Autoliv (ALV)

Automotive safety systems provider Autoliv (NYSE:ALV) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 5.9% year on year to $2.71 billion. Its non-GAAP profit of $2.32 per share was 12.1% above analysts’ consensus estimates.

Company Overview

With products estimated to save over 30,000 lives annually in traffic accidents worldwide, Autoliv (NYSE:ALV) develops and manufactures passive safety systems for vehicles, including airbags, seatbelts, and steering wheels that protect occupants during crashes.

Much capital investment and technical know-how are needed to manufacture functional, safe, and aesthetically pleasing automobiles for the mass market. Barriers to entry are therefore high, and auto manufacturers with economies of scale can boast strong economic moats. However, this doesn’t insulate them from new entrants, as electric vehicles (EVs) have entered the market and are upending it. This has forced established manufacturers to not only contend with emerging EV-first competitors but also decide how much they want to invest in these disruptive technologies, which will likely cannibalize their legacy offerings.

Autoliv's major competitors include ZF AG, Joyson Safety Systems (a subsidiary of Ningbo Joyson Electronic Corp), as well as regional players such as Nihon Plast and Ashimori in Japan, Yanfeng and Jinheng in China, Samsong in South Korea, and Chris Cintos de Seguranca in South America.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Autoliv’s sales grew at a decent 8.3% compounded annual growth rate over the last five years. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Autoliv’s recent performance shows its demand has slowed as its annualized revenue growth of 2.7% over the last two years was below its five-year trend.

This quarter, Autoliv reported year-on-year revenue growth of 5.9%, and its $2.71 billion of revenue exceeded Wall Street’s estimates by 1%.

Looking ahead, sell-side analysts expect revenue to grow 4.5% over the next 12 months. Although this projection suggests its newer products and services will spur better top-line performance, it is still below average for the sector.

At StockStory, we prefer high gross margin businesses because they indicate the company has pricing power or differentiated products, giving it a chance to generate higher operating profits.

Autoliv has bad unit economics for an industrials business, signaling it operates in a competitive market. This is also because it’s an automobile manufacturer.

Automobile manufacturers have structurally lower profitability as they often break even on the initial sale of vehicles and instead make money on parts and servicing, which come many years later - this explains why new entrants such as Rivian, Lucid, and Nikola have negative gross margins. As you can see below, these dynamics culminated in an average 17.9% gross margin for Autoliv over the last five years.

In Q3, Autoliv produced a 19.3% gross profit margin, marking a 1.3 percentage point increase from 18% in the same quarter last year. Autoliv’s full-year margin has also been trending up over the past 12 months, increasing by 1.2 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Autoliv has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.4%, higher than the broader industrials sector.

Analyzing the trend in its profitability, Autoliv’s operating margin rose by 1.2 percentage points over the last five years, as its sales growth gave it operating leverage. Its expansion was impressive, especially when considering most Automobile Manufacturing peers saw their margins plummet.

This quarter, Autoliv generated an operating margin profit margin of 9.9%, up 1 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Autoliv’s EPS grew at an astounding 28.3% compounded annual growth rate over the last five years, higher than its 8.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into Autoliv’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Autoliv’s operating margin expanded by 1.2 percentage points over the last five years. On top of that, its share count shrank by 12.3%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Autoliv, its two-year annual EPS growth of 24.1% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, Autoliv reported adjusted EPS of $2.32, up from $1.84 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Autoliv’s full-year EPS of $9.73 to grow 5.6%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Autoliv has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.3%, subpar for an industrials business.

Autoliv’s free cash flow clocked in at $152 million in Q3, equivalent to a 5.6% margin. This result was good as its margin was 4.4 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Autoliv hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 16.8%, impressive for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Autoliv’s ROIC averaged 4.7 percentage point increases each year. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

Autoliv reported $225 million of cash and $2.03 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.52 billion of EBITDA over the last 12 months, we view Autoliv’s 1.2× net-debt-to-EBITDA ratio as safe. We also see its $50 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Autoliv blew past analysts’ adjusted operating income expectations this quarter. We were also glad its EBITDA outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock remained flat at $120.34 immediately after reporting.

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Autoliv.

Autoliv isn’t a bad business, but we’re not clamoring to buy it here and now. First off, its revenue growth was good over the last five years. And while Autoliv’s low gross margins indicate some combination of competitive pressures and high production costs, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders.

Autoliv’s P/E ratio based on the next 12 months is 11.7x. This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $138.00 on the company (compared to the current share price of $120.34).