Good morning. My name is Steve, and I will be your conference operator today. At this time I would like to welcome everyone to the Lear Corporation Second Quarter 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions] Vice President of Investor Relations, Ed Lowenfeld, you may begin your conference.

Thanks, Steve. Good morning. Thank you for joining us for our second quarter 2015 earnings call. Our earnings press release was filed this morning with the Securities and Exchange Commission, and materials for our earnings call are posted on our Web site lear.com through the investor relations link. Today's presenters are Matt Simoncini, President and CEO; and Jeff Vanneste, Chief Financial Officer. Also participating on the call are several other members of Lear's leadership team. Before we begin, I'd like to remind you that during the call, we will be making forward-looking statements that are subject to risks and uncertainties. Some of the factors that could impact our future results are described in the slide titled Investor Information at the beginning of the presentation materials and also in our SEC filings. In addition, we will be referring to certain non-GAAP financial measures. Additional information regarding these measures can be found in the slide labeled Non-GAAP Financial Information at the end of the presentation materials. Slide 3 shows the agenda for today's review. Following the formal presentation, we will be pleased to take your questions. Now please turn to Slide 5, and I'll hand it over to Jeff.

Thanks, Eddie. Lear continued its positive momentum in the second quarter with sales growing faster than the industry, and record core operating earnings. Sales in the second quarter were $4.6 billion, up 1% from a year ago. Excluding the impact of foreign exchange, sales grew by 10%, including organic growth [ph] of 6%. Core operating earnings increased 23%, to $337 million; the highest quarterly earnings in our history, and margins were higher in both business segments. Adjusted earnings per share increased by 33%, to $2.82 per share. During the quarter, we continued to return cash to shareholders, and I'll provide more detail later in the presentation on our share repurchases. In light of our improving financial results and our confidence in the outlook for our business, we are increasing our 2015 earnings outlook. Slide 6 shows vehicle production in our key markets for the second quarter. In the quarter, 21.7 million vehicles were produced globally. While global production was relatively consistent with a year ago, Lear's major markets all showed increases. Production increased by 2% in both China and North America, and by 1% in Europe. Excluding Russia, where production was down 33%, Europe production was up 5%. Production was mixed in the emerging markets, with India up 6%, and Brazil down 18%. The Euro averaged $1.11 in the quarter, down 19% from a year ago. Slide 7 shows our reported financial results for the second quarter. Reported sales in the quarter increased by 1% from a year ago to 4.6 billion. Sales were negatively impacted by 425 million in foreign exchange, primarily related to a weaker Euro and Brazilian Real. Pretax income before equity income, interest, and other expense was $286 million, up $53 million from a year ago. Interest expense was $21 million, up $6 million, reflecting debt…

Great job. Thanks, Jeff. Several years ago we implemented a balanced strategy of increased investments in emerging markets and component capabilities, complementary acquisitions, a consistent return of cash to shareholders all while maintaining a strong balance sheet with investment grade metrics. The significant investments we've made in expanding our component capabilities and restructuring our operations have provided Lear with a low cost component footprint in all regions of the world. We are the industry's low cost producer in both our product segments. We continue to improve our manufacturing footprint with our recent restructuring actions in North America, along with the opening of a new world-class seat structures facility in Mexico, and three new facilities in Easter Europe to support our growing seating electrical businesses. We also employ approximately 2,000 engineers in low cost countries. Since 2012, we acquired Eagle Ottawa Premium Leather, and Guildford Performance Textiles to provide our customers with the world's lowest cost and highest quality seat surfaces. With these acquisitions, we now have full component capabilities for both our businesses in all major automotive producing regions of the world. As the chart on Slide 17 shows, our strategy is to delivering improved financial performance. From 2010 through the end of 2015, our guidance reflects what will be a doubling of our core operating earnings, and an increase in core operating margins from 5.2% to approximately 6.8%. Over this timeframe, both sales and earnings have far outpaced overall industry growth. We remain fully committed to our seating and electrical businesses, both of which are performing at target margins. Our continued investment in both our product segments allows us to provide our customers with the best cost, quality, and craftsmanship, which drives increased market share and ultimately higher shareholder returns. In summary, we continued our positive momentum in the second quarter with record quarterly earnings. Organic sales growth in seating and electrical at 6% and 4% respectively was much better than the overall industry. And both business segments reported record earnings in the second quarter. Given our strong competitive position, we are confident our business will continue to perform well, and we are increasing our full year outlook. We remain well-positioned to take advantage of major industry trends, such as global platforms, direct-to-component sourcing, increasing electrical content, improve fuel efficiency, and growing consumer demands for comfort, convenience, and safety features. Our strong operating performance and financial flexibility provides the resources necessary to continue to invest in the business. We are confident that these investments will provide benefit to our customers, drive market share gains, and ultimately create additional value for our shareholders. Now, we'll be happy to take your questions.

Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Itay Michaeli with Citi. Your line is open.

Great. Thanks, good morning and congrats everyone.

Thanks, Itay

Well, just off on the margins, nice progress in the second quarter. First, Matt, love to get your thoughts on just midterm margins for both segments. And also I think in electrical, typically the second half, at least in the last couple of years has been materially higher margin than the first half of the year, any potential that could occur again, and maybe bump even north of that high 13% range?

Yes. At the midterm I think both of these businesses are performing very well at approximately the target margins for the segment. I think in any given quarter, Itay, you can have a movement of a couple of tenths either way. There's literally thousands of inputs that go into the business along with a very dynamic mix, if you will. Could it get a little bit better in the second half? It would. I'd just caution a little bit about the third quarter seasonality. In the third quarter, where we typically have summer shutdowns in Europe, and in certain cases even in North America, so we would expect normal seasonality. But overall I think on the average two businesses are where they are going to run at, plus or minus a few tenths.

That's very helpful. And then moving on to China, love to get just an update on the post Eagle Ottawa, what you are [ph] seeing there, and also just what your exposures are? And how maybe we should think about sensitivities if we were to see any additional material weakness in that market?

We could. China has been on a phenomenal growth rate, and it's obviously the biggest automotive producing region of the world or market in the world at the point. For us, we have roughly 2.3 billion in consolidated sales, about 1.8 billion in non-consolidated sales. And that averages out to about $100 of content consolidated, and maybe about 80 not consolidated. The downward conversion on that would be about 20% on the variable loss sales, Itay. We have seen some slowing in the releases, but it's still a growth overall to the first half. We're keeping an eye on it. We have also factored in all the communication that we have had, along with certain other sensitivities in our guidance, and we are pretty confident with the number that we put out today.

Great, terrific. Thanks for the detail. The last question, Matt, any, just thoughts on the booking activity in the first half of the year? What you are seeing there, particularly with some of what's happening with one of your competitors?

It's been great in both segments; it's been great for a lot of reasons. One is, we are at from a component capability standpoint, I think adding Eagle Ottawa was a great addition to the Lear component capabilities. It allows us to provide the best craftsmanship on the seat covers, which drives a lot of values. I think uncertainty in a marketplace and a competitive position is always great for somebody that's stable, and knows where they're going, and where they're going to be, and has a certainty in investment, if you will. So that's been great. But it's also been great on electrical, where we continue to make progress in that segment, and our narrow focus on electrical distribution, and basically bringing the neural network on the vehicles also provide us huge values. So we are really happy with the bookings to the first half.

That's good to hear. Thanks so much, and congrats again.

You're welcome.

Thank you. Your next question comes from the line of John Murphy with Bank of America. Your line is open.

Good morning guys.

Good morning, Murph.

Just a first question on the charge you took in the quarter, I just wondered if you could give us a little bit more color around the plant closure in North America,andwhat the motivation was there, and what you think that the payback period willbefor that charge.

Yes. It's a seat structure facility in Canada. A strong facility, but unfortunately it was no longer competitive with the labor rates with some of the world-class manufacturing capabilities that we have south of the border, John. So we made a decision unfortunately that we needed to move that production to a lower cost region. Typically on a action of this type, the payback is in two to three years.

Got you, okay, that's very helpful. And then just a second question just on the outlook. Basically, you took the China or the Asia volume down by the same amount that you increased North America and Europe, yet you increased your guidance. So is there a higher level of profitability that we are seeing in North America and Europe in content that's driving that increase? I'm just trying to understand the puts and takes between China and the rest of the world, because we're seeing North America and Europe increase and China maybe weaken a bit. I am just trying to understand how much offset there might ultimately be going forward.

Well, there's thousands of input, John; that come in, but on a macro level China is profitable for us. They're performing slightly above target margins in both segments. That being said, the content and the growth in North America and Europe allows us to convert the incremental volumes at a fair clip. But we also had -- we're running a little bit ahead on some cost reduction actions in some of the commercial actions that we've taken. So all in all, we've been able to offset a little bit of the downwind that we saw in China.

Okay. And then, also, as we think about what's going on with both seating and electronics, it appears you're gaining share. Just curious where that share is coming from. Is that coming from large incumbents or are you able to take over share from some smaller players, and help consolidate both electronics and seating?

Mainly, actually it's coming is from the larger competitors, John. I do think there's an opportunity for further consolidation on some of the strong regional providers. As the car companies go more and more to global platforms, I think it's important to have a global footprint. And I think that will provide longer-term opportunities.

Okay. And then as lastly, your acquisitions and opportunity, as you go down a line, and maybe consolidate some of these smaller regional players?

It could be. There's nothing imminent in that front. We are looking to expand some of our capabilities. Specifically in software, I think it would be great, and I think it's going to be key to helping us take advantage of the explosion of content as car companies look to be more connected, and provide more driver-assistant-type programs. I think we're in a sweet spot with our gateway modules, which really are the brains of an automobile, and the neural network of distributing both electricity and information through all the components. So we'll be looking to get better in that area. But it's not what I would consider major acquisitions at this point.

But the focus of acquisitions would be much more on technology and incremental content as opposed to actual capacity and new business?

Right, at this point you are correct.

Great, thank you very much.

Thank you. Your next question comes from the line of Rod Lache with Deutsche Bank. Your line is open.

Good morning everybody.

Hello, Rod.

I was hoping just a couple things; one is within seating, now that you are kind of converging on the 7% long-term margin target, I think originally the path to getting there was -- a lot of it had to do with getting North American structures to a specific target and also South America was underperforming. Can you just update us on how far those businesses are from what you think the right target is? What's the potential variance if those businesses still return?

Yes. The North American structures business is vastly improved, but still not at the operating margins that we'd expect that business to be at. We're continuing to work on it, both from our structuring actions, and working with our customer's on cost solutions, and pricing solutions that get to returns where they need to be. I think the action that we took on restructuring this quarter will help us close that gap. South America, Rod, is a lot further along. We're still losing money in Seating in South America. We don't expect that to change this year. Our volumes are down. The team there has done an outstanding job of maintaining the losses, if you will, by taking aggressive actions on structured costs, and what have you. But we don't expect that to return to the target margins in the near future. So we still think there's upside. We do expect it to continue to get better, but we don't expect it to be profitable this year. Jeff, I don't know if there's any other color we can add to that?

No, I think that covers it. I would emphasize that certainly the road to getting back to target margins in North American metals was somewhat achieved via this closure of the plant in Canada. State-of-the-art facility down, it's going to be really a great plant for us going forward, and will fill a huge void that we've had in North America from a cost structure standpoint.

I think together, Rod, those two actions, the improvements that we'd expect to get, both in North America and in South America would be worth a couple of tenths on the margins for seating. But again, I'd like to just reiterate that there are thousands of different inputs and variables that go into the performance of the business. And on these two particular ones, if we get them where we think can get them it's worth a couple of tenths.

Okay. And also on seating, although China is weakening, every automaker is talking about a pretty significant mix improvement that's happening there. Can you just remind us what you're seeing there in terms of mix? What's the backlog that you've got within China?

Well, while you send Jeff to the book for backlog in China, which I don't think we really have that level of cut on it before, what I would tell you is that we're on some pretty high-margin high-profile programs or high content programs, because a lot of our business -- roughly half of our business is with the foreign partners. Car lines like Audi, BMW, Ford is killing it, GM is doing quite well there also. And those are highly contented vehicles with us with a financial footprint that's not too dissimilar to North America. Our business over there includes things like A4 or the 5 series, the Focus, the Cougar, the Mondale; going down to GM, we have the Buick product, the Colorado, the Captiva, the Cadillac product on the STS. So it's a good mix of business for us. And the other half of this is we're about half -- half our content is on the domestic brands, which we're starting to see growth in. So it's a good nice balanced business segment there.

And on the amount of our backlog that's related to China. Our backlog after right now, as you know, Rod, is $2 billion, three-year backlog. About a third of that is in Asia, and most of that third is in China.

That's on a consolidated piece. We don't include that consolidated sales into our backlog.

Great. And then just lastly, could you just remind us what you were thinking in terms of the impact on EBIT from commodities like electric -- the copper and resin impact and also from FX?

Well, from a commodity's perspective, certainly to the question that was raised earlier on, given the volume scenario up and down in various regions and the uptick in the guidance, the commodity tailwind has been a part of that. Probably we're 10ish basis points just on the commodity side. On an FX–basis, obviously it's hurt the top line pretty significantly. But from the margin perspective, it has probably only been worth to the total company, maybe 10 basis points; more so in electrical than in seating, but in overall company about 10 bps [ph].

Okay, great. Thank you very much.

Welcome, Rod.

Thank you. Your next question comes from the line of Patrick Archambault, Goldman Sachs. Your line is open.

It's actually Dave Tamberrino on for Pat. We only have a couple of quick questions and don't mean to dwell on these topics. But in terms of seating margins, can you maybe just provide us a breakdown of what -- how much of the expansion was driven by the accretion of and mix -- excuse me -- from Eagle Ottawa, maybe some of the synergies within it, and then just from productivity gains?

I think what we sign in Eagle Ottawa is, Eagle, for the quarter, was -- were about 30 basis points to the overall margins in Seating. And going back to Rod's question on commodities, certainly the height market has helped us in that end. From a synergy perspective, I think we had suggested when we announced the acquisition that synergies in the first year would be 10 to 15 millionish. We're right on -- Within the first 12 months, we're right on track for that level of synergies.

Heading into 2016, should that ramp up from that $10 million to $15 million range, or is that only the expected synergies there?

Yes, I think what we looked at before was beyond the first 12-month period, we'd be in that $20ish million range. And again, that's still kind of the direction we're heading.

That's fair. And just lastly on China, obviously with one of your competitors looking now to spin off its asset into its own public company, I think we've heard some intensified quoting activity there. Maybe against that backdrop of the declining production environment, can you fill us in on what it has looked like? If it has been more competitive within the region or if it is kind of steady as she goes?

The business is competitive in every market of the world. I think when you're quoting a business that doesn't launch for another three years, and months for five years on top of that. Typically, car companies want to know, whether they're in China or Europe or North America, who is going to be doing their business, how they're going to be capitalized, what's the management team, and are they committed to the investment that it's going to require. When there's uncertainty in the marketplace that's a benefit for those that have clear direction. From that standpoint it's helping us.

Great, sounds pretty positive. Congrats on the quarter, and thank you.

Thank you.

Thank you. And your next question comes from Ravi Shanker with Morgan Stanley. Your line is open.

Thanks for that, good morning everyone. Matt, if I can just follow up on the last response, on the GSEI spin, you have said that and it is very logical that, as long as there is uncertainty about future direction of a competitor, that is good for you. Do you see the spin as kind of bringing that to an end? Or do you see the emergence of probably the first stand-alone seating player as being more disruptive in the marketplace in terms of price, and them bringing back -- trying to gain back some of the share they lost? So the question is, you've probably envisioned GSCI [ph] doing this with their business. How do you think this kind of changes the competitive dynamics in the marketplace?

I'm sorry to say what they're doing, and I have no inside information on what they're doing. It's hard to say. I would just be speculating, Ravi. I think as a stand-alone business that it's going to require, obviously, the type of profit returns that shareholders expect. And that's going to depend a lot on their equity structure, and their capital structure. So I really don't know what they're doing, and I feel a little bit hesitant to speculate what their behavior will be in the marketplace. So I really don't know.

Understood, that's fair enough. Just switching to EPMS, obviously these margins are pretty eye-popping, and I think you are now the class of the field here. But what can be done to accelerate the growth? I think you did see organic growth step up sequentially in the second quarter. But how do you get that growth up? You are certainly doing the margins that one would expect of a secular growth business. How do you get the top line up to being a secular growth type high single-digit, low double-digit growth as well?

Well, I think we need to continue what we're going; working on the footprint, putting production to capacity in the right locations. Whether it's Northern Africa or Easter Europe, Mexico or Asia, we need to have the best footprint. And we've been paying quite a bit of attention to that. I also think you need to continue to invest in your engineering capabilities, which we've also been doing as far as getting better in software and ability to write code, whether that's security software or just the basic software it takes to move signals around a vehicle. More and more it's becoming about moving data, as opposed to just electrical signals, if you will. I think that's been our focus. We've got, I believe, one of the most efficient ways to move data and signals through a vehicle. And if given the opportunity to get in there and show a car company what we can do, I'm confident that we can take cost out of their electrical architecture systems. That's been proven to be a winning formula, and we just want to keep pounding that rock. I think it'll pay huge dividends to us.

Understood, and just lastly, one clarification. Did you say earlier about your import versus domestic OEM split in China was 50/50?

Yes, it's roughly 50/50. What led us into China largely was our partnerships with the foreign brands; BMW, Daimler, GM, Ford, PSA. But from that base, now, we're able to build our relationships with the domestic automakers or their domestic products, and that base is growing to roughly 50/50.

Very good. Thank you.

Thank you. Your next question comes from the line of Ryan Brinkman with JP Morgan. Your line is open.

Hi, this is Amit [ph] here on behalf of Ryan. The question I had was, maybe I didn't catch this, but did you update your guidance for seating margins for the full year?

Yes, not specifically, but we would expect it to be in high sixes, low sevens. The guidance implies that type of margin range, depending upon production and mix.

Good, good. Then just on the 6%, I think, organic growth that you mentioned for the seating business or ARM [ph] that is delivered in this quarter. Can you -- in terms of can you break it down geographically so that we can get a better feel where you are gaining share like in which regions are you really gaining share?

I think we are gaining share in each of the regions with the exception, maybe not shares is not the right way to look at it, but from a top line perspective, South America sales were down probably about 50% in the quarter versus last year. But in the other regions, the more mature regions we are gaining share in each of those regions.

Okay, great. And when we think of where you sort of land up portfolio margins on both the segments for this full year 2015 now, and start to think about 2016; is there like a benefit from the raw material cost that we should keep in mind when we're sort of forecasting 2016 that's benefiting 2015 but maybe doesn't continue in 2016?

It's a little bit earlier to talk about 2016, quite frankly, but we think that the conditions will be relatively consistent. Again, commodities may level off, next year it's a little bit early to speculate. But again there is literally thousands of different inputs all driven by mainly the car lines that are on, and the mix that we are on, but we don't a major headwind with commodities going into 2016, if that's the question.

Okay. And just lastly, looking at the piece of repurchases that you are doing, is this sort of the piece you are comfortable with around about this 100 million-120 million per quarter and any update on discussions with Marcato?

There hasn't been any real discussions with made directly Marcato off late. I know that we were on the West Coast through an investor meetings and he had representatives there. It's been very positive discussion with him. As far as the pace of the buyback, it's largely a board decision. I wouldn't anticipate it being too different one way or the other from what we have done through the first half. The board has consistently accelerated the pace of the buyback, evidence of the confidence in our ability to generate cash.

Okay, great. Thanks for taking my questions. Thank you.

You are welcome.

Thank you. And your next question comes the line of Dan Galves with Credit Suisse. Your line is open.

Hey, guys. Thanks for taking my question. Just wanted to ask about Europe; if you could just give us your broad outlook, I know you said that Western Europe and Africa was up 5% production in Q2. Was that better than you expected? Are you seeing -- have you seen kind of schedules increase over the course of the year as demand has been pretty strong, and if you could give us any color on where your margins are in Europe versus the corporate average?

Yes. It was a little bit of an upside from where we gave our update in April. It came in a little bit stronger. I think the retail rates and the production rates are pretty strong. Our business in Europe is also very strong. From the seat segment, our margins are up in Europe, but still below the target margins overall, or the overall segment margins is due to largely the level of vertical integration there is a little bit lower than what we see in North America typically. In electrical, the opposite is true that they are slightly above, or consistent with this type of margins because it has a full ability to vertically integrate. Our business there is strong, and that it's well diversified both in customer and platform mix from the high-end, which enjoy certain export benefits but also to entry level vehicles on the B segment, C segment types. So it's a good mix of business and it's a good mix between electrical and seating, so overall the European region did quite well in the quarter.

Okay, great. And any update -- GM has said that they are working on breaking some bottlenecks in K2XX facilities and squeaking out some more production. Do you have any update on how that's going what you kind of could expect or what's baked into your guidance for this year on the K2XX production?

Yes. Our K2XX production is very consistent with IHS. Obviously those vehicles are doing very, very well in the marketplace, and we would benefit if they increase their production of them. From our standpoint, an average content on the baseline pickup truck would be anywhere from 800 to 1200, maybe slightly higher on a crew cabs. SUVs can go from 1800 to 2200 of content. Any incremental volumes that come in, we usually convert them at a fair clip, 15% to 20% to the bottom line. So the more they can sell this vehicle that would obviously benefit what we have included in our guidance.

Okay, got it, and just one housekeeping; could you -- do you have a number for Asia growth X currency?

Asian growth X currency, I don't think currency really impacted…

It wasn't material?

Did you get that, about 8%? That was John Trifall, our brains behind the operation, the Head of Planning and Analysis.

Thanks, John; so 8% growth in Asia X currency.

Yes.

Thank you, great.

Thank you. Your next question comes the line of Brian Johnson with Barclays. Your line is open.

Yes, good morning. I just have a few questions around China. First is, can you provide us a sense of your China sensitivity and simply put, if Chinese production goes up or down 1%, as it flows for both the consolidated and nine consolidated, what would that mean to your core operating earnings?

It depends on where they take the 1% from, Brian. If it's on our on platforms then it would have a bigger impact. Right now what we were mentioning earlier in the call, perhaps you missed it, was that on a consolidated basis we have about $100 of content on average. And that would convert around 20% on the downside per unit. So I don't know what that means from a percentage standpoint. From a non-consolidated standpoint, we have roughly $80 of content, and again you would see the same type of conversion, but typically in the subs we own about 50% of them. So if you did the math, you can extent it out that way.

Okay. And the second, can you give us on the non-consolidated side a sense of the type of partnership you have with your JV partners? How many JV partners to you have? Where is the managerial control in those joint ventures? And then what kind of downside scenario planning have you pursued with your JC partners? And who -- if you need to actually slow growth, change facilities, change staffing, how much, say, does your team have versus the local partners?

We typically partner with our customers, because that's been a winning formula, and we work with them to make sure that the facilities are managed properly. Lear typically has managerial control, because our expertise is obviously making the components that they are buying. As you would expect that this business moves up and it moves down, and we need to be flexible, and that's the hallmark of Lear Corporation being able to manage through this type of production variances, and the non-consolidated operations are no different in many cases than the consolidated ones other than board representation.

So we should think of these as a set of JVs close to the final assembly plants as sort of each kind of customer would be its own JV?

In many cases you are correct.

Okay, and is the workforce in those contracts, are they part of -- are they permanent employees?

They are both.

Okay. Thanks.

Thank you. Your next question comes from the line of Joseph Spak with RBC Capital Markets. Your Line is open.

Thanks. Good morning everyone.

Hey, Joe.

Maybe just one quick one, one last quick one on China, and I appreciate all the color between the consolidated and unconsolidated. Can you give any input there as to the types of growth rates at each of those you are expecting for the balance of the year?

Yes, pretty consistent with the industry overall, and we've had nice growth there. We are penetrating the market in certain cases. And really from our standpoint, if you look at the year-over-year, I mean it's about 10% in total on the top line, and it's fairly consistent between consolidated and non-consolidated if you look at the year-over-year from '14 to '15. So, slightly ahead of the market overall, because of the backlog; about 10% in total, and that's based on the current production estimates coming through IHS, but also tempered somewhat by recent customer announcements. So really I don't know what other color we can really put on it quickly.

No, that is helpful. And maybe just one last one; at least as far as I can tell, the backlog which you announced earlier this year, you look to be running a little bit better sort of halfway through the year if I were to sort of annualize it. So is that timing, do you think, first half versus second half? Or is it maybe related to what you mentioned earlier, where maybe some of the European business volume has been coming in better, so the backlog is coming a little bit better than you…

It's more of the latter. The bonds were running a little bit hot on the programs that we included in the backlog. The backlog is pretty consistent though, first half to second half at this point. So yes, I would think, Jeff, it's the volume mainly.

It's volume. Maybe there might be a slight uptick, but nothing too material.

Okay, thanks a lot. Congrats guys.

Thank you.

And our final question comes from the line of Brett Hoselton with KeyBanc your line is open.

Good morning, gentlemen.

Hey, Brett.

I apologize, joined a little late here. Your expectations for China production in the back half of the year, I can see your guidance here up 6%. That is consistent with IHS, maybe a little higher than IHS, but whatever. With sales down 3% in June, obviously there's concern that maybe the back half of the year gets really weak and we see the number come down significantly. So, based on your discussions with your folks in China, what are your expectations for China? Do you believe IHS's numbers are realistic? Or do you think there's some downside risk there possibly?

I think as we said during the course of the Q&A that we use a lot of different things to come up with our ultimate volume assumptions. In this case, for the back half of the year, one of which is IHS, so we look at each of the elements that apply to our platforms, and we look at customer releases, communication with the customers with respect to potential downtime and known downtime. So we have incorporated all of those aspects into our guidance for the second half of the year.

All right, and then just another kind of longer-term question, you are hitting the high end of what I believe is your longer-term -- and you're actually above it for the electrical segment -- margin targets. And I'm kind of wondering, from a seating and electrical business standpoint, how do you think about maybe your midterm margin targets even if your longer term margin targets are 6.5% to 7% for seating and 12.5% to 13% for electrical, what do you think about the next year or two? Could you exceed that for a period of time?

We can absolutely exceed them for a period of time, but we think at these margins, Brett, that we can gain share, grow earnings and provide a great return on investment far and excess of our cost to capital. So from our standpoint, our focus really is on at this point earnings growth, year-over-year earnings growth, driving the top line, driving the bottom line, making sure that we have an adequate return on the investment that it takes to grow the sales. And so in any given quarter or sub period of time you could go up above 14, you could above seven, or we go slightly below 13, but all in all our focus is on long-term profitable growth. And this is what we are comfortable guiding the business to.

Okay, excellent. Thank you very much gentlemen.

You are welcome, Brett. Well, that's the last question. I think those that remain on the line are probably mostly Lear employees. On behalf of the leadership team, I want to thank all of you, because results like this just don't happen, they happen off the batch, so a lot of long hours and a lot of commitment. Keep working hard. Keep staying focus. Keep working as a team. And I want to thank all of you for your efforts. Thank you very much.

This concludes today's conference call. You may now disconnect.