Lear Corp (LEA) 2010 Q1 法說會逐字稿

Good morning. My name is Sarah and I will be the conference operator today. At this time, I'd like to welcome everyone to the Lear Corporation first quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

I'd now like to turn the call over to our host, Mr. Ed Lowenfeld, Director of Investor Relations. Sir, you may begin your conference.

Thanks, Sarah. Good morning everyone. Thank you for joining us for our first quarter 2010 earnings call. The review materials for our earnings call will be filed with the Securities and Exchange Commission and are posted today on our website, Lear.com, through the Investor Relations link. Today's presenters are Bob Rossiter, Chairman, CEO and President, and Matt Simoncini, Chief Financial Officer. Also participating on the call are Terry Larkin, Senior Vice President and General Counsel and Mel Stephens, Senior Vice President of Human Resources and Communications, as well as others on the Lear finance leadership team.

Before we begin, I'd like to remind you that during the call, we will be making forward-looking statements that are subject to risks and uncertainties. Some of the factors that could impact our future results are described in the last slide of the deck and also in our SEC filings. In addition, we will be referring to certain non-GAAP financial measures. Additional information regarding these measures can be found in the slides labeled Non-GAAP Financial Information also at the end of this presentation.

Slide two outlines the agenda for today's review. First, Bob Rossiter will review highlights from our first quarter. Next, Matt Simoncini will review our first quarter results and our full year financial outlook. Then, Bob Rossiter will have some wrap-up comments. Following the formal presentation, we will be happy to take your questions. Now please turn to slide three and I'll hand it over to Bob.

Thank you, Mr. Ed. I think I just want to start out by saying that obviously we're also doing quite well since the second half began of 2009, and we continue on in 2010. Things are looking up. Our positive momentum, we've completed our refinancing. We have no significant debt maturities until 2018. Sales growth, margin improvement in both our major product lines, seating and electrical power management systems, and we've had positive first quarter results.

We've got a strong start to the year with continued strong operating fundamentals. Our efficiency's up all over the world, and we're operating at world class levels in terms of quality. For the sixth straight we're we were named GM supplier of the year and also received a best supplier award from the Volkswagen group in Europe. The outlook for 2010, is going to increase today because production's coming back so we're going to improve our margins and increase our cash flow.

If you will turn to slide four. As I said, we completed the refinancing. We have no significant debt maturities until 2018. We've improved our long-term financial flexibility, lowered our overall debt levels, and lowered our interest rates in the process and freed up capital collateral. Our capital structure provides us the flexibility to invest in our business and execute our strategic objectives going forward, and the Company continues to have strong liquidity positions. With that, I'll turn it over to Matt.

Okay. Thanks, Bob. Please turn to slide number six. This slide provides our financial highlights for the first quarter. Industry production improved significantly with mature markets increasing from depressed levels of a year ago and growth in emerging markets continuing. Net sales were up 36% to $2.9 billion. Core operating earnings were $138 million, compared with a loss of $67 million a year ago.

The turnaround in profitability reflects the improved production environment, favorable cost performance, and the benefit of operational restructuring actions. Free cash flow was $4 million versus a use of $219 million a year ago. On the next few slides I'll cover our first quarter results in more detail, and provide a revised financial outlook for 2010. Slide number seven shows the vehicle production environment in our key markets for the first quarter. Industry production was up in all our major markets. Overall, global vehicle production was 17.2 million units, up 47% from last year.

Slide number eight provides our financial score card for the first quarter of 2010. Starting with the top line, net sales were up 36% to $2.9 billion, driven primarily by increased production in all major markets and the favorable impact of foreign exchange. In the first quarter, about two-thirds of our sales were generated outside of North America. Net income was $66 million, an improvement of $331 million from last year's net loss.

Reported SG&A as a percentage of sales was 4.4%, down about 80 basis points from a year ago. On an absolute basis, reported SG&A was up $16 million compared to last year. This reflects increased program development costs and certain compensation programs, partially offset by higher restructuring costs in the prior period. Interest expense was $19 million, down significantly from $56 million last year, reflecting lower debt levels.

Depreciation and amortization was $59 million, compared with $66 million a year ago. The lower expense reflects lower capital spending over the last few years as well as extended asset lives as part of the fresh start accounting. Other expense increased to $21 million, compared to $13 million a year ago. The increase reflects the write-off of $12 million in deferred finance fees, resulting from the accelerated repayment of our first and second lien term loans and unfavorable foreign exchange, partially offset by an improvement in equity earnings of our nonconsolidated joint ventures.

Slide nine shows the impact of our nonoperating items on our first -- our reported first quarter results. ur reported free cash income before interest and other expense was $120 million. Excluding the impact of operational restructuring costs and other special items, we had core operating earnings of $138 million, compared with negative core operating earnings of $67 million a year ago. The improvement in earnings reflects the increase in sales, favorable operating performance in the (inaudible) from operational restructuring actions. To help clarify how these special items impacted our financial statements, we've indicated the amount by income statement category on the right-hand side of the chart.

Turning now to our performance by product line. Slide number 10 shows adjusted margins for our Electrical Power Management segment. In the first quarter, the adjusted margins for this segment improved to 5%. The improvement from a loss a year ago reflects higher global vehicle production, backlog, favorable operating performance including the savings from operational restructuring, partially offset by selling price reductions. We expect continued improvements in year-over-year margins. However, we believe absolute margins for the balance of the year will decrease somewhat from the first quarter. The lower margins in the back half reflect lower relative production as well as increasing new business development expense and higher launch costs.

Please turn to slide number 11. In the first quarter, the adjusted margin for our seat business improved to 6.8% from 1.4% a year ago. The improvement primarily reflects higher global vehicle production, favorable cost performance including savings from operational restructuring, partially offset by selling price reductions. We expect continued improvement in year-over-year margins. However, we believe absolute margins for the balance of the year will decrease somewhat from the first quarter. The lower margins in the back half reflect lower relative production as well as increasing new business development expense and higher launch costs.

Please turn to slide number 12. Free cash flow was a positive $4 million in the first quarter compared to a use of $219 million last year. The improvement in free cash flow primarily reflects improved earnings. Our cash balance decreased by $250 million in the first quarter to $1.3 billion, due mainly to the paydown of debt and related fees in connection with the refinancing of our capital structure.

Slide number 13 provides a snapshot of our share count. At the end of the first quarter, a little more than half of our preferred shares and warrants issued under the plan of reorganization have been converted into common shares, resulting in 44.4 million shares of common stock outstanding as of April 3rd, 2010. There remain 8.9 million preferred shares and warrants outstanding that can't be converted to common stock at any time. Total shares are 54.6 million, assuming full conversion exercised investing of the remaining preferred stock, warrants and management restricted stock units.

Now, turning our attention to revised outlook for the remainder of the year. Slide 14 shows our full year 2010 forecast for global vehicle production as compared to our prior outlook. We have increased our full year global vehicle production to 65.4 million units, up 4% from prior outlook. Our revised outlook in North America is up 500,000 units to 11 million units as the industry recovery continues.

In Europe, while our forecast is up 400,000 units to 15.8 million units, we remain somewhat cautious given the market concerns in the EU. And our key emerging markets where solid growth continues, we are increasing our production estimates for China and India. We are now projecting a dollar to Euro exchange rate at $1.35, down from $1.40 in our prior outlook.

Please turn to slide number 15. Turning to our full year financial outlook for 2010, we are forecasting net sales of approximately $11 billion. Our core operating earnings are estimated to be in the range of $375 million to $425 million. Depreciation and amortization is forecast to be about $250 million. Depreciation expense is down about $15 million from the prior forecast due to the revisions in asset lives related to fresh start accounting adjustments.

Interest expense is estimated to be about $65 million, down from our prior guidance, reflecting reduced debt levels following the refinancing in March. Our estimate for tax expense is in the range of $80 million to $100 million. Operating restructuring costs are estimated to be about $110 million for the year. 2010 capital spending is expected to be approximately $175 million, and free cash flow is expected to be in the range of $150 million to $200 million.

Lastly, our 2010 forecast for average fully diluted shares outstanding is 54.1 million shares. As discussed earlier, this share count includes common shares, preferred shares, warrants, and a portion of the management shares granted at the time of emergence. I'll turn it back to Bob for his closing comments.

The outlook for 2010 continues to look very good, and beyond we're very positive about the future for the Company. We've completed our refinancing, as I've said. We have no significant debt maturities until 2018. Our company is looked upon by our customers in a very positive light. We continue to make progress with every customer in the world. Our cash balance is about $1.3 billion and our total debt is $745 million.

The outlook for 2010, earnings between $375 million and $425 million. Depreciation and amortization, about $250 million. And our free cash flow will be up $150 million to $200 million. And importantly, we continue to win new business in every market in the world in both of our major product lines. That will open it up for questions.

(Operator Instructions). Your first question comes from Himanshu Patel of JPMorgan. Your line is now open.

Good morning, guys.

Hey, Himanshu.

Have all of the temporary reverse -- reversal of temporary cost cuts, has all of that happened now? Is the cost structure at a normal run rate now as of Q1?

Yes, I would say there wasn't really -- the reversal of temporary was probably compensation related where we took -- the salaried workforce took certain concessions that we don't expect them to do. Those have been reversed and in the guidance we've assumed -- in the first quarter in the guidance we assumed that we basically pay everybody. From a run rate standpoint, I see that program development costs and launch costs, Himanshu, increase in the back half of the year as we, A, launch our new backlog for the year, and two, we start winning -- we continue to win new business. I see a step-up in program development costs in the back half of the year.

Any way to quantify that increase sequentially, let's say H2 versus H1?

Well, it's hard to do. I would say that the launch costs that we talked about going from $25 million last year to $50 million this year is really back half loaded for the remainder of the year. I would expect a gradual increase in program development costs in the back half as well, but it's hard to quantify without giving you specific numbers.

Okay. And then on the electrical division, I just noticed sequentially there was about a 30% contribution margin there at the operating profit level. Is that the level of operating leverage we should think about for that business going forward?

No, I wouldn't use that number. In the past, we've for Lear we've talked about a number between 15% and 20%, depending upon which programs are up. And how it comes in and how the volume comes in, whether it's steady or through overtime or what have you. I would continue to use that range, Himanshu, of 15% to 20%. This segment in this quarter, while I think did extremely well and you're starting to see the benefit of restructuring, also benefited from two things.

It had a nice mix of business, hence the sales increase of roughly 50%. And it also has more development costs in the back half of the year. Now, if you think back to our backlog that we announced in the beginning of the year, roughly 60% of the backlog's in this segment so it's disproportionate in this segment and the development costs will be more back half loaded for electrical. I wouldn't use necessarily that -- I think 30% conversion is a little bit rich.

Your comment that sequentially we'll see some moderation in margins, it sounds like it is more pronounced on the electrical division, that moderation.

Slightly. Slightly. If you look at the guidance overall and you use the midpoint of the range it would imply about a 100 basis point reduction versus the first quarter consolidated results. It might be a little bit higher in electrical than seating, but both of them are going to see about that size of a come off in the back half. And that's really driven more than anything, first and foremost by the cadence of the sales.

We think the cadence of the sales this year will be the normal industry type of seasonality with 55% of the revenues come in in the first half and 45% in the back half. We see this year closer to historical cadence and that will drive the margins as well.

Okay. And then any update on the investigations on price fixing and all that stuff?

Yes. Let me turn it over to Terry Larkin, our General Counsel for that question.

We really have no new news on that front. As I think we mentioned previously, Lear was visited by the authorities in the EU, but not by the authorities in Japan or the United States. We cooperated fully and it's our belief that Lear has not committed any violation of the EU anti-competition laws. But it's not unusual for there to be a prolonged period where there is no news from the EU about the status of their investigation.

Okay. Thank you.

You're welcome.

Your next question comes from Rod Lache of Deutsche Bank. Your line is now open.

Good morning, everybody.

Hey, Rod.

Your corporate expenses looked like they ticked up a bit sequentially. They were running maybe $30 million or $40 million per quarter, and now $50 million. Could you just give us some thoughts on how we should think about that going forward? And also, is there any reason why you're using a North American production of 11 million? In the past, you had quoted the CSM numbers which are 11.5 million. Looks like Europe consensus also is a little bit higher than what you're using.

Let me work -- start with the first part on HQ. At the end of last year, we guided to a number of $45 million a quarter. We're still fairly comfortable with that number. The driver on step-up, there's some expenses that are compensation related, Ron, that are front end loaded from an accounting treatment standpoint that pushed that number up. We're also continuing to add some structure in the emerging markets, namely Asia, to support the growth that we see out there so we're seeing a step-up there. But we're comfortable with that $45 million run rate on HQ.

I think last year was not sustainable for a lot of reasons. One of the things that we talked about at the first quarter -- in the first quarter, at the year-end earnings call in February, was compensation programs that were called out as special items which are now part of the operating earnings and not called out. From a CSM standpoint or volume that we're using, we use CSM as a guide. CSM is higher than the 11 million units that we're using in North America and slightly higher than the production that we've guided to in Europe. That being said, we keep an eye on also our releases, inventory levels, and sales rates.

And right now, if you look at the sales rate in North America, it's averaged I think in the first four months about 11.1 million, 11, 2 million. When you take imports into consideration, in order to hit 11 million units, we probably need to see a sales rate if inventory stays flat of about 11.7 million to 12 million units. We think we're balanced there. Europe, we're a little bit more cautious on, just because in light of the global macroeconomic issues that are coming to light over the last 30, 60 days there. We're just trying to take a cautious view of production.

Okay. And the last two, are any update on the electronics margin progression you've been talking about 6.5% to 7.5%, reaching that in a few years, just given how quickly that's shot up. Any update on timing? Lastly, any thoughts on uses of this free cash flow? Any thoughts on dividends or acquisitions going forward?

Right. Let me start with the Electrical Power Management segment. We had a good quarter. We don't think the 5% is sustainable for the remainder of the year because of the launch costs, as well as the program development costs as we continue to win business. We still are on track to get into that 6.5% to 7.5% range. We see that late 2012, early 2013. It's really driven by getting scale. That business is under scale and it has a fairly high fixed cost structure at these sales rates so we need to be able to leverage that organization or overhead costs. We're still comfortable hitting those margins. If we continue to win business at that clip, it will be a little bit earlier than a little bit later.

As far as the use of cash, one of the things from our standpoint, the progression of the use of the excess cash, the liquidity we'd like to maintain, the first step is what we've done which is to fix our capital structure. We used roughly $250 million between debt paydown of $225 million and the fees associated with it to take the debt down. We think that benefits our shareholders ultimately. Two, we would like to invest in the business organically. What we mean by that is there's certain technology capabilities that we'd like to build, namely, in the hybrid arena.

Two, we look for opportunities to increase our component capabilities in the emerging markets, Asia and South America, whether it's mechanisms, metal mechanisms or connectors. Three, we are filtering through a lot of niche type acquisitions. We don't think we need to make any, but if something came together that was the right strategic fit or facilitate our customer diversification, we would consider it if the valuation was right and it was fairly quickly accretive to our shareholders. Finally, we would look for a way, when we're confident that the industry has recovered, both North America and Europe, and we've demonstrated that we have the ability to generate cash flow in that environment. We would look at a way to return the cash on a recurring basis to the shareholders in an efficient manner.

Thank you.

Your next question comes from Colin Langan of UBS. Your line is now open.

Good morning. Can you comment on -- within your guidance what the impact of rising commodity costs is in there?

Yes. From our standpoint, the two commodities that impact us are steel and copper. Just to refresh where we're at on -- I'll start with the easier of the two, with copper. At this level of production, we use roughly 80 million pounds of copper a year. All but about 20% is covered through pass-through agreements with our customers, both up and down. The remaining 20% is Lear's responsibility. Copper has increased from year-ago levels, but we're confident that we've covered that sensitivity and it's manageable in our guidance range.

Steel, at this level of production that we've assumed, we use roughly 2.6 billion to 2.7 billion pounds of steel in our products, the vast majority of which is through purchase components. Roughly 250 million pounds is raw steel that we convert into mechanisms. The remainder is purchased components and of that, roughly 60% of it, Lear directs , 40% the customer directs. Now what's important about that is the customer directed, the commodity cost is their responsibility to work through with their suppliers. On our steel purchase components that we direct, we have everything from fixed costs to pricing indexing.

Now we've included the current commodity cost in our guidance and we've also included a slight push-in in the guidance. We expect it to be less than what it was when it hit the peak in 2008. Now in 2008, we had an impact of $60 million. We're assuming an amount that's less than that in this guidance, but we also -- we believe we have it covered. The risk, we're keeping our eye on it. But we're comfortable right now that we captured it in the earnings guidance

Okay. What was that, it was 60% is you direct and then 40% customer?

Yes. Correct.

Can you quickly comment on the working capital outflow this quarter? Is that just normal seasonality? And should we see cash flow -- should we see that come back in the second quarter?

Yes. The only item that's peculiar in the quarter was the cutoff of April 3rd, resulted in one additional payment stream being captured in our normal payment cycle, so-to-speak. At year end, we have a hard calendar close at 12/31. During the quarters, we have an accounting close which is basically a four, four, five -- four weeks in the first two months and five weeks in the last month of the quarter. That resulted in us capturing one additional payment cycle of roughly $50 million in total. Other than that, it was the normal seasonality.

What impacts the working capital more than anything is the cadence of sales within a quarter. Since we're collecting our money on average between 45 to 60 days, the sales that come in in March in the back half of February are usually what's captured in receivables. There's really nothing unusual in the numbers. Everything's pretty much at term and there's been no change in the payment terms, either what we receive from our customers or what we pay our suppliers.

Okay. Just one last one. From what -- your comments on margin guidance, sounds like most of it's going to be a second half. Is there a reason to think that Q2 would be consistent with Q1 or should you already start seeing some weakness --

We expect it to be fairly consistent with Q1.

Okay. All right. Thank you very much.

You're welcome.

Your next question comes from Brett Hoselton of KeyBanc. Your line is now open.

Good morning, gentlemen.

Hey, Brett.

Matt, as you think about the 100 basis points in the back half of the year, sounds like the majority of it is due to little bit lower production expectations. 75 basis points of that or so due to the lower production?

I would say that the cost reductions remain. It's just harder to get when the volumes are lower. I would say it's pretty much driven entirely by the volume.

Okay. And then I just caught the end of your comments about the commodity costs there and the steel in particular. On the 60% portion, it sounds like you've got a mixture of things, contracts controlling the pricing coming in and then some pass-through. What percentage of the contracts you have with your customers on your 60% portion, very roughly, is either indexed or pass-through or something else along those lines?

A very small portion, if any. At the end of the day, the way it's handled typically, Brett, is we come in and we work with our customers to find solutions to bring the costs down in their product. This is obviously an item that typically goes the other way or in the past has gone the other way, and we sit down and we work with them to find a way to absorb it, whether it's engineering changes, supply change, sub-tier consolidation or what have you. But it's not really an index -- Bob, you want to comment on the pricing environment as relates to commodities?

Okay. Matt, thank you very much. Very helpful. Bob, thank you.

As always, I've got a very quick comment. Whatever Matt says is right.

Thanks, Bob.

Your next question comes from Joe Amaturo of Buckingham Research. Your line is now open.

Could you just give us a sense of what the Euro sensitivity is -- implied in the guidance is $1.35. I'm sure you know, we're at $1.27 right now, both on the revenue and EBIT lines.

Right. Right. We had a pretty strong first quarter on the Euro, though, Joe, so you've got to take a blended rate. For every penny, so-to-speak, of Euro that we lose or gain, it has an annual impact of roughly -- on sales, of roughly $36 million. And it will convert on average with the margins in Europe, anywhere I would say between 3.5% to 4.5% conversion on it. We're comfortable that while the Euro is volatile right now, that we're pretty comfortable with our guidance that we've captured, the range as we stand.

Then just one other quick one. You have mentioned that you'll be updating your backlog mid-year. Do you plan on having a separate conference call or are you implying that you'll discuss that when you release the second quarter numbers?

When we release the second quarter numbers, Joe. What's happening right now, we're in the marketplace, we're continuing to win new business. Winning on average consistent with what we've done the last several years where we've won in any given year anywhere between $500 million to $1 billion in business annually. We're continuing to be successful. We're in the process right now of just quantifying it and getting a handle around unit volumes, and we plan on updating it in the second quarter earnings call.

Okay. Great. Thank you.

Your next question comes from John Murphy, Bank of America. Your line is now open.

Good morning, guys.

Hey, Murph.

If we look at the operating margin of 4.7% in the quarter, it was really good. Just wondering as you look at your discussions with the automakers if you're potentially raising any eyebrows and you're seeing any incremental potential pricing pressure as we step through the next 12 months and go through new contract negotiations? Or is 4.7% something that's not raising a lot of eyebrows with the automaker at this point?

People keep bringing this up. The customers, I don't think anything's ever changed. It hasn't change before we went into the tough period. It didn't change during the tough period. It hasn't changed now. It's the same. Hasn't stepped up any more. Isn't any different. It's the same environment that we've always worked in, always operated in,and been successful in. There's not going to be major change as a result of anything that Lear reports.

Okay. Bob, so it's -- so it's still tough. It's still a constant negotiation with these guys.

Right.

That's what it is. It's always been that way. It's not going to be any different. It's not any worse, John, than it ever was.

What I would tell you, John, is we have guided and we think long-term this business runs at 7.5% -- 7% to 7.5% operating margins. That's an important number for us because we think it's a fair, balanced market. It also gives us return on investment to our shareholders. While in relative terms compared to last year, it looks really good. The reality is, it's still not at our target margins longer term.

Got you. And then Matt, just one last question on mix. You said it was particularly strong in the first quarter. Just wondering what the key drivers for that in the first quarter and how you see that. You mentioned a mixed deterioration through the course of the year. Just wondering if there were any key models in the first quarter versus the rest of the year that you would highlight.

Actually, I would tell you that mix works slightly against us when you look at the increase in the broader market. We weren't up. Our revenues weren't up commensurate with the market overall. And that's really -- mix worked against us. And the reason it did, John, was there were some high runners in the first quarter of last year that didn't necessarily take a back step, like the three series in Europe or the 900, GM900 here in North America.

When I mentioned the mix, I mentioned that on a relative basis of electrical compared to seating, electrical benefited a little bit more from the mix just because of the European car lines that they're on. I think on the back half of the year, it's not that mix deteriorates. It's that we think the volume cadence is more 55% first half, 45% second half, but the mix should stay relatively consistent. The one strange thing that's going to happen in the second quarter, the outlier's going to be -- GM shut their production down for a good portion of the second quarter last year. And so that should have a boomerang effect and actually make the comparisons look better, so-to-speak.

Thank you very much.

You're welcome.

Your next question comes from Brian Johnson of Barclays Capital. Your line is now open.

Yes, two questions. One, housekeeping and one strategic. I know you'll update backlog in the second quarter, looking forward to that. In the meantime, what's the split of the backlog by year and by segment? You've given us an overall backlog, but what can we think about it seating versus electrical for this year?

Yes. For the backlog that we previously announced, the split is roughly 60%, 40%, 60% being electrical, 40% being seating. For our backlog in 2010, we would expect that number to be a little over $100 million in total. And on a go-forward basis, the big backlog year is 2011 when we see the backlog number approaching $1 billion.

Okay.

Now, on the business wins, we'll win it fairly equally between the two segments and it's pretty balanced between regional coverage.

Okay. And on the strategic side, two related sub-questions. Your excess cash, how are you thinking about that now? Is it still sitting on it while the macro conditions develop? Are you looking to deploy that or return that somehow?

And related to that, are there any opportunities that you might be looking at in electrical which is a fragmented business with some smaller players, some of whom might not be able to compete globally like you can. Would you be interested in picking up some of their business?

I think, first off, on the excess cash, we like to maintain a liquidity balance of $900 million to $1 billion is what we said. And it's not that we need that amount of money to run the Company or liquidity to run the Company. But we believe it provides adequate or more than adequate cushion for any market dislocations and plus, it demonstrates strength for the marketplace, namely our customers. The first thing that we want to do with our excess cash was to use it to fix our capital structure, which we did.

We used $250 million of our cash on hand to bring down our debt by $225 million and pay the fees associated with that. We felt that was not only good for the business, and for our customers, but also benefited our shareholders. Second, what we would like to do is look to invest organically in our business, first looking at technology in the electrical distribution, something that would help support our business on hybrid and high powered vehicles. Secondly, we'd like to increase our component capabilities in emerging markets, Asia and South America, connectors or mechanisms, seating mechanisms.

On the acquisition front, we are looking at things that would bolster our electrical distribution business or power management business, because it is under-scaled and we think there are still niche players out there. We're filtering everything from first and foremost, strategic fit, followed by whether or not it's actionable and then we look at valuation and make sure that we're buying smartly. Now, we don't think there's an absolute need to do it, but we're keeping our eye on it. Finally, at some point if we're confident that the industry has recovered, that Europe has settled down and that Lear has demonstrated the ability to generate cash every quarter, we would look at a way to return the cash to shareholders in a recurring and efficient manner.

Okay. Thanks.

Your last question comes from Chris Ceraso of Credit Suisse. Your line is now open.

Thanks. Good morning.

Good morning, Chris.

Hey, Matt, if I look at slide seven, I'm hoping you can take us through the regions and give us your year-over-year change in revenues so we can compare how you did in these regions versus the change in production.

We really -- I don't think we've really fully ever disclosed what we do. But from our standpoint if you look at probably slide number eight, would be probably the best breakdown I could give you at the moment. But I would tell you that in the emerging markets, we more or less moved with the markets overall. You can see that [North America] was a little behind and Europe was a little behind of the broader market improvements because of the mix issues that I mentioned earlier, namely that we had a pretty strong first quarter last year which make comparisons year-over-year a little bit softer.

It looks like it stands out most particularly in North America. Is that what you meant at the year ago, the T900 was stronger?

Yes, they had actually a pretty strong first quarter in light of what they ultimately ended up producing. They went dark or they closed their production down in the second quarter so I think the comparisons that you see in the second quarter might be a lot better than the broader market.

Was it something outside that particular platform then because it's a pretty big difference versus the build rate.

That platform in itself is probably the biggest outlier but again, we don't sell to the industry overall. We have specific car lines and we have a lot of car lines that we sell to. That one, by sheer unit volumes, has a way of impacting the results bigger than any other one. But there is a lot of movements in the car lines that we sell to. That's probably the best thing I can do for you, Chris.

Okay. You mentioned the roughly 100 basis point decline that you expect to see in margin versus the first quarter is almost all related to the decline in volume. Was that just for Europe? Is that for overall? And if it's overall, where do I see the allowance for higher material costs?

It is overall markets where we see cadence first half to second half that softens. I shouldn't say overall, in North America and in Europe. We still see strength in the emerging markets that are fairly consistent throughout the year. There is additional costs that go in, but we also ramp up our cost reductions during the year as the facilities run more efficiently, as we get the benefit from our restructuring actions that we implemented during the year. There's literally thousands of different inputs that come into trying to project a number for the remainder of the year, everything from pricing, supplier contracts, plant efficiencies. I'd like to think that every month, our manufacturing facilities run more efficiently, and then the savings from restructuring actions.

Big picture, the volume is going to put some pressure on margin. To the extent that material costs are up, you're going to offset that with cost saves and productivity?

Correct.

Okay. Thank you very much.

You're welcome, Chris.

Since that was the last question, I want to thank everybody for your questions today. Thank you for being on the call. I want to thank you, Matt, for a great job. Thank you, team, for supporting Matt. Thank the Company, for continuing to operate strong, efficient, and optimistic. And I want you to know, it's fun again. Let's go have some fun.

This concludes today's conference call. You may now disconnect.