Friday, Canadian auto parts supplier Magna International Inc. (MGA, MG-A.TO) reported a loss in its second quarter, negatively impacted by steep fall in revenues mainly on lower North American and European vehicle production. The Aurora, Canada-based company noted that there are 'signs of improvement in certain key automotive markets'.
Second-quarter loss was US$205 million or US$1.83 per share, compared to net income of US$227 million or US$1.98 per share last year. The latest quarter results included certain unusual expenses totaling US$61 million or US$0.54 per share, higher than last year's US$7 million or US$0.06 per share.
On average, 14 analysts polled by Thomson Reuters expected the company to report a loss of US$1.01 per share for the quarter. Analysts' estimates typically exclude special items.
Sales for the quarter plunged 45% to US$3.71 billion from last year's US$6.71 billion, and missed ten Wall Street analysts' consensus revenue estimate of US$4.10 billion.
The company attributed the fall in sales to significant declines in vehicle production in North America and Europe, lower average dollar content per vehicle in these two markets, as well as decreases in assembly sales and tooling, engineering and other sales. However, these were partly offset by increases in Rest of World production sales.
In the preceding first quarter, Magna had reported a loss of US$200 million or US$1.79 per share, compared to prior year's profit, hurt by a 46% drop in sales to US$3.60 billion due to decreases in its North American, European and Rest of World production sales.
For the second quarter, external production sales in North America decreased 55% to US$1.4 billion, and vehicle production fell 49% to 1.8 million units on continued weak automotive sales and high dealer inventories for many vehicles.
Magna noted that major automakers General Motors and Chrysler, the company's largest and fourth largest customers, respectively, filed for bankruptcy protection in the United States during the second quarter. Chrysler substantially ceased its vehicle production for the duration of its bankruptcy protection period, which resulted in 84% drop in its North American vehicle production, while General Motors' production, even though operations were not ceased in all of its operations, fell 53% as a number of its facilities were shut down for extended periods of time.
In Europe, external production sales in Europe declined 33% to US$1.4 billion and vehicle production for the quarter fell 28% to 3.1 million units.
The company's North American and European average dollar content per vehicle decreased 10% and 7% respectively.
However, external production sales in Rest of World increased 4% to US$154 million for the second quarter of 2009, mainly driven by increased production in China and Brazil.
In the quarter, complete vehicle assembly sales decreased 60% to US$423 million from US$1.1 billion, while complete vehicle assembly volumes declined 65% to approximately 14,100 units.
Gross margin decreased to US$299 million from US$895 million last year, and gross margin as a percentage of total sales fell to 8.1% from 13.3% a year ago. The company recorded an operating loss of US$237 million, compared to prior year's operating income of US$319 million.
During the second quarter of 2009, the company board of Directors suspended payment of dividends. As a result, no cash dividends were paid on the company's Class A Subordinate Voting or Class B Share for the second quarter of 2009, in comparison to a dividend payment of US$0.36 per Class A Subordinate Voting or Class B Share for the second quarter of 2008.
For the first six months of fiscal 2009, Magna's net loss was US$405 million or US$3.62 per share, compared to net income of US$434 million or US$3.75 per share a year earlier. Total first-half sales fell 45% to US$7.28 billion from US$13.34 billion last year. Vehicle production in the six months declined 50% to 3.5 million units in North America and 34% to 5.6 million units in Europe.
Looking ahead, Magna said in a statement, "There appear to be signs of improvement in certain key automotive markets. Recent U.S. monthly sales rates appear to have stabilized, with July's U.S. auto sales rate being the highest thus far in 2009, driven in part by the CARS incentive program. North American dealer inventories have declined, and are now below long-term average levels, while Western European auto sales have been improving in recent months. OEM production schedules in North America and Europe, while still low by recent historical standards, point to increases in the second half of 2009, compared to the first half of 2009."
Regarding its revised offer, together with the Savings Bank of the Russian Federation, or Sberbank, to acquire a 55% interest in General Motors' Adam Opel GmbH, which was announced last month, Magna noted that the acquired 55% interest in Opel would be owned by a 50:50 Magna/Sberbank consortium, with General Motors Co. retaining a 35% interest and Opel employees acquiring 10% as part of a new labour framework.
Magna noted that the Opel Trust, whose Advisory Board includes two representatives of the German government and two representatives of General Motors, owns 65% of Opel and is expected to review the submitted offers and supervise the sale process.
If successful, any transaction between the Magna consortium and General Motors would be subject to finalization of definitive deals and other conditions, including government-backed financing, and that there is no assurance at this time that any deal will result from the current involvement of Magna and Sberbank, the company added.
Also, Magna said that if the consortium is successful in completing the acquisition, the company will put in place appropriate 'firewalls' to make sure that its current business will operate independently from Opel.
Meanwhile, Bloomberg reported Thursday that General Motors' talks on selling its Opel division in Germany will need more time as the automaker seeks to resolve disputes with Magna's bidding team. The report, citing a blog posting by GM executive, John Smith, noted that talks in Berlin this week with Magna, its partner, OAO Sberbank, and an unidentified third Russian investor exposed 'difficulties'.
MGA closed Thursday's regular trading session at US$48.31, down US$0.93, on a volume of 806 thousand shares. In the pre-market activity, shares declined US$1.01 or 2.05% to US$48.23.
MG-A.TO settled on Thursday at C$51.36.
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