Forvia Shares Rise Despite Guidance Cut

Investing.com — Shares of Forvia (EPA:FRVIA) rose on Friday as the company delivered a guidance cut that, while anticipated, was less severe than some investors had feared.

At 7:58 am (1158 GMT), Forvia was trading 8.8% up at €9.590.

The French-German automotive parts maker lowered its full-year 2024 sales and operating margin outlook, but the stock reacted positively as investors took the revisions in stride, reflecting confidence in the company’s strategic initiatives and long-term positioning.

Forvia trimmed its 2024 sales forecast to a range of €26.8 billion to €27.2 billion, down 2% from the previous guidance of €27.5 billion to €28.5 billion.

The new outlook, which reflects production cuts across key regions and additional currency headwinds, comes in slightly below market expectations, with consensus sitting at €27.3 billion, said analysts at Citi Research in a note.

The company also reduced its 2024 operating margin outlook to a range of 5.0% to 5.3%, down from the prior guidance of the lower end of 5.6% to 6.4%.

While the mid-point now stands at 5.15%, compared to consensus expectations of 5.7%, the revision was not as severe as some feared, and Forvia’s efforts to manage costs have helped mitigate the impact.

The revised operating income guidance of €1.4 billion is approximately 10% below prior market consensus of €1.6 billion.

For the second half of 2024, Forvia now expects a 5.1% operating margin, roughly 20% below market consensus of 6.2%, largely due to delayed production starts (SOPs) from key original equipment manufacturers (OEMs) and weaker-than-expected market conditions.

The company’s net cash flow (NCF) forecast for the year was also revised down to at least €550 million, from a previous target of €649 million.

However, the outlook for its net debt to adjusted EBITDA ratio remains stable at less than or equal to 2.0x, only marginally higher than the previous expectation of ≤1.9x, signaling strong balance sheet management amid the headwinds.

Forvia outlined several key strategic initiatives aimed at improving its performance in 2025 and beyond. The company is accelerating its “West to East” strategy, with a focus on building stronger relationships with Chinese OEMs.

The Asia-Pacific region, particularly China, offers significant growth opportunities, and Forvia aims to generate over 35% of its global sales from the region by 2028, with an operating margin target of 10% in the same period.

Additionally, Forvia is pushing forward with its “EU Forward” initiative, a five-year plan launched in 2024 to increase competitiveness and agility across its European operations.

The company also raised its synergy target with HELLA, the German lighting and electronics specialist it acquired, from €300 million to €400 million by the end of 2025. This will be achieved through enhanced operational efficiencies, notably in purchasing and manufacturing.

“Overall, guidance cut mainly driven by lower production outlook and uncertain environment, which was somewhat anticipated post S&P LVP cuts last week,” said analysts at Citi Research in a note.

The company’s efforts to accelerate key strategic initiatives, particularly in China, and to streamline its European operations are seen as vital steps in weathering current headwinds and positioning itself for future growth.

While the automotive industry continues to face cyclical and structural challenges, Forvia remains attractively valued, with analysts at Citi Research have reiterated a “buy” rating, albeit with a “high risk” classification due to the tough near-term outlook.