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Magna Beats, Expects Flat Annual Sales

Zacks Equity Research

Magna International Inc. (MGA) revealed an increase in profit to $312 million or $1.32 per share in the fourth quarter of 2011 from $219 million or 89 cents per share in the same quarter of 2010. The profit per share exceeded the Zacks Consensus Estimate by 30 cents. The improvement in profits was attributable to higher sales on the back of an increase in light vehicle production in the company’s key markets.

Sales in the quarter escalated 13% to $7.25 billion due to higher sales in the company’s segments. Operating income in the quarter rose 30% to $291 million (4% of sales) from $224 million (3.5% of sales) in the fourth quarter of 2010.

Segment Results

Revenues from External Production Sales segment (which comprises three geographic regions – North America, Europe, and Rest of World or ROW) went up 18% to $6.02 billion. Vehicle production volumes increased 15% in North America and decreased 4% in Western Europe from the fourth quarter of 2010.

External production sales in North America grew 17% to $3.46 billion, Europe scaled up 14% to $2.17 billion and ROW soared 56% to $386 million.

Revenues in the Complete Vehicle Assembly segment rose 3% to $625 million in the fourth quarter of 2011 compared with $608 million in the fourth quarter of 2010 while assembly volumes went up 19% to 29,878 units. Meanwhile, revenues in the Tooling, Engineering and Other segment fell 16% to $611 million compared with $725 million in the fourth quarter of 2010.

Full Year Results

For full year 2011, Magna’s profit rose marginally by 1.5% to $1.02 billion from $1.00 billion in 2010. However, earnings per share dipped 2% to $4.20 from $4.30 in the previous year due to an increase in the weighted average number of shares outstanding during 2011. With this, the company missed the Zacks Consensus Estimate of $4.41 per share.

Sales in the year rose 22.5% to $28.75 billion over 2010, driven by increase in sales in all the reportable segments. Rest of World production was the fastest-growing segment with a robust 61% growth in sales to $1.40 billion during the year.

Operating income was $1.22 billion (4.2% of sales) during the year compared with $1.20 billion (5.1% of sales) in 2010. The increase in income was attributable to higher sales owing to higher light vehicle production in the key markets, offset by operational inefficiencies and other costs, particularly at the company’s exteriors and interiors systems business in Europe, as well as rising commodity costs and higher new facility costs incurred to support its growth around the world.

Dividend Raised

On February 23, 2012, Magna’s Board of Directors declared a dividend of 27.5 cents per share for the fourth quarter of 2011, representing an increase of 10% from the dividend of 25 cents per share in the third quarter of 2011. The increased dividend is payable on March 23, 2012 to shareholders on record as of March 12, 2012.

Financial Position

As of December 31, 2011, Magna had cash and cash equivalents of $1.33 billion compared with $1.88 billion in the corresponding period a year ago. Long-term debt stood at $71 million, reflecting a low long-term debt-to-capitalization ratio of 0.9% as of December 31, 2011, compared with $66 million, representing a long-term debt-to-capitalization ratio of 0.8% as of December 31, 2010.

In 2011, Magna’s cash flow from operations declined to $1.21 billion from $1.88 billion in 2010, primarily due to unfavorable changes in non-cash operating assets and liabilities. Meanwhile, capital expenditures increased to $1.24 billion from $746 million in 2010.

2012 Outlook

For the full year 2012, Magna anticipates sales in the range of $28.0 billion–$29.5 billion based on light vehicle production of 13.8 million units in North America and 13.0 million units in Western Europe. Complete vehicle assembly sales are anticipated in the range of $2.3 billion–$2.6 billion. The company also expects operating margin of 5% and capital spending of $1.3 billion–$1.5 billion for the year.

Our Take

Magna, 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. Its primary competitors include Dana Holding Corporation (DAN) and Lear Corp. (LEA). Currently, it retains a Zacks #3 Rank on its stock, which translated into a recommendation of “Hold” for the short term (1 to 3 months).

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