Magna Beats, EPS Escalates 12%

Zacks

Magna International Inc. (MGA) posted its first quarter 2012 earnings per share of $1.46, surpassing the Zacks Consensus Estimate and year-ago earnings of $1.30 by 12%. The increase in earnings was attributable to higher production and sales, along with profits earned from programs launched in 2011.

The earnings were also boosted by the decrease in weighted average number of shares outstanding due to repurchase of shares. In absolute terms, profits were $343 million in the reported quarter, up 7% compared with $322 million in the year-ago quarter.

The company’s revenues for the quarter came in at $7.7 billion, up 7% compared with $7.2 billion in the year-ago quarter. It surpassed the Zacks Consensus Estimate of $7.4 billion. The increase in revenues was due to increase in production and sales in North America and Europe as well as in Rest of the World (:ROW). However, it was partially offset by a decline in sales in Complete Vehicle Assembly and Tooling, Engineering & Other segments.

Magna saw a 10% boost in operating income to $439 million or 6% of sales compared with $400 million or 6% of sales in the first quarter of 2011. The operating income went up due to higher margins earned from increased production and sales, along with decreased costs associated with the upcoming launches.

Segment Results

Revenues from External Production Sales – which consists of sales in North America, Europe and ROW – escalated 10% to $6.6 billion in the reported quarter. Vehicle production went up by 17% to 3,950 million units in North America and 7% to 3,449 million units in Western Europe. The adjusted earnings before interest and taxes (:EBIT) in the segment went up 7.5% to $459 million from $427 million in the first quarter of 2011.

Revenues from North America went up 10% to $3.9 billion in the quarter. The higher revenues were due to higher production and launch of new programs including Volkswagen Passat and Chevrolet Sonic. Revenues from Europe improved 6% to $2.3 billion.

The rise in revenues was due to launch of Range Rover Evoque and acquisition of BDW technologies group by the company. Revenues from ROW improved 29% to $408 million. The growth in revenues was driven by acquisition of TKASB and launch of new programs in Brazil and China.

Revenues in the Complete Vehicle Assembly segment decreased 11% to $599 million. The decline was attributable to decrease in volume of Peugeot RCZ, MINI Countryman and Aston Martin Rapide. Tooling, Engineering and Other sales were down 7% to $422 million.

Financial Position

Magna International had $1.27 billion cash and cash equivalent as of March 31, 2012 compared to $1.33 billion as of December 31, 2011. The decline in cash was driven by cash used in investing and financing activities.

The company had total debt of $234 million as of March 31 2012 compared with $71 million as of December 31, 2011. In the first quarter of 2012, Magna’s cash flow from operations was $229 million compared with cash used in operations of $112 million during the same period of 2011.

2012 Outlook

For full year 2012, the company anticipates revenues from External Production Sales in the range of $24.5 billion to $25.6 billion. Total production from North America is expected to be 14.4 million units and from Europe 12.7 million units.

Revenues from Complete Vehicle Assembly is expected in the range of $2.4 billion to $2.7 billion. With this, the company expects total revenues to be $29 billion to $30.5 billion. The company also expects operating margin to be below 5% and capital spending of $1.5 billion for the year.

Our Take

Magna International, based in Aurora, Canada, is a leading manufacturer and supplier of automotive components. The company designs, develops and manufactures automotive systems, assemblies, modules and components, besides engineering and assembling complete vehicles, primarily for sale to original equipment manufacturers (OEMs) of cars and light trucks. It competes with Dana Holding Corporation (DAN) and Lear Corp. (LEA).

Magna is expected to benefit from new emission standards in the U.S. This in turn should raise the demand for new auto parts and other components. The company’s significant acquisitions and expansion will enhance its global footprint and provide an edge over to its peers. Currently, it retains a Zacks #2 Rank on its shares, which translates into a short-term Buy rating.

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