Lear Corporation (NYSE:LEA) Q4 2023 Earnings Call Transcript

Lear Corporation (NYSE:LEA) Q4 2023 Earnings Call Transcript February 6, 2024

Lear Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to the Lear Corporation Fourth Quarter and Full Year 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please also note, today’s event is being recorded. At this time, I’d like to turn the floor over to Ed Lowenfeld, Vice President, Investor Relations. Sir, please go ahead.

Ed Lowenfeld: Thanks, Jamie. Good morning, everyone, and thank you for joining us for Lear’s fourth quarter and full year 2023 earnings call. Presenting today are Ray Scott, Lear President and CEO; Jason Cardew, Senior Vice President and CFO. Other members of Lear’s senior management team have also joined us on the call. Following prepared remarks, we will open the call for Q&A. You can find a copy of the presentation that accompanies these remarks at ir.lear.com. Before we begin, I’d like to take this opportunity to remind you that as we conduct this call, we will be making forward-looking statements to assist you in understanding Lear’s expectations for the future. As detailed in our safe harbor statement on Slide 2, our actual results could differ materially from these forward-looking statements due to many factors discussed in our latest 10-Q and other periodic reports.

I also want to remind you that during today’s presentation, we will refer to non-GAAP financial metrics. You are directed to the slides in the appendix of our presentation for the reconciliation of non-GAAP items to the most directly comparable GAAP measures. The agenda for today’s call is on Slide 3. First, Ray will review highlights from the year and provide a business update. Jason will then review our fourth quarter financial results and our full year 2024 outlook. Finally, Ray will offer some concluding remarks. Following the formal presentation, we would be happy to take your questions. Now I’d like to invite Ray to begin.

Ray Scott: Thanks, Ed. Please turn to Slide 5, which highlights key financial metrics for the fourth quarter and full year 2023. The generated record revenue in 2023 of $23.5 billion, an increase of 12% from 2022. Core operating earnings grew by 29% to $1.1 billion. Adjusted earnings per share was $12.02, an increase of 38%. Operating cash flow improved by 22% to over $1.2 billion, and we exceeded our free cash flow conversion target of 80%. Slide 6 illustrates key business and financial highlights from 2023. The acquisition of IGB increased our thermal comfort capabilities and allowed us to accelerate development of our modular seating solutions. Customer interest continues to grow. We have 15 projects in process with 11 customers to replace individual components with modular solutions.

12 of our customers have agreed to allow Lear to source the thermal comfort components for 18 different complete seat programs. This control allows us to grow the sales of our thermal comfort products and continues to differentiate our complete seat systems from competitors supporting further market share gains. We successfully launched production of the complete seats for the Wagoneer and the Grand Wagoneer, an unprecedented conquest award that we took over mid program. In E-Systems, we won over $1 billion of new business awards for the third consecutive year and are making progress on diversifying our customer base. We won significant awards with General Motors and Stellantis. We won our first wiring program with BMW, and we received additional awards from a large global EV OEM as well as Renault and Geely.

Total company sales were a record, while our core operating earnings improved year-over-year for the fourth consecutive quarter driven by continued improvement in E-Systems’ margins. Our strong performance in cash conversion allowed us to accelerate the pace of share repurchases through the second half of the year, we repurchased over $175 million worth of stock in the fourth quarter for a total of $313 million in 2023. Industry publications continue to recognize Lear for our excellence in quality and culture. Including our most recent award last week when Fortune Magazine named Lear is one of the most admired companies for the eighth consecutive year. Slide 7 highlights some of our upcoming key launches in Seating. We have launches in all of our key regions with a wide range of customers.

In – the 2024 launches include a combination of next-generation vehicles replacing outgoing models where we are the current supplier as well as several brand-new vehicles. In addition to assembling the complete seat, we provide a variety of vertically integrated components such as foam, trim and thermal comfort products. The Hyundai Santa Fe is the first vehicle with a production application for our FlexAir, fully recyclable foam alternative. FlexAir will be utilized in the Santa Fe’s third row cap rest. We have a long-standing relationship with Hyundai and are their largest independent seat supplier with about 40% of their external business. We have several launches for BYD this year, including the Sea Lion as we continue to expand with a fast-growing Chinese automaker.

Turning to Slide 8. I will touch on key product launches in E-Systems. Several programs are launching with Lear’s high-voltage and low-voltage wearing and connection systems, as well as key electronic components across all of our key regions. We continue to grow with Volvo. We supply wiring and electronics on several nameplates across their CMA and their SPA 2 platforms. Electronics sets that the high power junction box are leveraged across both hybrid and fully electric vehicles, providing a balanced exposure across these growing powertrains. Later this year, our BDU will launch on the Ram 1500 REV, solidifying our position as a leader in high-performance BDUs. 2023 was our third straight year with over $1 billion of business awards in E-Systems.

Approximately 80% of those awards are programs that are new to Lear, which will further grow and diversify our business over the coming years. Turning to Slide 9. I will illustrate key Lear developed innovations we are bringing to market this year. Late last year, we began delivering production parts for the Intercell Connect Board to support GM’s launch of the Ultium platform. Volumes for the ICB will grow with the launch and ramp of additional Ultium-based vehicles. We are leveraging our engineering expertise, along with our molding and stamping capabilities to pursue opportunities to supply ICBs to additional customers. We anticipate these programs will be awarded later this year. Proceeding, we are launching two new sustainable products in 2024, FlexAir, and ReNewKnit.

The first commercial application of our FlexAir material will be for the cap rest in the all-new Hyundai Santa Fe. The 29 development projects we have with 13 OEMs for application of FlexAir throughout the vehicle seating system is evidence of the tremendous customer demand for this very innovative new product. FlexAir is 100% recyclable alternative to molded urethane cushion. It provides up to 20% reduction in weight and up to 50% reduction in carbon dioxide emissions. Its open air structure has better cooling and ventilation characteristics than urethane, further improving the performance of our thermal comfort modules. FlexAir is an attractive, sustainable alternative for the roughly $4.5 billion phone market, which we believe will support continued growth of our component business.

Lear’s exclusive license for automotive application, along with 190 patents we have filed creates a competitive moat around this very innovative technology. We’re also starting production for ReNewKnit, which is launching with three different OEMs this year. Our suede alternative is the first-to-market automotive textile that is fully recyclable at the end of its life. We are seeing tremendous interest from our customers for sustainable alternative fabrics. ReNewKnit is also a finalist for the Automotive News PACE Award, once again demonstrating our ability to develop and bring innovative products to market and add value for our customers. These innovative products, combined with Lear’s competitive positioning is a leader in seating will allow us to achieve our revenue growth targets while continuing to increase operating margins and financial returns.

Now please turn to Slide 10, which shows our 2024 to 2026 sales backlog of approximately $2.8 billion. As a reminder, our core sales backlog includes only awarded programs, net of any lost business and programs rolling off. It excludes pursuit business, net new business in our non-consolidated joint ventures and the roll-off of the discontinued product lines in E-Systems. Due to the slower pace of the industry transition to electrification, we now anticipate lower volumes on several of our key customers, new programs as compared to what we assumed last year. By continuing to win new business, we have maintained a three-year backlog that is a similar size to that of – to that last year despite the significant changes in volume assumptions.

The $2.8 billion backlog is roughly in line with last year’s backlog and is well balanced across the three years. 2025 is impacted by the assumed roll-off of several ICE vehicles that may or may not come to fruition, depending on the pace of the EV transition. At $800 million, the third year of our backlog is higher than a typical third year. We expect that to increase further as customers continue to source new programs launching in 2026. In addition to the consolidated backlog, the 2024 to 2026 sales backlog at our non-consolidated joint ventures continues to grow. Our three-year backlog at our non-consolidated joint ventures increased approximately 70% from last year to about $650 million. The growth is largely driven by the continued business wins with BYD, which represents more than 50% of our non-consolidated backlog.

We continue to win new business with a diverse set of customers. In the appendix of the presentation is a breakdown of our total sales by customer for 2023 and our expected distribution in 2027. It illustrates the continued diversification and growth we have with key customers such as BYD, a global EV OEM and Stellantis. Now I’d like to turn the call over to Jason for a financial review.

Jason Cardew: Thanks, Ray. Slide 12 shows vehicle production and key exchange rates for the fourth quarter. Global production increased 9% compared to the same period last year and was up 7% on a Lear sales weighted basis. Production volumes increased by 5% in North America, 7% in Europe and 18% in China. From a currency standpoint, U.S. dollar weakened against euro but strengthened against the RMB compared to 2022. Slide 13 highlights Lear’s growth compared to the market for the full year as well as for the fourth quarter and summarizes our growth relative to the market over the past four years. For the full year, total company growth over market was one percentage point with Seating flat and E-Systems growing four points above market.

This was largely in line with expectations as we anticipated the strong mix experience over the last several years to normalize as well as the negative impact of the UAW strike. Looking at our full year growth by region in 2023. Europe growth over market was six points with both business segments benefiting from higher volumes on the Land Rover, Range Rover and Range Rover Sport. New Conquest programs such as the BMW 5 series and Seating as well as new business with the global EV OEM, BMW, Renault and Mercedes and E-Systems contributed to the strong growth in the region. North America revenue growth underperformed the market by four percentage points, driven by unfavorable platform mix and the impact from the UAW strike. In China, revenue growth underperformed the market by three percentage points, driven by unfavorable platform mix.

The mix shift to domestic Chinese automakers accelerated in 2023. We continue to win new business with domestic automakers, such as BYD, Geely, Changan, Great Wall and others, which will further improve our customer mix in China going forward. For the fourth quarter, total company growth lagged the market by two percentage points. However, excluding the impact of the UAW strike, total company sales growth would have been in line with the overall market. Looking at our growth over market over the last several years, our average annual growth in each segment has been in line with our long-term targets with seating at four percentage points and E-Systems at six percentage points. Turning to Slide 14, I’ll highlight our financial results for the fourth quarter of 2023.

Sales increased 9% year-over-year to $5.8 billion, excluding the impact of foreign exchange, commodities and acquisitions, sales were up 5% reflecting the addition of new business in both segments. Core operating earnings were $288 million compared to $265 million last year. The increase in earnings resulted primarily from the addition of new business. Adjusted earnings per share improved to $3.03 as compared to $2.81 a year ago, primarily reflecting higher earnings and the benefit of our share repurchase program. Operating cash flow generated in the quarter was $570 million compared to $537 million in 2022. The increase in operating cash flow was due to higher earnings and an improvement in working capital, partially offset by higher cash taxes.

Slide 15 explains the variance in sales and adjusted operating margins in the Seating segment. Sales for the fourth quarter were $4.3 billion, an increase of $306 million or 8% from 2022, driven primarily by our strong backlog. Excluding the impact of commodities for exchange and acquisitions, sales were up 4%. The estimated impact of the UAW strike in the fourth quarter in Seating was $129 million or approximately 3%. Key backlog programs include the BMW 5 Series and i5 and the Dodge Hornet in Europe, the Wagoneer and Mercedes EQV SUV in North America, as well as the Geely Zeekr 009 in China. Core operating earnings improved to $294 million or up $19 million or 7% from 2022 with adjusted operating margins of 6.8%. Operating margins were flat compared to last year, as the benefit of our margin-accretive backlog was offset by the impact of acquisitions and foreign exchange.

Slide 16 explains the variance in sales and adjusted operating margins in the E-Systems segment. Sales for the fourth quarter were $1.5 billion, an increase of $164 million or 12% from 2022. Excluding the impact of foreign exchange and commodities, sales were up 11%, driven primarily by our strong backlog. The estimated impact of the UAW strike in the fourth quarter and E-Systems was $44 million or approximately 3%. Key backlog programs include the Chevrolet Seeker and Buick Envista SUVs in Asia, an electric vehicle with a global EV OEM in Europe and North America; Renault a Mitsubishi plug-in hybrid electric vehicles in Europe as well as the Chevrolet Blazer EV and Ford Super Duty truck in North America. Core operating earnings improved to $84 million or 5.6% of sales compared to $64 million and 4.8% of sales in 2022.

The improvement in margins reflected our margin-accretive backlog and strong net operating performance, including resolution of key commercial negotiations with customers, facilitating cost recovery and the benefit of restructuring savings. Moving to Slide 17. We highlight our history of deploying capital to drive shareholder value. Over the last few years, we made strategic investments to expand our vertical integration capabilities to support growth and accelerate operational excellence. We will continue to focus on organic and modest inorganic investments that drive improvements in automation and plan efficiencies. In the fourth quarter of 2023 S&P upgraded Lear to a BBB rating with a stable outlook. We also extended the maturity of our $2 billion credit agreement by one year to 2027.

These actions further solidify our already strong balance sheet. Our renewed focus on generating cash flow is driving immediate results. In 2023, we significantly exceeded our target of 80% free cash flow conversion, which enabled us to accelerate our share repurchases in the second half of the year. We remain committed to returning excess cash to our shareholders. During the year, we repurchased $313 million worth of stock, reducing our shares outstanding by 4%. Including dividends, we returned approximately $0.5 billion to shareholders in 2023. $175 million of shares were repurchased in the fourth quarter, more than the first three quarters combined. This share count reduction will help accelerate EPS growth in 2024. Our current share repurchase authorization has approximately $900 million remaining, which allows us to repurchase shares through the end of this year.

Please turn to Slide 18. Last year, we introduced the Lear Forward plan. The plan is focused on driving efficiencies in our plants and across our segments. We executed several programs through the course of the year that improve efficiency and increase the long-term flexibility at our manufacturing facilities. To optimize our low cost footprint, we continued to expand our North African operations. We recently opened a facility to expand our connection systems capabilities to support our European operations and started initial production of thermal comfort products at a second facility. Building on the progress we made in 2023, this year, we will continue to focus on increasing the level of automation in our plants to drive further efficiencies to help offset global wage inflation.

The acquisitions of Thagora and InTouch have resulted in increased efficiency, reduced waste and improved quality. We have a pipeline of organic and inorganic initiatives that our teams focused on executing in 2024. The Lear Forward plan generated cost savings of more than $50 million in 2023. We estimate the opportunities we are pursuing in 2024 can generate an incremental $50 million in annual savings, with larger savings anticipated in 2025 and beyond. These initiatives, combined with commercial recoveries are critical to helping offset the impact of global wage inflation. Actions taken through the Lear Forward plan also help maximize cash flow generation. By realigning our capacity, we can adjust to changes in production schedules and reduce capital intensity of our business.

This was evident in our 2023 results as our capital expenditures were 2.7% of sales, well below our average over the last five years of roughly 3% of sales. The projects we implemented in 2023 helped us achieve free cash flow conversion of 90%, well in excess of our 80% target. Slide 20 provides detail on our outlook for 2024. Now shifting to our 2024 outlook, Slide 19 provides global vehicle production times and currency assumptions that form the basis of our full year outlook. We base our production assumptions on several sources, including internal estimates, customer production schedules and S&P forecast. At the midpoint of our guidance range, we assume that global industry production will be 1% lower than in 2023 or flat on a Lear sales weighted basis.

Our global production assumptions are generally aligned with the latest S&P forecast. From a currency perspective, our 2024 outlook assumes an average euro exchange rate of $1.09 per euro and an average Chinese RMB exchange rate of RMB7.15 to the dollar. Now turning to Slide 20. Slide 20 provides detail on our outlook for 2024. Despite our expectations for flat industry volumes, we’re expecting our fourth consecutive year of higher sales, operating earnings and earnings per share. Our revenue is expected to be in the range of $24 billion to $24.6 billion. At the midpoint, this would be an increase of $833 million or 4% over 2023. This translates to growth over market of 4% for the total company, with E-Systems growing 5% and Seating growing 3% over market, respectively.

Core operating earnings are expected to be in the range of $1.155 billion to $1.305 billion. At the midpoint this would apply an increase of 10% over 2023. Adjusted net income is expected to be in the range of $730 million to $840 million. Restructuring costs are expected to be approximately $125 million. Our outlook for operating cash flow for the year is expected to be in the range of $1.275 billion to $1.425 billion. And our free cash flow guidance at the midpoint is expected to increase to $675 million. At the midpoint of our outlook, free cash flow conversion would be approximately 86%, a second consecutive year in excess of our 80% target. Lear’s strong focus on generating cash allows us to maintain a strong balance sheet, while making organic and inorganic investments to strengthen our business as well as to fund share repurchases to significantly reduce outstanding shares and drive growth in earnings per share.

Slide 21 walks our 2023 actual results to the midpoint of our 2024 outlook. Year-over-year revenue is expected to grow by more than $800 million and adjusted margins are expected to improve by 30 basis points, due primarily to our margin accretive backlog and strong net operating performance. Positive net operating performance reflects the benefit from our Lear Forward plan and other performance improvements, partially offset by elevated wage inflation and the negative impact of transactional foreign exchange. Wage inflation is expected to be approximately $90 million greater than what we experienced in 2023 and transactional FX is expected to be a headwind of approximately $70 million, primarily as a result of the strengthening of the Mexican peso.

The E-Systems segment is expected to continue its recent performance improvement trend with operating margins expected to increase by approximately 100 basis points in 2024. Seating operating margins are expected to increase modestly, reflecting the continuing benefit of our margin accretive backlog as well as the execution of our thermal comfort strategy, partially offset by the impact of lower volumes on existing platforms. We’ve included detailed walks to the midpoint of our guidance proceeding, any systems in the appendix. Now I’ll turn it back to Ray for some closing thoughts.

Ray Scott: Thanks, Jason. Please turn to Slide 23. 2023 was a key year of strategic execution. In Seating, we closed the IGB acquisition, providing additional capabilities to our thermal comfort portfolio, which further strengthens our industry-leading competitive position. We are in validation with 11 customers for our thermal comfort modular solutions. Bringing these solutions to market will accelerate the adoption of thermal comfort features more broadly to a higher volume vehicles and into second and third row seating. In E-Systems, our execution and focus on efficiencies drove margin improvement throughout the year. We continue to focus on our core products aligned with industry trends to further improve our margins. We expect both business segments to improve growth over market performance in 2024, and we are confident in our long-term growth over market targets in both Seating and E-Systems.

We implemented Lear Forward initiatives, which yielded savings in excess of our initial targets. Our focus this year is on accelerating automation to address wage inflation and improve efficiencies in our plants. In 2024, bringing innovative products to market and executing our strategy will allow us to continue to return capital to shareholders and position Lear for a long-term success. And now we’d be happy to take your questions.

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Q&A Session

Operator: [Operator Instructions] Our first question today comes from Rod Lache from Wolfe Research. Please go ahead with your question.

Rod Lache: Good morning, everybody.

Ray Scott: Good morning, Rod.

Rod Lache: Two questions on the guide. Just first of all, versus the second half of 2023 run rate and looking out to 2024, you’ve got about $1.1 billion of revenue growth at the midpoint, and your segments are expected to deliver about $120 million of additional EBIT. Is that roughly the conversion rate that we should be expecting now as more of the growth is coming from backlog, maybe 10% or 11%? And can you maybe just, Jason, in the past you’ve given us a pretty helpful bridge on how you get to the targets, the 7% total company, 8% segments. Can you just refresh us as we look out beyond 2024, how that sort of looks?

Jason Cardew: Yes, Rod. As the backlog is the primary near-term driver of growth and revenue, we would expect that to convert sort of 10% to 12%, I think we’re right in line with that with our guidance for this year. We do believe that there is room for volume increases on existing platforms and those will continue to convert at our typical variable margin in both segments 15% to 20% in Seating and 25% roughly in E-Systems. As we look at this year, we’re not anticipating volume increases on existing platforms. In fact, we have included volume reductions on a number of existing platforms in our guidance, largely aligned with the S&P forecast. So there’s definitely room for that to improve even this year and certainly beyond this year.

In terms of your question on 2025, Rod, I really want to stay focused on 2024 at this stage. The last time we talked about 2025 was the middle of last year. In Seating, we talked about 8% at our Seating Investor Day. And there’s two things – two or three things have changed since then. One, wage inflation and transactional FX. A little bit more of a headwind than what we had anticipated at that point. EV volumes and the transition to EVs are a little bit slower than what we had anticipated. But we’re also moving faster on automation and efficiencies in our plants and active negotiations with our customers. So it’s a little bit difficult to try and call 2025 with pinpoint accuracy at this stage. We’re super focused on delivering or exceeding our 2024 guidance in both businesses.

Rod Lache: Okay. Thanks for that. And just aside from production, maybe you can just give us a little bit of color as you look out to 2024. What are the biggest potential sources of upside or downside versus the midpoint of your plan?

Jason Cardew: Yes. As we look at our guidance for this year, I think one of the biggest challenges we have is in regards to wage inflation. So maybe just spend a minute on that. As we’ve talked about in the past, it’s sort of 3% or 4% annual wage inflation is sort of normal. We offset that through our efficiency programs in our plants, and it’s certainly running considerably beyond that at this stage, roughly 2x what we’ve experienced historically. And if you look at our businesses, just kind of taking a step back, the impact ranges from negligible on a business like electronics, which has almost no labor, it’s automated, JIT seating, it’s a relatively modest impact. But our more labor intensive businesses like cut and sew trim, which is 35% of the Seating headcount, wire assembly is 90% of E-Systems headcount.

Those are where we’re seeing the greatest impact. Those also tend to be businesses that have model pricing with our customers, with explicit assumptions around labor rates, which gives us a path to eventually recovering that either directly this year or as those programs turn over, certainly we would expect full recovery. And we really think that 2024 represents the peak in terms of the impact of wage inflation because globally inflation peaked last year and now you’re seeing the full effect of that in our labor costs. And so we would expect that to moderate next year. We did see higher labor inflation last year as well. Just kind of look at from 2022 to 2023, we had a step up of roughly $60 million. We managed to offset that largely through four initiatives.

In addition to our normal efficiency programs, we had an aggressive restructuring program, moving work from Eastern Europe to North Africa, from the border of Mexico further inland, through automation, the acquisitions of ASI, InTouch and Thagora, really aggressively deploying automation, the Lear Forward plan, which is improving capacity utilization in North Africa and Mexico, and then customer recoveries, passing that through to our customers. So I think there may be some upside to the assumption we’ve made around economics, either in terms of the absolute cost or the recovery. And in addition to that, what we’re doing in terms of our automation programs. And Ray could talk a little bit more about that. I mean, there’s no one more focused and passionate on this topic, I think, in the industry than Ray.

Ray Scott: Yes. Rod, I’ll share some stories with you too, next week publicly. But I couldn’t been in our facilities. And I think the technology, the innovations, the things that we put in place, when you talk about upside, I think that’s a potential accelerator. What I’m seeing with the pilot lines we put in place around the areas Jason mentioned, our labor focus priorities are around trim and wiring. And what I saw in our wiring facilities, we’re automating and doing a great job with some of the efficiencies that we’re getting in our plants. And to mention, I think what’s important, too, the capital that we’re looking at is significantly lower cost. So it’s not only improving from an efficiency within our plants, the capital that’s coming online is significantly lower than what we’re seeing from traditional capital.

So we’re getting two, I think, really good benefits. You saw that last year in our capital spend. And I think that’s going to continue to accelerate. I think the negotiations with our customers. We take a very balanced approach to the year starting off in January. We’re in heavy discussions with our customers on all kinds of different issues relative to the pause in EVs to what we’re seeing with labor economics. I think we’re balanced. I think some of those, we’re going to be very aggressive on those I think could help significantly quicker than maybe than the second half of this year. But we do take a balanced approach in the beginning. I think volume. I think we’ve looked at volume very conservatively. I think right now our customers are retrenching a little bit with this pause in EV.

We’re hearing a lot from our inside the customers of how they’re going to look at their powertrains, what that might impact as far as ICE vehicles. We’ve gotten some feedback that they’ll formalize it here in the near future. If ICE continues to accelerate in some of our platforms that we’ve been a little bit more bearish on, because that’s the information we have. That’s a nice little tailwind for us. So, I think we have some opportunities here, but we are pushing very aggressively, but we do have a very balanced approach, especially coming out in January, Rod. We’ve been absorbing a lot of these EV changes quickly and then really giving a little bit more bearish [ph] look to what the alternatives will be. And so that could be a nice boost for us.

Rod Lache: Great. Rod Lache

Jason Cardew: Yes.

Operator: Our next question comes from Dan Levy from Barclays. Please go ahead with your question.

Dan Levy: Hi, good morning. Thanks for taking the question.

Ray Scott: Good morning, Dan.

Dan Levy: Hi good morning. Wanted to go back to continue the line of questions on the guide. And maybe you could just comment a bit on two components in there. One is, I think you said $70 million of FX in there. Is that just purely transactional? Does that just reflect hedges unwinding? And maybe you could talk about; I think you mentioned it briefly on the commercial recoveries piece. But what are you assuming as far as pricing within each of the segments? Is this returning to the typical, call it, 1.5% price downs in Seating, 2-ish percent in E-Systems. So maybe just some commentary on the pricing environment as well.

Jason Cardew: Sure. Let me start with FX. And it may be helpful just to kind of take a step back and explain our transactional FX exposures overall in our strategy. So the Mexican peso is our most significant exposure by far. We have had a little more than $1 billion. I think $1.1 billion is the exposure last year, that grows to $1.2 billion or so in 2024. And we have a very effective hedging program, which really protected us last year and also helps us again this year. And that can go through all the details of the program for competitive reasons, but I will say generally, we layer on hedges on a multiyear basis. And at the beginning of last year and again the beginning of this year, we had hedges in place for roughly 85% of our exposure, including the peso.

And this – again, that served us very well last year in particular. Transactional FX on the Mexican peso negatively impacted operating margins and earnings last year by 10 basis points and $20 million, respectively. So it was fairly insignificant in terms of the operating margin impact. There was another $10 million of exposure on balance sheet-related FX expense that hit in the other line, which impacted EBIT by another $10 million. So the Mexican peso overall between operating earnings and other expense impacted EBIT by $30 million last year. And the balance sheet portion that was really loaded – back-end loaded in the fourth quarter where there’s a lot of volatility with the peso – and that really weighed on earnings per share, it’s about a $0.10 impact.