Thermal Comfort, for example, I talked about shifting the footprint from Eastern Europe to North Africa, but we also have additional synergies integrating IGB and Kongsberg into Lear. We also have lower operating costs in our leather business from deployment of the Thagora Technology. And then we have lower labor costs in Europe through the deployment of Palantir’s foundry tool in our European seating plants that’s going to – that will sort of benefit us as we move throughout the year. As we look at the second half compared to the first half, we do expect revenues to be flat to slightly up from the first half to the second half, really driven by the backlog being favorable and more back-end loaded, and offset by lower production volumes assumed in the second half of the year.
So you have the normal seasonality in Europe. And to a lesser extent, in North America, with downtime around the middle of the year and into August in Europe. And then just fewer production days, say, in the fourth quarter than the second quarter that lead to that lower production volume overall. And then perhaps maybe a little bit of a hedge just on demand-related volume assumptions in the tail-end of the year where there could be a little bit of upside if demand holds up. I think if you look at IHS’s volume cadence kind of quarter-to-quarter, our revenues will sort of mirror that, at least the volume assumptions on our platforms, will sort of mirror that throughout the year.
Colin Langan: Just to follow up. You said flat to slightly up quarter-over-quarter, but revenue up. Does that mean percent margins are flat to down?
Jason Cardew: Again, Colin, we weren’t looking to provide pinpoint guidance, but we would expect operating margins to be higher in the second quarter than the first quarter. I think it’s also important to point out that we have a number of commercial negotiations that are ongoing. And so I would say that there’s a wider range than usual in both of our business segments in terms of how this will play out quarter-to-quarter, maybe a little choppier than it ordinarily would. We’re very focused on sustainable agreements, piece price adjustments with our customer to reflect things like wage inflation rather than lump sum. And we’re not going to sacrifice on a deal to hit a number in a quarter. We’re focused on doing the right thing for the business for the long-term. And so that could lead to a little bit of choppiness in the quarter. And as we always do, later in the quarter, we’ll provide an update at a public investor event on how we see the quarter playing out.
Colin Langan: Got it. And just lastly, any color on the recovery. Some of the automakers are making pretty aggressive comments around like no more claims. Is there any change in terms of your expectations for recoveries at this point?
Ray Scott: Yes. No, we haven’t – I mean, yes, okay, there’s different customers handle the negotiations differently. We’ve always kind of clearly communicated that. But from our perspective, there hasn’t been significant changes. When you boil it down, we said this before, we have a lot of data, in fact, from being very cost competitive. I think when you have situations and you’re going in asking for a recovery and you’re not cost competitive, you’re not mining your own house, you don’t have your own costs under control, and asking for additional other costs, it makes it very challenging for resolution or clarity on how you resolve it. Our position is always be the most cost competitive, have the data, have the facts, present your case.
And we’ve been very successful. To Jason’s point, there’s a time element on how we negotiate across the board. And like I said, I don’t see significant changes in how we’re negotiating with our customers. We’re resolving them. But we will not take a bad deal where we might feel pressured into resolving it for only quarterly results. We’re doing it with the intent to protect the business, to make sure that we’re driving sustainability and is the best result for Lear Corporation based on the facts. And so each customer handles it differently. Some are more open externally and focused on kind of how they’re setting it up. But we haven’t seen significant changes. And I think we’re in a good position. I think each one of our negotiations are moving in the right direction.
I’m very optimistic about it. But it’s more, like Jason said the timing of how we want to resolve these. We will not jump at a particular time event to try to resolve something quickly to set up a quarter or result in the quarter. So we’re focused on long term.
Colin Langan: Got it. Thanks for taking my questions.
Ray Scott: You’re welcome.
Operator: Our next question comes from James Picariello from BNP Paribas. Please go ahead with your question.
James Picariello: Hey, good morning everybody.
Ray Scott: Good morning.
Jason Cardew: Good morning.
James Picariello: Just on the new business backlog contribution across the two segments. Is the $700 million proceeding and $500 million for E-Systems still the right number? And I mean, I know you touched on this, but can you just speak to the visibility in the stronger run-up of new launches embedded for the remainder of the year given the slower start, which, to be fair, has been experienced across the broader supply chain in the first quarter?
Jason Cardew: Yes. I’d say overall, we’re not updating the full year backlog, but there have been some changes. I’ll just give you one example, of course, with Fisker having no releases that we can see and no plans to restart production. There was a modest impact on the backlog. We were pretty conservative in our volume assumption around that. So I think it’s just about $35 million of revenue that won’t materialize. So that’s a bit negative on the backlog. We’re seeing a nice ramp up on other programs that are important to the backlog. On E-Systems, we have the Blazer EV, the Honda Prologue and the Acura ZDX. Those began ramping up the very tail-end of last year, and it steadily increased in volumes throughout the first quarter, and now into the second quarter, they’ve taken another step up.
That’s an important driver of E-Systems backlog. Also GM’s ramp-up of the battery electric trucks driving the BDU revenue. So we have pretty good visibility, at least through the second quarter how many of those are going to be produced. On the Seating side, the BMW 5 series and i5 is kind of launching as anticipated. The other programs in the Seating backlog are performing consistent with what we expected. The only other maybe modest change that we’ve seen, which has an impact on both business segments, is the timing and volume associated with the Volvo EX90 launch. I think they’ve talked about that publicly. There’s some software challenges or other issues that they’re working through that may impact the volumes on that platform. But as we look at the backlog, combined with our production assumptions on existing platforms, we felt very comfortable maintaining the midpoint of our full year guidance overall.
James Picariello: Got it. That’s super helpful. And then just an update on two pieces in the guide. I think you had embedded a transactional FX headwind to $70 million. Just curious what your assessment is there with the first quarter behind us. And then looking at Lear’s commodities and net performance bucket combined, which totaled almost $30 million positive in the quarter, can you just strip out commodities within that and what’s assumed for the full year on commodities? Thanks.
Jason Cardew: Yes. So in terms of transactional FX, there’s been really no change in our full year guidance or full year assumption. What we’re seeing unfold here in the first quarter into the second quarter is consistent with what we guided to. And so our hedge program is working as anticipated, and the impact is still in that $75 million range for the full year. In terms of commodities, we expect a modest positive impact for the full year, which is more in Seating than in E-Systems. And so the net performance that we’re guiding to for the full year is really driven in E-Systems more by what’s happening on the operations side. And we talked a lot about restructuring and how that’s impacting Seating, but also in E-Systems we’re seeing the benefit of our restructuring savings.
We’re also seeing some improvements in our North America wire business. We have a lot of launch activities. So as the year progresses, we expect to see meaningful improvements operating costs and that sort of subsegment of E-Systems as well, and that’s kind of a key driver or enabler of the net performance we see in E-Systems. But we really see strong performance kind of across the board in E-Systems. And I think that was on full display during the first quarter, and we expect more of the same as the year progresses.
James Picariello: Sure. Thanks.
Jason Cardew: You’re welcome.
Operator: Our next question comes from Chris McNally from Evercore. Please go ahead with your question.
Chris McNally: Thanks so much team. I wanted to zoom out and maybe just do a little bit of more of a high-level question, particularly around E-Systems and electrical architecture. We’ve definitely been receiving lots of investor questions around sort of new zonal architectures, if you look at BW, working with XPeng in China, and just a feel that China may be moving to sort of zonal architectures quicker than expected. I know you can’t talk about specific customers, specific programs, but I would love to just have you opine on the content opportunity for Lear, particularly in China, in some of these new electrical architecture systems. Are they being done more in-house? Is there opportunity for sort of next-gen technology from Lear.
It’s up because it seems like every couple of years, we always have this discussion around well wiring and traditional legacy Tier 1s get priced out of new architectures, and it doesn’t seem to play out. So I just wanted to give you guys the floor to talk about what we see in China over the next couple of years.
Ray Scott: Yes, I’m going to – Carl Esposito is here. I’m going to let him kind of field that question.
Carl Esposito: Yes. We’re actually working on three zonal architecture programs already with a number of customers from a technology architecture perspective outside of China. And so I think that we’ll see some of those architectures migrate into China and some domestic development. And our teams on the ground there are communicating with customers to see where there are business opportunities for us. But we’re fully participating in that shift to zonal architectures. And we were talking about each customer kind of move at a different pace. And those zonal architectures are going to migrate at different levels of integration. So we’re participating in that part of the market.
Ray Scott: I think if there’s any trends picking up from some of the trends that we saw in Seating, particularly with the Chinese, the domestic OEMs, is that initially there may be some in-sourcing or design engineering work that’s done in-house. But the trend is that it has moved out. I mean particularly with Seating, what we saw was our innovation technology really resonated well with the domestics on the ground. And we are one of the fastest-growing seat of high premium seating within China. And I think we’re seeing that very similar in E-Systems, that initially there’s – the technology moves that may occur outside of China, but then will quickly be replicated or moved to China. And I think we’re going to see a very similar trend. And we’re already picking up additional quotes within China on some of that technology innovation.
Jason Cardew: The Chinese domestic kind of core of the E-Systems business is really with Geely and their family of brands, Volvo, Polestar, Lynk & Co, et cetera, FAW and Great Wall, and SAIC maybe to a lesser extent. And so we haven’t seen that change in that customer group. So that’s really where we have the most exposure. We don’t have business with Xiaopeng. So we’re not – we’re not involved in that architecture change specifically.
Chris McNally: And if I could just do a follow-up, because it’s a great point that we hear often, whether it be seats, airbags, ADAS, is that there’s often this two stage kind of application of Chinese growth where there is a lot done in-house, but when they sort of either scale or go to export markets, that they’re using more western suppliers. And is that an issue of quality or some just that they basically learned that, to scale there’s some components that they really should not be working on internal and they can give it to the Western suppliers who are doing this globally? Because your comments on Europe being ported over to China is one that we hear across multiple kind of advanced components.
Ray Scott: Yes, I think it’s a combination. It depends on the customer. There’s particular customers we’re quoting right now in Europe that are moving to Eastern Europe that, our experience on the ground, we have tremendous knowledge with labor, manufacturing, the infrastructure we have in place. And then you have the technology side. When I talk about the Seating, we’ve done an excellent job of growing with the domestics and seeing opportunities continue to expand around technology and innovation. And when I talk about modular seating or I talk about the technology that we’re able to bring within the components, we are one of the large way, if not the largest, premium seat supplier to the domestics in China. So we’re in a very good position there.
So I think it depends on the application. It depends on the location of where they’re moving. But for a lot of reasons. Just our capabilities and knowledge on the ground in the region are looking to expand, but also our product and innovation within our manufacturing plants are very helpful for them.
Jason Cardew: And just to kind of add to Ray’s point there, and I think the evidence that it’s partially a technology motivation by the customers. If you look at the business we’re winning, with BYD, for example, it’s on the higher end where we’ve just won some additional business with – on their Denza brand, which is a higher-end brand. We’re launching the – with MiAuto [ph] to Xiaomi’s auto arm, the SU7, which is a fantastic product, but they came to us because of our technology and innovation capabilities. NEO [ph] and the ESA as well. So we’re seeing not just with the Chinese domestics move outside of China, but even within China on their higher-end products, they’re gravitating to us specifically. I’m not sure if it’s the western suppliers generally, but to Lear specifically, because of our unique capabilities in Seating.
Ray Scott: And I think just to add to that, the speed to market, I mean, how fast they’re moving and having that innovation readily available both on the automation side within the manufacturing plants, but on the product side. So having that knowledge and capability that’s readily available is very important to them.
Chris McNally: Great. Thanks so much.
Ray Scott: Thank you.
Operator: And our final question today comes from Dan Levy from Barclays. Please go ahead with your question.
Trevor Young: Hi, Trevor Young on for Dan today. Appreciate for taking the call – taking the questions. First, I wanted to ask about seating, particularly around the mix impacts on 1Q. It looks like you called out negative platform mix across pretty much every region, and the $144 million in volume and mix headwind you included in the 1Q bridge, it looks pretty substantial versus the 2024 bridge you set out for the full year in January. So I assume you’re expecting mix headwinds to soften throughout the year. Is there anything driving these mix – offsetting these mix headwinds beyond just easier comps?
Jason Cardew: Yes. North America is where we saw this was most pronounced. And it’s a combination of mix and the backlog. So backlog is a combination of programs rolling off that either built out or we lost and new business rolling on. So for example, in the first quarter, we saw the effects of the Stellantis programs from Brampton, the 300, the Charger, the Challenger roll off. We also had an unexpected reduction in the Audi Q5 volumes. They had a strike in their assembly plant that went on for four, five weeks. Those two taken together were about $100 million impact on revenue. And so we had negative growth over market in North America, and would have been positive absent those two items. As we look at the balance of the year, we do expect growth over market to improve pretty significantly.
