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By Susan Kelly
CHICAGO, Jan 26 (Reuters) - Lear Corp. , the No. 3 U.S. auto parts supplier, on Monday said its quarterly earnings rose 12 percent on new business and the strong euro, but its shares slipped 3 percent after reaching an all-time high on Friday.
"The company continues to perform well," said Mark Oline, managing director for Fitch Ratings, which initiated coverage of the company in September with an investment-grade rating of BBB- on its senior debt.
The maker of auto interiors said its fourth-quarter net income climbed to $132.4 million, or $1.90 a share, from $118 million, or $1.76 a share, a year ago.
Analysts on average had expected earnings of $1.87 a share, according to Reuters Research, a unit of Reuters Group Plc.
Lear said a lower income tax rate and lower interest expense also drove earnings growth.
Fourth-quarter sales increased to $4.26 billion from $3.76 billion.
The Southfield, Michigan-based maker of automotive seats, interior trim and electrical systems benefited from the popularity of sport utility vehicles that offer more seating and from a general trend toward upgrading automotive interiors.
"U.S. manufacturers in particular are paying a lot more attention to interiors as a selling point," said Oline.
Interior component manufacturers such as Lear and rival Johnson Controls Inc. tend to have higher profit margins than some suppliers because their operations are closely integrated with the automakers, Oline said.
Automakers are outsourcing more of the production of complete vehicle systems to suppliers.
"Lear is capitalizing on the increase in electronic/technology content inside the vehicle as (original equipment manufacturers) turn over more design responsibility to the supplier base," David Leiker, analyst with Robert W. Baird & Co., said in a research report. He rates the stock "neutral."
Lear said it expects first-quarter net income in the range of $1.10 to $1.20 a share on sales growth of 10 percent to 12 percent.
The projection includes expenses for facility consolidation, the company said.
A Lear spokeswoman said the company spent $37 million in the fourth quarter to improve plant efficiency and reduce production capacity, and expects to spend another $45 million in the first half of 2004.
Lear also confirmed its forecast for 2004 earnings in the range of $5.85 to $6.25 a share on sales of $16.2 billion.
Analysts on average were expecting first-quarter earnings of $1.10 a share and a full-year profit of $6.11 a share.
Earlier this month, the company said its five-year sales backlog had grown to $4.4 billion for 2004 through 2008 from $4 billion for 2003 through 2007.
"We're sporting the best backlog we've ever had," Bob Rossiter, Lear chairman and chief executive, said on a conference call with investors and analysts.
Lear shares were down $2.15 at $66.73 Monday morning on the New York Stock Exchange. On Friday, the stock hit an all-time high of $69.20 before closing at $68.88.