- Light vehicle production in North America and Europe, our most significant production markets, down 70% and 59%, respectively; global light vehicle production down 42%
- Estimated COVID-19 impacts of approximately $5.5 billion on sales, $1.2 billion on both income from operations before income taxes and Adjusted EBIT
- Sales of $4.3 billion decreased 58%, diluted (loss) earnings per share of ($2.17) compared to $1.42 in the second quarter of 2019
- Reinstated financial outlook for 2020
Magna International Inc. (TSX: MG; NYSE: MGA) reported financial results for the second quarter ended June 30, 2020. Please click HERE for full second quarter Financial Statements and MD&A.
Don Walker, Magna’s Chief Executive Officer commented: “While our second quarter results were impacted by a precipitous decline in global vehicle production caused by the COVID-19 pandemic, I am pleased we have been able to successfully and safely restart operations at our plants around the world. Additionally, we have taken several actions across the company to reduce our cost structure to be aligned with our updated expectations for future vehicle production. We expect our second half 2020 results to begin to reflect these actions. I am confident that Magna will emerge from the recent economic upheaval as strong as ever.”
THE IMPACT OF COVID-19
During the second quarter of 2020, our most significant production markets of North America and Europe experienced vehicle production declines compared to the second quarter of 2019 that, both in percentage and absolute volume terms, far exceeded the worst comparable quarterly declines experienced during the 2008-2009 financial crisis. These declines are largely due to our customers’ production suspensions and volume reductions attributable to the COVID-19 pandemic.
Based on our expectations at the beginning of the year, we estimate that reduced volumes in the quarter resulted in lost sales of approximately $5.5 billion and that Adjusted EBIT was negatively impacted by approximately $1.2 billion. For the six months ended June 30, 2020, we estimate such lost sales to be approximately $6.6 billion and that Adjusted EBIT was negatively impacted by approximately $1.45 billion. (Loss) income from operations before income taxes, net (loss) income attributable to Magna International Inc. and diluted (loss) earnings per share, each for the second quarter and six months ended June 30, 2020, were also negatively impacted by the COVID-19 related volume reductions.
THREE MONTHS ENDED JUNE 30, 2020
On a consolidated basis, we posted sales of $4.3 billion for the second quarter of 2020, a decrease of 58% from the second quarter of 2019, compared to global light vehicle production that decreased 42%, reflecting declines of 70% and 59% in North America and Europe, respectively, and an increase of 3% in China.
Adjusted EBIT decreased to $(600) million in the second quarter of 2020 compared to $677 million in the second quarter of 2019.
(Loss) income from operations before income taxes was $(789) million for the second quarter of 2020 compared to $595 million in the second quarter of 2019. Included in loss from operations before income taxes in the second quarter of 2020 were Other expense, net items totaling $168 million comprised of restructuring and impairment costs compared to $68 million in the second quarter of 2019. Excluding Other expense, net from both periods, income from operations before income taxes decreased $1.3 billion in the second quarter of 2020 compared to the second quarter of 2019.
Net (loss) income attributable to Magna International Inc. was $(647) million for the second quarter of 2020 compared to $452 million in the second quarter of 2019. Included in net loss attributable to Magna International Inc. in the second quarter of 2020 were Other expense, net items totaling $136 million after tax compared to $57 million after tax in the second quarter of 2019. Excluding Other expense, net from both periods, net income attributable to Magna International Inc. decreased $1 billion in the second quarter of 2020 compared to the second quarter of 2019.
Diluted (loss) earnings per share decreased to $(2.17) in the second quarter of 2020, compared to $1.42 in the comparable period. Adjusted diluted (loss) earnings per share decreased to $(1.71) compared to $1.59 for the second quarter of 2019.
In the second quarter of 2020, we used $1.2 billion in cash from operating activities, including $934 million for operating assets and liabilities. Investment activities for the second quarter of 2020 included $169 million in fixed asset additions, $72 million in investments, other assets and intangible assets and $2 million in private equity investments.
SIX MONTHS ENDED JUNE 30, 2020
We posted sales of $12.95 billion for the six months ended June 30, 2020, a decrease of 37% from the six months ended June 30, 2019. This is compared to global light vehicle production which decreased 33% in the first six months of 2020 compared to the first six months of 2019, reflecting declines of 40% and 39% in our most significant production markets of North America and Europe, respectively, and a decline of 23% in China.
During the six months ended June 30, 2020, loss from operations before income taxes was $403 million, Net loss attributable to Magna International Inc. was $386 million and diluted loss per share was $1.29, down $2.4 billion, $1.9 billion and $6.12, respectively, each compared to the first six months of 2019.
During the six months ended June 30, 2020, Adjusted EBIT decreased to $(197) million, and adjusted diluted (loss) earnings per share decreased to $(0.83).
During the six months ended June 30, 2020, we generated cash from operations before changes in operating assets and liabilities of $317 million and invested $910 million in operating assets and liabilities. Investment activities for the first six months of 2020 included $372 million in fixed asset additions, $165 million in investments, other assets and intangible assets, and $102 million in private equity investments, primarily related to Waymo.
RETURN OF CAPITAL TO SHAREHOLDERS
During the three and six months ended June 30, 2020, we paid dividends of $116 million and $237 million, respectively. In addition, we repurchased 4.8 million shares for cancellation for $192 million in the first quarter of 2020.
Our Board of Directors declared a second quarter dividend of $0.40 per Common Share, payable on September 4, 2020 to shareholders of record as of the close of business on August 21, 2020.
Vince Galifi, Magna’s Chief Financial Officer stated: “The second quarter of 2020 was among the most challenging that the auto industry has ever faced, resulting in our first normalized operating loss in over a decade. Nevertheless, we took important steps operationally and financially in the quarter to further strengthen our business. Our updated 2020 financial outlook reflects our expectations of a solid recovery in earnings and cash flow in the second half of this year.”
2020 OUTLOOK
Currently there is increased uncertainty related to our outlook above as a result of elevated risks associated with consumer demand, as well as continuing COVID-19 risks to various aspects of our business and the automotive industry, as discussed in our MD&A for the second quarter of 2020, our Annual Information Form / Form 40-F dated March 27, 2020 and subsequent filings.
In our press release dated March 26, 2020, we withdrew our outlooks for 2020 and 2022. While we have reinstated our 2020 outlook with the above, we are not reinstating the outlook for any periods beyond 2020 at this time.
