Autoliv (NYSE:ALV) reported a very strong fourth quarter before the market opened on Friday. The company reported record sales, which grew much faster than expected, along with stronger-than-expected margins. That said, the company does expect both sales growth and margins to decelerate in 2016, due to increased global economic uncertainty as well as a plan make record investments in research, development, and engineering (RD&E). 

Autoliv results: The raw numbers

 Metric

Q4 2015 Actuals

Q4 2014 Actuals

Growth (YOY)

Revenue

$2.5 billion

$2.4 billion

7%

Operating Income

$281.3 million

$216.7 million

29.8%

EPS

$2.10

$1.65

27.3%

Data source: Autoliv.  

What happened with Autoliv this quarter?
Autoliv's underlying results were even stronger than its reported results.

  • Autoliv prefers to report organic sales, which strips out the impact of currencies. For the fourth-quarter organic sales grew 13.4% year over year, which accelerated past the company's guidance for organic sales growth of "around 9%."
  • Margins, likewise, were ahead of the company's own guidance range. Autoliv guided for an adjusted operating margin of "around 10.5%," while its actual adjusted operating margin was 11.1%.
  • Driving these strong results were double-digit organic sales growth in Asia, the Americas, and Europe with one of the biggest drivers being stronger-than-expected light vehicle production, especially in China.
  • During the quarter, the company set records for quarterly sales and operating profit, while it was close to setting a new record for quarterly operating cash flow.

What management had to say
Autoliv CEO Jan Carlson noted particular strength in China, which has been worrying the market lately due to concerns that its economy is slowing down. However, he noted that,

In China, light vehicle production exceeded the estimates from the beginning of the quarter which, combined with a beneficial product mix, enabled us to achieve double-digit organic sales growth in the fourth quarter and also deliver full-year organic sales growth. This capped a year that started with unfavorable product mix for Autoliv, followed by instability in the Chinese market during the summer.

China is expected to continue to be unpredictable, however, the general trend is for growth to continue. At least that's what Ford (NYSE:F) CFO Bob Shanks sees in 2016: He recently noted that Ford expects that "China is going to be bumpy and volatile" because it is transitioning to a more domestic consumer consumption economy. That said, Ford expects that the auto industry in China will "grow modestly" in 2016, which suggests that Autoliv's related sales to China will likewise be bumpy, but heading higher.

In addition to better results from China, Carlson also noted that the "rapid growth in active safety continued and we achieved over 30% organic growth for the full year." One of the drivers of this growth was the launch of the "new, best-in-class active safety vehicle, Mercedes E-Class" which has "a full suite of active safety products from Autoliv, including ADAS-controller, radars and cameras based on our own software algorithms." Carlson said that this launch "was an important milestone toward our ambition to deliver safety products that function in real-life situations and not only in test environments." It's a trend that's expected to continue, with the company investing heavily in next-generation safety technology in order to stay ahead of the curve. 

Looking forward
All that being said, the overall uncertainty relating to China and the global economy in general has Autoliv taking a cautious approach to its 2016 guidance. The company expects its organic sales to grow 10% during the first quarter, but only 5% for the full year. Furthermore, Autoliv expects its adjusted operating margins to drop to around 8.5% in the first quarter while averaging more than 9% for the full-year. Finally, the company expects to make record RD&E investments in 2016, which will be toward the higher end of its 6% to 6.5% range next year. That's primarily due to the pace of technological change being higher than ever, with the company needing to make additional investments in order to keep pace.

Matt DiLallo owns shares of Ford and has the following options: long January 2018 $10 calls on Ford. The Motley Fool recommends Autoliv and Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.