Magna Announces Third Quarter Results

  • Sales of $9.3 billion decreased 3%, compared to global light vehicle production down 3%
    º Labour strike at General Motors (“GM strike”) reduced third quarter sales
  • Excluding foreign currency translation and divestitures net of acquisitions, sales up 2%
  • Returned $451 million to shareholders through share repurchases and dividends
  • 2019 Outlook reduced largely to reflect estimated impact of GM strike and higher launch costs
  • Recorded non-cash impairment charges of $537 million after income taxes and loss attributable to non-controlling interests related to investment in Getrag’s equity accounted joint ventures

Magna International Inc. (TSX: MG; NYSE: MGA) today reported financial results for the third quarter ended September 30, 2019.

THREE MONTHS ENDED SEPTEMBER 30, 2019

Overall, our Adjusted EBIT came in slightly below our expectations in the third quarter of 2019, as we were negatively impacted by the GM strike.  Excluding the impact of the strike, our consolidated Adjusted EBIT was relatively in line with our expectations, with higher than expected launch and warranty costs being largely offset by favourable commercial settlements.

On a consolidated basis, we posted sales of $9.32 billion for the third quarter of 2019, a decrease of 3% from the third quarter of 2018, compared to global light vehicle production that also decreased 3%.    Excluding the impact of foreign currency translation and divestitures net of acquisitions, sales increased 2%, and by segment: Complete Vehicles, Power & Vision and Seating increased 14%, 4% and 3%, respectively, while Body Exteriors & Structures decreased 3%. The GM strike reduced our third quarter sales.

Adjusted EBIT decreased 20% to $558 million in the third quarter of 2019 resulting in an adjusted EBIT as a percentage of sales of 6.0% compared to 7.3% last year.  Excluding the impact of the GM strike, the lower Adjusted EBIT as a percentage of sales is mainly due to lower margins in our:

  • Power & Vision segment, largely driven by higher engineering and other costs in our ADAS business, and lower equity income, partially offset by the disposition of our Fluid Pressures & Controls business; and
  • Seating segment, primarily as a result of lower sales at a number of facilities, higher commodity costs, launch costs and operational inefficiencies at a new facility, partially offset by favourable commercial settlements.

(Loss) income from operations before income taxes was $(319) million for the third quarter of 2019 compared to $674 million in the third quarter of 2018.  Included in loss from operations before income taxes in the third quarter of 2019 were Other expense, net items totaling $859 million substantially comprised of non-cash impairment of assets and net losses on the revaluation of our investments. Income from operations before income taxes in the third quarter of 2018 included Other expense of $2 million.  Excluding Other expense, net from both periods, income from operations before income taxes decreased $136 million in the third quarter of 2019 compared to the third quarter of 2018.

Net (loss) income attributable to Magna International Inc. was $(233) million for the third quarter of 2019 compared to $554 million in the third quarter of 2018.  Included in net loss attributable to Magna International Inc. in the third quarter of 2019 were Other expense, net items totaling $671 million after tax.  Net income attributable to Magna International Inc. in the third quarter of 2018 included Other income, net items totaling $19 million after tax.  Excluding Other expense (income), net from both periods, net income attributable to Magna International Inc. decreased $97 million in the third quarter of 2019 compared to the third quarter of 2018.

Diluted (loss) earnings per share decreased to $(0.75) in the third quarter of 2019, compared to $1.62 in the comparable period.  Adjusted diluted earnings per share decreased 10% to $1.41 compared to $1.56 for the third quarter of 2018.

In the third quarter of 2019, we generated cash from operations before changes in operating assets and liabilities of $846 million and invested $96 million in operating assets and liabilities.  Investment activities for the third quarter of 2019 were $432 million, including $349 million in fixed asset additions and an $83 million increase in investments, other assets and intangible assets.

NINE MONTHS ENDED SEPTEMBER 30, 2019

We posted sales of $30.04 billion for the nine months ended September 30, 2019, a decrease of 2% from the nine months ended September 30, 2018, which compares favourably with global light vehicle production which decreased 5% in the first nine months of 2019 compared to the first nine months of 2018. Excluding the impact of foreign currency translation and divestitures net of acquisitions, sales increased 3% and by segment: Complete Vehicles increased 29%, Seating increased 3%, Power & Vision increased 1% and Body Exteriors & Structures decreased 3%, in each case compared to the nine months ended June 30, 2018.

Income from operations before income taxes for the nine months ended September 30, 2019 was $1.64 billion compared to $2.34 billion in the comparable nine months of 2018.  Included in income from operations before income taxes in the nine months ended September 30, 2019 were Other expense, net items totaling $248 million mainly comprised of non-cash impairment of assets partially offset by a gain on the sale of our Fluid Pressure & Controls business. Income from operations before income taxes in the nine months ended September 30, 2018 included Other income, net items totaling $34 million.  Excluding Other expense (income), net from both periods, income from operations before income taxes decreased $418 million in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.

Net income attributable to Magna International Inc. was $1.33 billion for the nine months ended September 30, 2019 compared to $1.84 billion in the comparable nine months of 2018.  Included in net income attributable to Magna International Inc. in the nine months ended September 30, 2019 were Other expense, net items totaling $153 million after tax.  Net income attributable to Magna International Inc. in the nine months ended September 30, 2018 included Other income, net items totaling $52 million after tax. Excluding Other expense (income), net from both periods, net income attributable to Magna International Inc. decreased $310 million in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.

During the nine months ended September 30, 2019, Adjusted EBIT decreased 18% to $1.96 billion, and Adjusted diluted earnings per share decreased 9% to $4.63, each compared to the nine months ended September 30, 2018.

During the nine months ended September 30, 2019, we generated cash from operations before changes in operating assets and liabilities of $2.66 billion, and invested $390 million in operating assets and liabilities. Total investment activities for the first nine months of 2019 were $1.35 billion, including $928 million in fixed asset additions, $152 million in acquisitions, and $272 million in investments, other assets and intangible assets.

RETURN OF CAPITAL TO SHAREHOLDERS

During the three and nine months ended September 30, 2019, we paid dividends of $109 million and $338 million, respectively.  In addition, we repurchased 6.8 million shares for $342 million and 21 million shares for $1.04 billion, respectively, for the three and nine months ended September 30, 2019.

Our Board of Directors declared a quarterly dividend of $0.365 with respect to our outstanding Common Shares for the quarter ended September 30, 2019. This dividend is payable on December 6, 2019 to shareholders of record on November 22, 2019.

OTHER MATTERS

Subject to the approval by the Toronto Stock Exchange and the New York Stock Exchange, our Board of Directors approved a new Normal Course Issuer Bid („NCIB“) to purchase up to 30.3 million of our Common Shares, representing approximately 10% of our public float of Common Shares. This NCIB is expected to commence on or about November 15, 2019 and will terminate one year later.

UPDATED 2019 OUTLOOK

Current   Previous
Light Vehicle Production (Units)
North America 16.3 million 16.6 million
Europe 21.4 million 21.4 million
Segment Sales
Body Exteriors & Structures $16.2 – $16.6 billion $16.3 – $17.1 billion
Power & Vision $11.1 – $11.4 billion $11.0 – $11.6 billion
Seating Systems $5.4 – $5.6 billion $5.4 – $5.8 billion
Complete Vehicles $6.6 – $6.8 billion $6.8 – $7.2 billion
Total Sales $38.7 – $39.8 billion $38.9 – $41.1 billion
Adjusted EBIT Margin(2) 6.3% – 6.5% 6.6% – 6.9%
Equity Income (included in EBIT) $145 – $175 million $150 – $195 million
Interest Expense, net Approximately $85 million Approximately $90 million
Income Tax Rate(3) Approximately 23% Approximately 24%
Net Income attributable to Magna $1.8 – $1.9 billion $1.9 – $2.1 billion
Capital Spending Approximately $1.6 billion Approximately $1.6 billion
(2)  Adjusted EBIT Margin is the ratio of Adjusted EBIT to Total Sales
(3)  The Income Tax Rate has been calculated using Adjusted EBIT and is based on current tax legislation

In this 2019 outlook, we have assumed:

  • 2019 light vehicle production volumes (as set out above);
  • no material unannounced acquisitions or divestitures; and
  • foreign exchange rates for the most common currencies in which we conduct business relative to our U.S. dollar reporting currency as follows:
    – 1 Canadian dollar equals U.S. dollars    0.754
    – 1 euro equals U.S. dollars                      1.120

Our updated 2019 outlook reflects our estimate of the impact of the GM strike for the third and fourth quarters.