reporting by Emily Chasan)



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