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Magna International manages modest earnings beat on global auto slowdown

Management trims 2019 guidance slightly

Magna International (NYSE: MGA), the Ontario-based automotive parts supplier and largest auto parts manufacturer in North America, reported its financial results for the second quarter before markets opened on Thursday, August 8.

Magna recorded adjusted diluted earnings per share (EPS) of $1.59, just above Wall Street’s consensus expectations of $1.57. Revenue declined 1 percent year-over-year to $10.1 billion, but Magna management noted that in the same period global light vehicle production was down 6 percent.

“”Second quarter results came in slightly ahead of our expectations and our sales once again outpaced global vehicle production,” said chief executive officer Donald J. Walker. “We have been taking steps to optimize our business in response to lower industry volumes. Our 2019 outlook is largely unchanged despite our expectation of continued challenging automotive market conditions.”

Overall net income during the quarter was $452 million, plunging 27.7 percent from the second quarter of 2018. Magna returned $519 million to shareholders during the quarter through share repurchases and dividends; $409 million of that was spent on buying back Magna stock, which helped juice the EPS number.

Magna breaks out its financial reporting into five business segments: Body Exteriors & Structures; Power & Vision; Seating Systems; Complete Vehicles; and Corporate and Other. 

Body Exteriors & Structures is the largest of Magna’s business segments, comprising 41.9 percent of revenue in the quarter. Revenue for the segment contracted 6.7 percent year-over-year to $4.24 billion, and its earnings before interest and tax (EBIT) margin (EBIT as a percentage of sales) narrowed from 8.5 percent to 8 percent.

Power & Vision represented 27.7 percent of Magna’s revenue in the quarter; segment revenues slipped 12.1 percent to $2.8 billion. Power & Vision’s EBIT margin dropped to 7.2 percent from 9.4 percent in the second quarter of 2018.

Seating Systems accounted for 14.3 percent of total revenue in the quarter. Revenues for the segment grew 1.9 percent to $1.45 billion, but EBIT margin compressed by 250 basis points year-over-year to 5.7 percent. 

Complete Vehicles generated 17.7 percent of Magna’s total revenues; segment revenues swelled by 40.7 percent to $1.8 billion for the quarter. EBIT margin also expanded, from 0.1 percent to 2.4 percent compared to the second quarter of 2018. 

In its detailed 2019 outlook, Magna management slightly trimmed revenue and EBIT expectations. Prior guidance called for sales in a range between $39.1-$41.3 billion; management lowered its forecast to $38.9-$41.1 billion. EBIT margin guidance came down modestly to 6.6-6.9 percent from 6.7-7 percent in the prior guidance.

John Paul Hampstead

John Paul conducts research on multimodal freight markets and holds a Ph.D. in English literature from the University of Michigan. Prior to building a research team at FreightWaves, JP spent two years on the editorial side covering trucking markets, freight brokerage, and M&A.