李爾 (LEA) 2026 年第三季法說會：EPS 成長 33%，維持核心獲利展望

重點提要

• 李爾公司 (Lear Corporation) 2026 年第三季銷售額年增 2% 至 58 億美元，儘管依李爾銷售加權計算的全球汽車產業產量下降 2%，表現高於市場成長率約 4 個百分點。
• 核心營益成長 6% 至 2.56 億美元，連續第四個季度實現年增。在獲利提升與庫藏股回購支撐下，經調整後每股盈餘 (EPS) 成長 33% 至 3.71 美元。
• 座椅業務銷售額成長 2% 至 43 億美元，經調整後營益率擴大至 6.3%。電子系統業務 (E-Systems) 銷售額成長 1% 至 14 億美元，其營益率改善 60 個基點至 4.8%。
• 今年累計新獲淨商業訂單達到約 39 億美元，其中座椅業務約 31 億美元，電子系統業務約 8 億美元。管理層表示，三年核心在手訂單約為 22.5 億美元。
• 李爾將 2026 年全年營收展望的中位數下修約 2.25 億美元，主要歸因於中國市場李爾平台的產量放緩以及匯率影響，但維持核心營益展望不變。
• 該公司提前完成了 3.5 億美元的全年庫藏股回購目標，並將回購授權額度提高至 15 億美元，有效期限至 2029 年 12 月 31 日。

關鍵財務數據

業務與營運表現

座椅業務受惠於新商業項目，包括 BMW iX3、Mercedes GLC EQ、Audi Q7、Series M6 與 Jeep Cherokee，以及捷豹路虎 (Jaguar Land Rover) 平台出貨量提升。然而，這些增益被中國與北美市場李爾平台出貨量下降部分抵銷。

電子系統業務透過強勁的淨營運表現以及李爾平台出貨量增加，實現了更高的營益率。這些優勢被福特 (Ford) Escape、Ford Focus 和林肯 (Lincoln) Corsair 項目的退場，以及停產產品線的收尾所部分抵銷。

李爾報告今年累計獲頒約 39 億美元的淨商業訂單。座椅業務獲獎項目中有超過一半屬於新項目或競爭奪取項目，而電子系統業務獲獎項目中約有 70% 來自新項目或競爭奪取業務。電子系統業務獲獎項目中約 25% 來自中國本土車廠。

座椅業務獲得的訂單包括李爾與馬辛德拉 (Mahindra & Mahindra) 合作的最大整椅項目、比亞迪 (BYD) 在泰國和印尼的項目，以及包含 ComfortFlex、ComfortMax 與 FlexAir 的模組化產品訂單。該公司的模組化與創新座椅產品組合已達到 47 個項目。

今年前九個月，李爾已實現其 2026 年「IDEA by Lear」7,500 萬美元節省目標中的約 5,500 萬美元。今年累計至今，座椅業務提供了 30 個基點的淨效能提升，而電子系統業務則貢獻了 105 個基點。

位於密西根州奧里恩 (Orion) 的即時 (JIT) 座椅工廠預計於 2027 年投產，將支援凱迪拉克 (Cadillac) Escalade、雪佛蘭 (Chevrolet) Silverado 及 GMC Sierra 車型。管理層預期其整合式自動化與數位製造系統可將轉化成本需求降低 10% 至 15%。李爾計劃將奧里恩工廠作為未來座椅工廠的藍圖，包括福特 (Ford) Super Duty 項目。

管理層展望

李爾將 2026 全年營收展望的中位數下修約 2.25 億美元。管理層將展望調整分析中所指潛在產量減少的約 90% 歸因於中國市場，歐洲市場的影響則較小。

該公司維持全年核心營益展望不變。管理層預期轉型節減、淨營運效能提升以及商業談判進展，將可抵銷產量下降以及大宗商品與投入成本上升的影響。

李爾將轉型費用展望增加 2,500 萬美元，以資助額外的成本控制舉措，並相應調整了營業現金流與自由現金流展望。2026 年預期轉型節省金額從約 8,000 萬美元增加至 9,500 萬美元。

該展望假設當前關稅政策不變，且無重大全行業中斷事件。雖然商業談判以及中國市場進一步惡化可能會影響最終結果，但管理層對全年業績的最佳估計位於維持的營益範圍中位數。

關於 2027 年，管理層表示其初步營運假設維持不變。李爾繼續將座椅業務淨效能目標設定為至少 40 個基點，電子系統業務為 80 個基點，官方財測預計於 2 月公布。

管理層預期兩個事業部將在 2029 年前恢復高於市場的成長，座椅業務目標為高於市場成長 3% 至 4%，電子系統業務為 4% 至 6%。

風險與關注事項

• 中國國內汽車需求與客戶生產排程持續放緩，為第四季營收與未來成長時程帶來不確定性。
• 李爾在中國汽車出口業務中的比重依然偏低，因為出口主要集中在該公司參與度較低的低價車款領域。
• 銅及其他投入成本上漲可能給電子系統與座椅業務帶來壓力，不過客戶成本轉嫁協議已限制了淨大宗商品影響。
• 該公司在 2026 年記錄了超過 3 億美元的毛大宗商品影響，但管理層估計淨影響約為 1,000 萬美元。銅庫存重估收益預計不會在 2027 年再次出現。
• 新項目啟動時程、客戶商業談判以及舊項目退場速度，仍是影響利潤率與現金流的變數。

分析師問答集錦

中國市場成長：管理層表示，未合併報表的合資企業佔李爾中國 OEM 營收的很大一部分。若納入該營運活動，將可消除本季度該公司在中國市場高於市場成長率之負值差距的一半以上。中國車廠目前約佔李爾中國營收的 44%，管理層預計該比例在 2027 年將超過 50%，並可能在兩到三年內達到 55% 或以上。

在手訂單品質：李爾估計其三年核心在手訂單約為 22.5 億美元。管理層強調，新項目的篩選基準為回報率高於資本成本。少數重點項目（包括福特 Super Duty、Audi 以及奧里恩相關業務）佔未來三年預計啟動之在手訂單的 70% 以上。

大宗商品與關稅：管理層認定 2026 年約 2 億美元的關稅相關營收為非經常性收益，主要反映與前一年相關的退稅。展望未來，由於客戶抵扣額度，關稅風險曝露預計將保持溫和。

資本配置：李爾在第三季回購了 1.75 億美元的股票，使今年累計回購金額達到 3.5 億美元。管理層表示，預計 2026 年自由現金流的約 80% 將透過回購與股利回饋股東，預計 2027 年也將維持類似水準的資本回報。

擴大奧里恩技術規模：管理層表示，包括週期時間偏差系統在內的部分工具可以廣泛應用於現有工廠。資本密集度較高的自動化可能需要停產安裝，因此在新建的專用設施中更容易全面實施。

法說會完整逐字稿

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完整財報電話會議逐字稿

管理層陳述

Operator

Good morning, and welcome to the Lear Corporation Third Quarter 2026 Earnings Conference Call. [Operator Instructions]

Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Tim Brumbaugh, Vice President, Investor Relations. Please go ahead.

Tim Brumbaugh

Thanks, Jamie. Good morning, everyone, and thank you for joining us for Lear's Third Quarter 2026 Earnings Call.

Presenting today are Ray Scott, Lear President and CEO; Jason Cardew, Senior Vice President and CFO; and Jared Fedele, Vice President of Finance for Seating and E-Systems, who will succeed Jason as CFO starting in March. Other members of Lear's senior management team have also joined us on the call.

Following the 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 Ray begins, 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-K 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 quarter and provide a business update. Jason will then review our third quarter results, and Jared will provide an update on our full year guidance. 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.

Raymond Scott

Thanks, Tim. Before I begin, I want to touch on the upcoming important change to the leadership of our finance organization. After more than 34 years of dedicated service to Lear, Jason Cardew has elected to retire. I want to thank Jason for his leadership, his commitment and his many contributions to Lear. Jason and I have worked closely together for many years. Not only has he been a trusted partner, but he is also a dear friend. Jason, your next chapter is incredibly well deserved, and I wish you and your family all the best.

Jared Fedele will succeed Jason as the CFO effective March 1. Jared has been with Lear for 23 years and has a broad global financial and operational experience. He has been working closely with Jason and me for many years and is more than ready to assume the role. Jared, congratulations. I look forward to continuing to work closely with you, and I know you will continue to execute our strategy to deliver improved financial performance and value to our shareholders.

Okay. With that, please turn to Slide 5, which highlights our key financial metrics for the third quarter. They're continued delivering meaningful year-over-year improvements across all metrics in the third quarter. Sales increased 2% to $5.8 billion despite global industry production declining by 2% on a Lear weighted basis. Core operating earnings were $256 million, a 6% increase in the fourth straight quarter of year-over-year improvement. Adjusted earnings per share reached $3.71, a 33% increase from the third quarter of 2025, accelerated by our robust share repurchases this quarter.

We generated operating cash flow of $329 million and free cash flow of $158 million in the quarter.

Slide 6 summarizes our key business and financial highlights for the quarter. Our 4 strategic priorities continue to drive our focused execution, extending our global leadership in Seating, expanding E-Systems margins, growing our competitive advantage and operational excellence through IDEA by Lear and supporting sustainable value creation with disciplined capital allocation.

During the quarter, we continued our momentum of winning key awards in both segments generating approximately $3.9 billion of net business awards year-to-date, with approximately $3.1 billion in Seating and approximately $800 million in E-Systems. This represents an increase of $1 billion during the quarter, with E-Systems on track for another year of over $1 billion of business awards. These seating wins in the quarter include the complete seat PAUSE foam and heat for 2 programs with a North American automaker. One award is the replacement of a program we currently supply. And the second is a new award for a future program to support this customer's expansion of their product portfolio for the North American market.

Our IDEA by layer capabilities were instrumental in winning these awards. Lear is the #1 seat supplier in India. During the quarter, we were awarded the largest complete seat program in our long history with Mahindra & Mahindra. The award includes both replacement and incremental new business. Our new awards for ComfortFlex, ComfortMax and FlexAir applications this quarter, bring our modular and innovative seat product total to 47. Program with Mercedes is a conquest award replacing current lumbar and massage components with a ComfortFlex modular solution. Awards with Land Rover include a FlexAir application as well as a ComfortMax solution, integrating heat into the trim cover. 5 modular projects launched during the third quarter and 7 additional programs we'll be launching during the fourth quarter, accelerating the adoption of our modular solutions in the marketplace.

Our momentum with the Chinese automakers continued in both segments. In Seating, we are awarded an upcoming program with a Chinese luxury EV automaker projected to launch in 2028. This program is currently projected to be sold in China and exported to other markets. BYD also awarded us 2 key programs as they expand their production in Thailand and Indonesia. We currently supply those programs in China.

In E-Systems, we won a conquest award with JMC for joint venture, new wiring business with FAW, BW and 2 nonconsolidated wire awards with BAIC all in China. We continue to drive growth in our core E-Systems products by securing electronics and wire Conquest awards. The electronics awards is for power distribution box on a commercial and passenger van in Europe with a North American automaker.

An additional Conquest wire award is with Honda in China. As we continue to grow with Japanese customers, we also retained -- we also retained an important wire program with Jag Land Rover in Europe.

During the quarter, we released our annual sustainability report providing an update on our IDEA by Lear initiatives as well as progress towards achieving our environmental stewardship, social responsibility and govern schools. Our strategic focus continues to drive improved financial performance despite challenging industry conditions. Total company revenue increased 2% compared to the third quarter of 2025 reflecting growth over market of approximately 4 percentage points. Both segments outperformed the market despite headwinds from the roll-off of programs such as the Escape and Corair and the wind down of our noncore E-Systems products.

With Seating growing approximately 4 percentage points above market and E-Systems approximately 2 percentage points above market excluding the impact of the wind down business, E-Systems growth over market was 5 percentage points. Operating margins expanded 20 basis points year-over-year for the total company with E-Systems margins expanding 60 basis points, driven by another strong quarter of 120 basis points of net performance. Seating margins grew 20 basis points, driven by 40 basis points of net performance keeping us on track to deliver our full year target.

Our strong free cash flow generation allowed us to further accelerate our share repurchases. We repurchased $175 million of shares in the third quarter completing our full year repurchase target of $350 million. As a result of our strong earnings growth and accelerated share repurchases, our third quarter EPS increased 33% year-over-year.

With our current authorization set to expire in 3 months, we increased our share repurchase authorization to $1.5 billion and extended it through 2029 reinforcing our commitment to returning capital to shareholders.

Slide 7 provides a further breakdown of our progress on delivering long-term revenue growth and margin expansion providing confidence we will achieve our full year targets. Over half of our year-to-date seating awards have been for new or conquest programs providing a strong foundation of future growth.

In the quarter, we were awarded Conquest programs with Silanis in Europe and with Honda and Thailand as we continue to build our relationships with Japanese customers. In E-Systems, approximately 70% of our year-to-date business awards have been for new or Conquest programs, continuing the trend from the first half of the year. During the quarter, wire Conquest awards included programs in China with JMC, Ford and Honda. The rollout of our Thermal Comfort modular solutions continues to gain momentum with the modularity and FlexAir wins in the quarter. The pace of business awards with Chinese automakers continues to accelerate.

In Seating, our year-to-date awards are estimated to generate over $600 million of average annual revenue, up almost 90% from where we were tracking at the end of the second quarter. This reflects the growing momentum of our global wins with Chinese automakers, including BYD in Thailand and Indonesia, following our second quarter award with Leap Motor in South America.

In E-Systems, approximately 25% of our year-to-date awards are with Chinese domestic automakers, up significantly from 2025. We remain on track to deliver $75 million of IDEA savings this year, with approximately $55 million achieved year-to-date, accelerating through the end of the year and are on track to significantly exceed our targeted restructuring savings. Our net performance continues to drive increased adjusted operating margins in both segments. Despite rising commodity and other input costs, Seating has generated 30 basis points of net performance through the first 3 quarters and we expect a step-up in the fourth quarter to deliver our full year target of 40 basis points.

In E-Systems, we delivered a very strong 105 basis points of net performance through the first 3 quarters. We expect these systems to deliver positive net performance in the fourth quarter despite increasing copper and launch costs, a testament to our team's ability to execute.

I want to spend a moment on Slide 8, which provides an overview of our Orion, Michigan facility that will support 3 of GM's most important nameplates. The Cadillac Escalade, Chevrolet Silverado and the GMC Sierra. The Orion facility, which represents a critical milestone in the execution of IDEA by Lear technology road map, is the most tangible demonstration of how our strategy is redefining Jet seat assembly, reinforcing Lear's position as the clear leader in Seating in creating a path to future market share gains and sustainable profitable growth.

IDEA by Lear is our framework for reimagining how we operate, embedding innovation, digital tools, engineering and automation into every layer of the processes. We've been building towards this facility, which integrates the technology and talent we have compiled through our targeted acquisitions and significant internal development to deliver something that, quite frankly, doesn't exist in the seating world outside of Lear.

Production in the state-of-the-art just-in-time seating facility begins next year. This facility is designed from the ground up with a digital foundation and automation embedded throughout from day 1, not retrofitted. The financial impact is meaningful and immediate. We expect automation to reduce the conversion cost requirements by 10% to 15%.

The more important story is what this represents strategically. Orion is the blueprint we intend to scale across our global seating footprint to support our future key programs, such as the Ford Super Duty. Each of the key technologies we are developing reflects a deliberate capability we've built or acquired and together they tell the story of what IDEA by layer looks like in practice. The first is what we call integrated inter logistics. I want to be precise about the term because it goes well beyond traditional automated warehousing.

Intelligent inter logistics is the connected intelligence layer of the entire factory. It ties together inventory, material management, storage and real-time decision-making. From the moment a component arrives at our dock to the moment a finished seat leaves our facility. We really think we think about it across 3 dimensions. The first one is connected. This is about end-to-end visibility and control.

Nothing moves without us knowing about it. At Orion, that means our overhead, suspended material storage and delivery system is fully integrated into the production floor to track parts in real time. Our automated guided vehicles, or AGVs, keep the lines continuously fed with complete traceability. Our automated trailer loading sequencing closes the loop connecting finished goods all the way through to the customers' shipment with precision and without manual intervention from inbound components to outbound delivery, we see everything.

The second dimension is intelligent. Visibility alone is enough. The system has to think and react. Advanced analytics are continuously driving decisions around inventory positioning, replenishment and flow. Our 4D 4 directional storage system utilizes autonomous mobile robots or AMRs, that navigate dynamically within the racking structure itself to optimize in real time based on production demand. Our raw component automated storage and retrievable systems or ASRS, managed foam and trim storage, while our finished goods ASRS, are both continuously informed by analytics and anticipating needs before they become disruptions. Both of these ASRS systems were developed internally by our ASI Team, which is the company we acquired. We own the IP, we control the road map and we can scale it across our global footprint. That is a genuine competitive advantage that cannot be easily replicated. Not only is our material handling intelligent, but so is our balancing of human capital.

We are utilizing proprietary tools like cycle time deviation and dynamic line scheduling to make real-time adjustments to optimize the efficiency of our employees.

The last one is autonomous. This is where the financial impact becomes most tangible. We are moving towards automated execution, meaning our people are focused on solving problems not performing routine tasks. Robotic park loading is actively or production today beating our lines and installing components with a level of consistency and repeatability that manual processes simply cannot match.

Our AGV network operates without human direction. Our ASRS systems retrieve the position material without manual intervention. The factory increasingly runs itself allowing our teams to focus on more value-added adjustments. Our automated smart ovens, robotic finess and underline testing to improve our process consistency, cycle time and quality. They also improved the job satisfaction of our team. Interconnectedness is what is new at Orion.

We've been adding independent systems in our existing location, but the interconnectedness across multiple processes driven off demand will improve efficiency and inventory management due to real-time monitoring, analysis and adjustments. Built by Lear's team and leveraging historical knowledge, our systems don't just reduce cost. They create a factory that sees everything besides intelligence and executes autonomously.

What we've built at Orion will become the blueprint for scaling productivity across our complete seating footprint.

And with that, I'm going to turn the call over to Jason and Jared for the financial review.

Jason Cardew

Thanks, Ray. Slide 10 shows vehicle production and key exchange rates for the third quarter. Global production was down 2% compared to the same period last year. Production volumes declined by 5% in North America and 7% in China, volumes in Europe were up 1%. U.S. dollar strengthened against the euro but weakened against the RMB.

Turning to Slide 11. I will highlight our financial results for the third quarter of 2026. Our sales increased 2% year-over-year to $5.8 billion. Organic sales were also up 2%, primarily reflecting the addition of new business in Seating. Our operating earnings were $256 million compared to $241 million last year, driven primarily by strong net operating performance. Adjusted earnings per share were $3.71 as compared to $2.79 a year ago, reflecting higher earnings and the benefit of our share repurchase program.

Third quarter operating cash flow was $329 million compared to $444 million last year due to higher tooling and engineering investments and the timing of working capital. Year-to-date. Operating cash flow was higher compared to 2025, driven by improvements in inventory management through our IDEA by Lear initiatives as well as the timing of tariff payments and recoveries.

Slide 12 explains the variance in sales and adjusted operating margins for the third quarter in the Seating segment. Sales for the third quarter were $4.3 billion, an increase of $76 million or 2% from 2025. Organic sales were also up 2%, reflecting the addition of new business, including the BMW iX3, Mercedes GLC EQ and Audi Q7 in Europe, the Series M6 in China and the Jeep Cherokee in North America and higher volumes on JLR platforms, which were negatively impacted by the cybersecurity attack during the third quarter last year, partially offset by lower volumes on Lear platforms in China and North America. Adjusted earnings were $274 million, up $13 million or 5% compared to 2025, with adjusted operating margins of 6.3%. Higher operating margins were driven by strong net performance in our margin-accretive backlog partially offset by lower volumes on new platforms.

Slide 13 explains the variance in sales and adjusted operating margins for the third quarter in the E-Systems segment. Sales for the third quarter was $1.4 billion, an increase of $17 million or 1% from 2025. Organic sales were up less than 1% driven by higher volumes on Lear platforms, including several JLR programs in Europe, partially offset by the build-out of the Ford Escape, Focus and Lincoln Corsair reflected in our backlog as well as the wind down of discontinued product lines.

Adjusted earnings were $69 million or 4.8% of sales compared to $60 million and 4.2% of sales in 2025. Higher operating margins were driven by strong net performance and higher volumes on Lear platforms partially offset by the build-out of the programs in our backlog and the wind down of discontinued product lines.

Jared will now provide an update on our full year outlook.

Jared Fedele

Thanks, Jason. Slide 14 provides global vehicle production volume and currency assumptions that form the basis of our 2026 full year outlook. Our production assumptions are based on several sources, including internal estimates, customer production schedules and mobility global forecast. At the midpoint of our guidance range, we assume that global industry production will be down 1% on a Lear sales-weighted basis compared to 2025, a slight improvement from down less than 2% in our prior outlook primarily due to higher volumes in Europe, particularly offset by lower production assumptions for China.

We have adjusted our currency estimate, which now assumes an average euro exchange rate of $1.15 per euro and an average Chinese RMB exchange rate of RMB 6.80 to the dollar.

Slide 15 provides an update to our full year 2026 outlook. Our current outlook assumes no changes to current tariff policies or significant industry-wide disruptions. In recent weeks, we have seen reductions in production schedules across several customers, particularly in China. We have reduced our full year 2026 outlook for net sales to reflect these changes. However, our strong operational execution, savings from our additional restructuring actions and anticipated resolution of ongoing commercial negotiations are expected to offset the impact of lower volumes as well as rising costs from commodities and other inputs.

Therefore, we are maintaining our full year outlook for core operating earnings. We increased our outlook for restructuring costs by $25 million, reflecting additional actions we are taking to further optimize our cost structure and position Lear for stronger long-term profitability. We adjust our outlook for operating cash flow and free cash flow to support this investment. As we move through the remainder of the year, we will continue to monitor the China domestic market where consumer demand and production schedules continue to deteriorate.

Slide 16 compares our October 2026 outlook to the midpoint of our prior 2026 outlook. We reduced our revenue midpoint by approximately $225 million, driven by lower production volumes on Lear programs, particularly in China and the impact of foreign exchange, partially offset by increasing supplier pass-through due to the rising commodity costs and commercial recoveries. Core operating earnings outlook as savings from our restructuring actions and improved net performance is expected to offset the impact of lower production volumes on Lear platforms.

Moving to Slide 17. We highlighted our balanced capital allocation strategy. Our balance sheet and liquidity profile continues to be a significant competitive advantage for us. Our cost of debt is low, averaging less than 4% and our debt structure has a weighted average maturity of approximately 11 years. In addition, we have $2.9 billion of available liquidity. Our capital allocation priorities remain consistent. We are focused on generating strong cash flow, investing in the core business to drive profitable growth and returning excess cash to shareholders.

During the third quarter, our strong cash flow enabled us to take advantage of our undervalued share price and repurchased $175 million worth of stock. This brought year-to-date repurchases to $350 million, achieving our increased full year target ahead of schedule. Since initiating the share repurchase program in 2011, we have repurchased $6.3 billion worth of shares and returned over 85% of free cash flow to shareholders through repurchases and dividends.

In September, Lear's Board increased the share repurchase authorization to $1.5 billion and extended the authorization period through December 31, 2029, reinforcing our commitment to return cash to our shareholders.

Now I'll turn it back to Ray for some closing thoughts.

Raymond Scott

Thanks, Jared. Great. Thank you. Q3 was another strong quarter, continuing our track record of consistent execution and progress. Despite a global production environment that contracted 2% on a Lear weighted basis, our team delivered $5.8 billion in sales, expanded margins in both segments and grew core operating earnings for the fourth consecutive quarter. Our resilience is the result of a focused strategy and a team that knows how to execute. The breadth of our business wins in this quarter demonstrates our global reach and competitiveness.

From our largest complete seat award in India to BYD programs in Thailand and Indonesia and modular seating solutions with Mercedes and Jag Land Rover, we are winning in the markets with the customers that matter the most for our long-term growth. Our year-to-date net business awards now stand at approximately $3.9 billion, and the pipeline of new opportunities remains very robust.

In E-Systems, the transformation of our portfolio is evident with approximately 70% of our year-to-date awards coming from new or conquest programs and Q3 margins expanding 60 basis points year-over-year. We are demonstrating that our focused portfolio strategy is working. The wind down of our noncore products is nearly behind us. And what remains is a stronger business with a significant runway ahead. And perhaps the most exciting development this quarter is what we shared about our Orion facility. This is IDEA by Lear in action, not a pilot, not a concept, but a fully integrated purpose-built manufacturing environment that reduces the conversion cost requirements by approximately 10% to 15% and sets a new standard for what a seating facility can be.

The technologies we are deploying at Orion from intelligent intralogistics to autonomous material handling to AI-powered quality inspection are proprietary, scalable and represent a genuine competitive moat that will be difficult for others to replicate. And we continue to return meaningful capital to our shareholders. Completing our $350 million repurchase target ahead of schedule and expanding our authorization to $1.5 billion through 2029 reflects both the strength of our cash generation and our conviction in the long-term value of this company. As we head into the fourth quarter, we recognize the challenges ahead from commodity pressures to softness in the China market. These are dynamics we've successfully navigated throughout the year, and our team has the tools, talent and track record to continue to execute. We are maintaining our full year outlook for operating income and remain confident in our ability to finish the year strong.

And now we'll go ahead and open up the call to questions.

Operator

[Operator Instructions] And our first question today comes from Dan Levy from Barclays.

分析師問答

Dan Levy

Jason, congratulations. Jared, congratulations to you as well. I wanted to start with a question on the sales outlook and particularly with what's happening in China. There's been a number of quarters now where you've underperformed. And I think this is similar to some of your other peers out there. But maybe you can give us a sense of within China, what the path is to finally starting to see growth in line with the market? I know you're saying that you're targeting 50% domestic mix, but the issue is industry is at, call it, 75% plus I know you talked about some -- winning some programs here. But at what point do you finally start to have China be in line? And maybe you could just unpack the underperformance? Is it just this customer mix? Is it competition? What's going on in China? And how is this fixed?

Raymond Scott

Yes. Thanks, Dan. I think, first, I think it's important to point out that as we look out to next year and beyond, the strategy that we put in place over the last several years will really improve the profile of our business in China and with the Chinese OEMs globally. In terms of what happened in the third quarter, there's a couple of factors that weighed on that growth or growth under market in China. A significant portion of our revenue in China with the Chinese OEMs is in our nonconsolidated joint ventures. And so if you account for that, that business actually grew in the quarter, and that would eliminate more than half of the negative growth over market in the quarter. So there are parts of the business there that are performing in line or even better than the market.

And I think the other point that's weighed on our business in the near term is the level of exports out of the China market as the domestic demand has weakened this year. And we've talked about this in the past, we're under-indexed on exports. And that's primarily because the exports to date have really focused on primarily the lower end of the market where we're underrepresented. We have a very strong business, particularly in luxury in China and the higher end of the market. And I think over time, as the export mix shifts to higher ends of the market, we will better reflect the market overall in terms of the ratio of exports in our business.

And I think that there's a lot of evidence that we've shared this year that, again, that our strategy for growing with the Chinese automakers and in China and globally is working. We had $900 million of our $3.9 billion of new business awards this year 23% of the new business awards this year with the Chinese automakers. Only 8.5% of our revenue today, consolidated and nonconsolidated with the Chinese OEMs. So we are clearly seeing a growth inflection point with the Chinese automakers that will benefit the business longer term.

We've talked about this year and last year, our share of revenue within China that's with the Chinese OEMs, 44%. So yes, we're under-indexed there. That grows to 50% or a little bit above that next year. We see a path to 55% and beyond if you look out 2 or 3 years and include the benefit of the new awards that we've announced this year. And so all signs point to our business more closely reflecting the mix that is represented in the market in China.

And I think that there are some regulatory changes that are coming over the next several years that will encourage more localization for the Chinese. And we're seeing good performance in terms of our wins with the Chinese OEMs as they localize. We had Leap Motor in South America we announced last quarter, and then we had the 2 wins with BYD this quarter. But Jared, why don't you talk about some of those regulatory changes that we think will change the composition of exports going forward?

Jared Fedele

Yes. Sure, Jason. Yes, you're correct. There are a few factors and potential regulations that have come up that are -- we look at favorably from our standpoint. And first is the potential regulation. We've talked about it on the Industrial Accelerator Act. That's the IAA and something we've been monitoring closely. And this is that Made in Europe Act. And that's being discussed in the EU that would potentially put a threshold on local content rules.

Second, there's that hybrid export cap in Europe, where China and the EU are expected to agree to limit hybrid exports out of China up to 350,000 vehicles annually starting on December 1 of this year, which could help aid in the acceleration of the localization with the OEMs in Europe. So -- and then -- and finally, there's one more starting in April 1, 2027. China is going to lower the value-add tax export rebate for new energy vehicles to 9%, down from the 13%.

So in simple terms, China is lowering the rebate in which they give to the OEMs for exporting NEVs. And so all these regulations, it plays to our favor and mixed with our strategy in China, winning with the C OEMs and the relationships we've built over the last 30 years, it's going to be a positive as we continue to grow and gain market share within and now outside, as Jason mentioned, with Leap Motors and BYD already outside of China.

Dan Levy

So just the net of that, do you feel confident that given everything that we're seeing in China that eventually when your larger backlog comes online that you can eventually return to more meaningful growth? I know '27, you've sort of talked that down. But in the '28, '29 period, I think you've given some upside numbers there.

Jason Cardew

Yes. As we said on the last call, we see 2029, this business returning to significant growth above market with both segments getting back to the historical targeted range, 3% to 4% in Seating and 4% to 6% in E-Systems. And one of the updates we want to provide today is on the backlog. Just this continued progress we're making with new business awards is increasing the confidence level we have in the strength of that 3-year backlog. Jared, why don't you provide an update on that?

Jared Fedele

Sure. And you're correct. We do feel good about the trajectory of our backlog. And now obviously, we're not giving official backlog update on the call. The recent wins we've communicated, it really reinforces our confidence in the long-term growth outlook. And I'll shed some color on this. In Seating, the most notable awards include significant conquest awards. We've talked about Audi in Europe, North America with the Ford Super Duty, along with complete C awards. We just mentioned Elite Motors in South America and additional wins with the C OEMs and awards in India now with Mahindra.

Over half of those year-to-date awards have been for newer conquest programs in Seating, providing kind of that foundation for future growth. Then in E-Systems, we secured important new awards with Renault, Stellantis, BAIC, General Motors and multiple Chinese automakers. And more importantly, over 70% of our year-to-date E-Systems award come from the Conquest business, from newer conquest business. And based on what we know right now, knowing that the timing of launches can move and more importantly, new awards can be sourced from now until when we report, our 3-year core backlog is about $2.25 billion.

The key is with our backlog, we've been very, very selective on the profile and the quality of the business we're going after and winning. Every program has been scrutinized to make sure it's returning in excess of its cost of capital. And we're not chasing business to win business.

If you look at the Ford Super Duty JIT and wire business, the Audi JIT business, the T1 SUV wire, the JIT and Orion, just these handful of programs taken together, Dan, between Seating and E-Systems, it makes up more than 70% of our that's rolling out over the 3 years. So these are programs has a long history of success in the market. We have a high degree of confidence that those are going to launch on time at the volumes that we've embedded in our backlog. So the momentum is building and more importantly, the quality of the awards is there, and the pipeline remains robust as we sit here today. So the team is doing a really good job.

Jason Cardew

Let me weigh in on this, Dan, because this is important, and I know we're focused on China. But we've laid out a plan, and we've talked about it for some time now. And we've been looking at the domestic Chinese and what was going on with market share gains throughout the world. But we said, listen, we can still win with the traditional OEMs as they're shrinking and we've done that. I mean it's remarkable. I sit here and I have an enormous amount of confidence when I hear from the team, both Nick and Frank, the conquest wins we're getting. And to Jared's point, how we're being very selective after, I would say, high-quality wins, programs that we have a high confidence that they're going to run. They're not a one-and-done program that we've all experienced over the last several years, but the high confidence that the OEs, the customers are putting a tremendous amount of effort and energy and money, and that's where we're betting and then putting our dollars.

The second thing is I was just in China last week, it was incredibly remarkable different in respect to what's going on, on the ground in China. They're looking for companies that are and have PAUSE profitability, technology, innovation. They're taking the next step. They're concerned about some of the domestic Chinese around their profitability because they're not profitable. And so a strong company that has a global footprint like we have, man was just really attractive. Every meeting that we had every dinner that we had every event that we went to was another reassurance of our technology capabilities really mirror well as they increase into the upper ends of the luxury markets, and that's where we participate. That's where we play really nice.

And the third leg of this thing that we've been talking about for years now is a continuation of the Japanese customers. We've been somewhat limited, I love to see that door opening. What we're talking about here is you have the traditional OEMs that we're gaining and conquesting and gaining market share, which is beautiful. The Chinese that now they're starting to get a luxury and technology-focused type of components around E-Systems and seating you're seeing that accelerate. And then we have the Japanese growth that we mentioned on the call. So I'm very confident. I love where we're at. It's all been about tracking that performance. The team is doing a remarkable job in that performance. That's important to really show the sustainability we have despite whatever challenges we have, but equally as important, is how we look at that backlog. And that's one of our strong points right now. I'm very, very confident in our backlog.

I mean, I feel really good. And I've got Nick and Frank in here, too, and we've got more work to do. We've got a robust pipeline right now of quotes and we're going to push through it and continue to gain more market share across those 3 different elements I mentioned. So I think it was a good question. I don't want to overly focus on China because we're hitting on all different cylinders when we talk about those 3 different areas.

Operator

Our next question comes from Joe Spak from UBS.

Joseph Spak

Congrats to both Jason and Jared. Maybe one, just shorter term and one longer term. You didn't really tighten your operating income range for this year. And if we sort of look like up versus down, it's like 22% for the fourth quarter. So just given that we've seen some changes to schedules recently here in the fourth quarter. I was wondering if you could try to hone in and sort of where you think you're tracking at least for the year within that range. And then on those -- if we continue that into sort of like at least early '27 where you've also seen some maybe revisions to schedules, how you're thinking about '27 right now?

Jason Cardew

Yes. Starting with the outlook for the fourth quarter. It is a little bit wider range than we ordinarily would have and we just decided to leave it in tax sort of from the prior guidance at this stage. The factors that will determine where we fall within that range and what we're focused on is really continued flawless execution operationally as we've seen over the last really 2 years in both C&E systems, very strong operating performance.

We have a number of commercial negotiations, as you might imagine, that could swing the number one way or the other, and that's another reason for the range. And the deterioration in the demand in the China market is the other key factor. And really, that change in our production outlook on our platforms in the China market is what drove the revision of our revenue guidance, 90% of the $256 million shown on the slide is in China. And then there's a little bit in Europe. It is a dynamic market. It has been -- there has been very weak domestic demand in China throughout the year. It's accelerated a bit over the last several months, and we tried to protect for that with that wider range.

As we sit here today, our best estimate is right at the midpoint. But the factors I outlined will ultimately determine where we fall within that range. And then we have an investor conference in December, where we'll provide an update on how the quarter is tracking at that point.

In terms of '27, we provided a lot of color on the last earnings call. We were probably a little bit early relative to others, and I know others have provided updates in this reporting cycle. And the building blocks that we outlined in terms of what would drive revenue growth and what some of the challenges were on specific platforms. Nothing has changed, nothing in the outlook for this year really has an impact on our view on '27 on the revenue side. And on the earnings side, the 40 and 80 basis points and that performance that we articulated proceeding and new systems, respectively, are still tracking -- right on track.

We do expect to do a little bit better than that in both segments this year. We did a little better than that last year. So the momentum is clearly there operationally, and we're increasingly confident in being able to deliver that net performance next year as well. So between now and February, we'll work through the final assumptions around production volumes and the timing of launches and solidify guidance and provide that in February.

Joseph Spak

And then Ray, the Orion commentary is super interesting, and you mentioned it's a blueprint for global seating. So maybe just some commentary on how easy or how long you think you could sort of scale that across the enterprise? And is there -- are there any parts of the world where there might be something structural that would actually prevent you from accomplishing what you're doing in Orion?

Raymond Scott

I think -- I'm glad you're asking this question because it is, I think, one of the most significant part of our strategy that we've been developing over 10 years to have that footprint. And we're obviously learning along the journey, but how we can scale that. We have been through IDEA by layer, implementing in production environments, changes to our manufacturing plants. So we have been getting at some of it, but to have a full-scale ground-up facility like what we're doing in Orion is very unique. And I think as we set up the next plants like we talk about with the heavy duty with Ford Motor Company, we'll be exactly but probably at another level.

And so I focus what I'd say, scaling, particularly around the brand new plants on the new plants that we're putting up for our customers. There are elements that we continue to learn that we are going to continue to improve our net performance. I think the foundation of what we talk about with sustainable margin and how we're offsetting some of these external costs is through what we're doing. And so some of them are very easily replicatable cycle time deviation, for example. We were able to scale that across the majority of our manufacturing plants and get at a significant opportunity in savings within our plants globally.

So there's some that are very easy, and there's no -- I think you mentioned a roadblock or an ability for us to get at. Some of them are more, I think, around the ability to get at it because production is running and having the time -- the downtime to get in and make the capital adjustments. And so they're all somewhat different in how we look at it, but the majority of them we can get at. We already have plans to get at. That's all part of our -- how we're looking at capital, how we're looking at investments, the payback time frame those type of things.

But one thing that I mentioned, what's great about this is when we acquired these companies, for example, like ASI and the others, we're manufacturing becoming a manufacturing integrator leader. And we can control our own destiny when it comes to capital. So we manufacture our own capital, which is very unique. And we can design it just like we designed products with a cost savings intent. And so we're seeing significant reductions and how we look at our capital and invest in our capital and how we get a much better cost of our capital.

So I said a lot there, but I'm glad you brought the Orion facility and why I want to get that out there because we have been differentiating ourselves. It is very unique. No one has it in my narrative, it says hard to replicate. I think it's almost near impossible replicate unless you go buy the companies we bought, and that's been a 10-year -- what Jason, we've been at this for...

Jason Cardew

For 10 years.

Raymond Scott

For 10 years. So It's great to see what's going. I was just out at the Orion facility a couple of weeks ago. I can't wait to have you out there and others because you're going to see a game-changing event when it comes to how you think about just-in-time and how we think about modularity. You have to buy the companies, particularly as you vertically integrate, you have to own a lumbar company. You have to -- well, our acquisitions have been intentional. And now we're starting to see it 47 contracts when we talk about ComfortFlex, ComfortMax, FlexAir.

It's not where I want to be. I'm never happy. I want to sell more, Frank is sitting here. And some of it's been delayed programs, things that are going on with our customers, but man, the things start to take off. And I remember 2 years ago, 3 years ago, when investors analysts were saying, man, you're going to have to change the whole model. And that's exactly what we're doing. We're changing the model around how you think about sourcing a seat system and how you manufacture a seat system. So yes, I could talk about this for hours. And I'll leave it at that.

Operator

Our next question comes from James Picariello from BNP Paribas.

James Picariello

How can we start to think about the commodity bridge for next year, both from the top line recovery and net EBIT perspective? I know it's early, but just curious on your prelim thoughts there regarding seating at exposure and E-Systems in mixed copper. And then for this year's tariff reversal impacts to revenue, can you confirm the portion that was truly onetime and represents an aesthetic tailwind to revenue next year?

Jason Cardew

Yes. I guess if you want to start with the last part of that question, I think we provided the nonrecurring portion of the tariff revenue that's embedded in the guidance for this year and it's $200 million or so...

Raymond Scott

Correct. That's correct.

Jason Cardew

So that would be nonrecurring the refunds from last year. And our go-forward tariff costs are very modest because most of our tariffs are avoided through the customer offset credits. And so we don't see it as a significant issue going forward.

In terms of commodities, it's been a significant issue for us this year in terms of the gross impact. But we have a long history of indexing and back agreements that we put in place going back 6, 7, 8 years. And so the vast majority of that has been passed through. We have over $300 million in gross impact this year and the net impact is only about $10 million.

Looking out to next year, certainly, copper has run up continuously throughout the year, benefited a little bit in terms of the revaluation of our inventory as that has increased, and that will be nonrecurring. So that will be a little bit of a headwind for next year. But all of those components that we've -- that are embedded in commodities are part of the 40 and 80 basis points of net performance. So whatever we see in terms of leakage and commodities we're offsetting through our performance activity, and we remain confident in meeting or exceeding the 40 and 80 basis points in net performance again next year and Seating E systems, respectively.

James Picariello

That's really helpful. And then just as we think about restructuring savings that are clearly shown through this year, is there a sizing of what that restructuring savings number could be for next year? I know we already have the automation savings in place for '27?

Jason Cardew

Yes. I think we increased the level of savings we're going to achieve this year in restructuring, I think, from $80 million to $95 million in the guidance here. And the investments we're making here in the fourth quarter will continue to benefit next year, the paybacks continue into next year. If you just look at restructuring overall, there are projects that have no payback because the program has ended production and your restructuring capacity out with no future benefit.

And then there are projects where we're embarking on labor arbitrage or other cost reduction opportunities. And those typically have about a 1.5- to 2.5-year payback. And those are the projects that we're really focused on in the fourth quarter here and into next year to ensure that we have the most competitive footprint for the long term. And in the meantime, it remains a key contributor to that net performance narrative that we've seen this year and expect to continue to see next year.

Operator

And our final question today comes from Rajat Gupta from JPMorgan.

Unknown Analyst

I just wanted to touch on like the 2027 outlook or just preliminary outlook. I know you've given a lot of color on the revenue dynamics and some of the China pressures. Also like some of the performance benefits that expect to remain on track. I'm just curious if there are any offsets we should think about particularly from like some of the wind-down business that you're seeing. If you look at the E-Systems bridge this quarter, the decremental seemed pretty high on some of the backlog and the wind down. I'm just curious how we should think about those puts and takes in the 2027 margin bridge? And I have a quick follow-up.

Jason Cardew

Yes. Again, Raj, we've provided a lot of color on our view on '27 on the last earnings call, and we'll wait until February to provide the full guidance. But what we typically see on the wind down is that's converting in the 20% range. It depends on the particular program within that backlog typically is converting in the 10% range and volume and mix on Bull Seating E systems tend to be 15% to 25% in that rate of conversion depending on the level of vertical integration of the program, the underlying profitability of the program. So there -- that's -- but that is the typical range. And I think those ranges in terms of how we convert on the backlog growth into next year and the wind-down impact for next year as well as the production changes on our platform should basically hold within that range.

Unknown Analyst

Understood. And then -- and just like anything we should keep in mind when it comes to just available capital for return this year versus next. From a restructuring standpoint, I know CapEx is a little bit heavier this year with Orion and the automation goals. I'm curious like any meaningful changes we should expect as we head into '27.

Jason Cardew

Yes. Again, we'll save the pinpoint guidance for next year on that. But what I will say is that our priorities around capital allocation remain consistent. We're going to focus on investing in the business first through CapEx and tuck-in acquisitions, if they become available. We don't see anything of scale in terms of the on the M&A side. And we're going to continue returning our excess cash to shareholders through share repurchases and dividends. I think 80% of the free cash flow we generated this year will be returned to shareholders through share repurchases and dividends. I see that level of capital return to shareholders, continuing into next year. And we look forward to providing more color on the specific guidance on the fourth quarter earnings call.

Raymond Scott

Yes. Just again, well, it was -- you're still -- we'll still be see us. So get into this. I don't want to get emotional right now. But just to the team, I think private Lear members are still on the phone. Just want to say thank you, another outstanding quarter. Going on, a lot of dynamics in the marketplace, but we continue to stay focused on what we can control. Great job, Nick Frank to the teams and the operations, great wins. I appreciate all the hard work and a nice job with the narrative today tried to mess you off, but you do a great job anyway. Thanks to the team. Appreciate all the hard work.

Operator

And with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.