Yahoo Finance Magna International Profit Drops 28% on Slumping Auto Sales
Canadian auto-industry supplier Magna International (NYSE: MGA) said on Aug. 8 that its second-quarter net income fell 28% from a year ago, to $452 million, on weaker results for most of its core business segments.
That result was still good enough to beat expectations. Excluding one-time items, Magna earned $1.59 per share, ahead of the consensus Wall Street estimate of $1.54 as reported by Thomson Reuters. Revenue of $10.13 billion beat Wall Street's estimate of $9.95 billion.
Magna's shares rose over 4% in early trading after the news was released.
The raw numbers
Note that while Magna is a Canadian company, it reports its financial results in U.S. dollars:
Metric | Q2 2019 | Change vs. Q2 2018 |
|---|---|---|
Revenue | $10.13 billion | (1%) |
Adjusted EBIT* | $677 million | (16%) |
Adjusted EBIT margin* | 6.7% | (1.1 pp) |
Net income | $452 million | (27.8%) |
Adjusted earnings per share* | $1.59 | (5%) |
"EBIT" = earnings before interest and tax."Pp" = percentage points. Data source: Magna International, Inc.
* "Adjusted" figures exclude the effects of one-time items. Magna took one-time charges of $68 million in the second quarter of 2019, most related to restructuring costs and noncash investment revaluations; it took $39 million in one-time credits in the year-ago period.
What happened at Magna in the second quarter?
Magna announced a new joint venture with Chinese automaker BAIC Motor Corporation (OTC: BMCLF). The two will collaborate on a new factory in China that will build electric vehicles -- including, possibly, contract manufacturing for other automakers. The new venture complements an existing joint venture between the two that is focused on engineering new electric vehicles.
Revenue in the body exteriors and structures segment fell 7% to $4.2 billion, on lower global production of light vehicles and unfavorable exchange-rate movements. Automakers have reduced production in slowing regional markets, particularly China and (to a lesser extent) North America. The segment's adjusted EBIT margin fell to 8% from 8.5% in the year-ago period.
Revenue in the power and vision segment fell 12% to $2.8 billion, again on lower global vehicle production and exchange rates, as well as higher spending on new products related to electric vehicles and self-driving. The segment's new program launches include three important new BMW SUVs and General Motors' Chevrolet Blazer. Adjusted EBIT margin fell to 7.2% from 9.4% a year ago.
Revenue in the seating segment rose 2% from a year ago, to $1.5 billion. Here, the effects of new product launches, including the BMW SUVs and a new vehicle by Chinese automaker Geely, more than offset the production decline and currency effects. But the segment's adjusted EBIT margin fell to 5.7% from 8.2% a year ago, as new-product launch costs and higher commodity prices weighed on profit.
Revenue in the "complete vehicles" segment (contract manufacturing for automakers) rose 41% to $1.8 billion, as production volumes increased 28% to about 43,000. Adjusted EBIT margin rose to 2.4% from just 0.1% a year prior.
Magna generated $511 million in free cash flow in the quarter, and returned $519 million to shareholders via an ongoing share-repurchase program ($409 million) and the regular quarterly dividend ($110 million).
Magna and Chinese automaker BAIC agreed to jointly manufacture electric vehicles in China. Image source: Magna International.
What Magna's CEO had to say
CEO Don Walker was upbeat, noting that the company's 1% year-over-year decline in revenue outpaced the auto industry's global 6% year-over-year decline in production. But he noted that Magna is clear-eyed about the near-term prospects for the industry.
"We have been taking steps to optimize our business in response to lower industry volumes," Walker said in a statement. "Our 2019 outlook is largely unchanged despite our expectation of continued challenging automotive market conditions."
Looking ahead
Magna did trim its full-year revenue and margin expectations slightly from the guidance it gave in May. It now expects:
Revenue between $38.9 billion and $41.1 billion (prior guidance: between $39.1 billion and 41.3 billion; 2018 result: $40.8 billion)
EBIT margin between 6.6% and 6.9% (prior guidance: between 6.7% and 7%; 2018: 7.6%)
Net income between $1.9 billion and $2.1 billion, unchanged from prior guidance (2018: $3.0 billion)
John Rosevear owns shares of GM. The Motley Fool recommends BAMXF. The Motley Fool has a disclosure policy.
This article was originally published on Fool.com