Canadian auto parts supplier Magna International Inc. (MGA, MG.A.TO) on Thursday reported a profit for the third quarter compared to a loss in the year-ago period, helped by restructuring actions and cost-cutting measures. However, revenues for the quarter declined 16% from last year, mainly on lower North American and European vehicle production. The company noted that North American vehicle production increased 32% from the preceding second quarter. Magna's quarterly results come just days after General Motors Co.'s decision to back out of a planned sale of its German unit Adam Opel GmbH to a consortium led by Magna.
Third-Quarter Results
The company's net income for the third quarter was US$51 million or US$0.45 per share, compared to net loss of US$215 million or US$1.93 per share in the year-ago period.
The year-ago quarter's results include certain unusual items totaling US$234 million or US$2.10 per share, comprising impairment charges of US$223 million or US$2.00 per share, restructuring chargers of US$4 million or US$0.04 per share, valuation allowance on future tax assets of US$123 million or US$1.10 per share, and a foreign currency gain of US$116 million or US$1.04 per share.
Excluding unusual items, net income for the latest quarter increased by $32 million or $0.28 per share from a year ago as a result of the increase in operating income partially offset by higher income taxes. On average, fourteen analysts polled by Thomson Reuters expected the company to report a loss of US$0.19 per share for the quarter. Analysts' estimates typically exclude special items.
Sales for the latest quarter declined 16% to US$4.67 billion from US$5.53 billion in the prior-year quarter, but topped analysts' consensus revenue estimate of US$4.53 billion for the quarter.
The company attributed the fall in sales to significant declines in vehicle production in North America and Europe in addition to decreases in assembly sales as well as tooling, engineering and other sales. However, these were partly offset by increases in North American content per vehicle and Rest of World sales.
Other Metrics
Magna's gross margin for the third quarter decreased to US$552 million from US$600 million last year, while gross margin as a percentage of total sales increased to 11.8% from 10.8% a year ago.
The company recorded an operating income of US$81 million for the quarter, compared to operating loss of US$112 million in the same period last year. Excluding unusual items, operating income for the quarter increased to US$81 million from US$34 million a year ago, primarily due to the benefit of restructuring activities and cost saving initiatives, a US$9 million favorable adjustment of the company's investment in asset-backed commercial paper and lower commodity costs.
During the preceding second quarter, the company's 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 third quarter of 2009, in comparison to a dividend payment of US$0.36 per Class A Subordinate Voting or Class B Share for the year-ago quarter.
Magna said its board of directors has approved the redemption of all of the company's outstanding 6.5% Convertible Subordinated Debentures for cash on December 7, 2009. The aggregate principal amount of debentures currently outstanding is C$100 million.
Segmental Results
Magna's vehicle production in North America during the third quarter declined 20% from a year ago to 2.34 million units, while external production sales in North America decreased 14% to $2.2 billion. However, North American vehicle production increased 32% from the preceding second quarter.
The increase in production was primarily due to the resumption of production at a number of Chrysler Group LLC and General Motors assembly facilities following their emergence from bankruptcy protection, the historically low average levels of dealer vehicle inventories during the quarter, and increased U.S. vehicle sales due in particular to the implementation of the Car Allowance Rebate System, or CARS, in July 2009.
In Europe, vehicle production during the quarter declined 9% from a year ago to 2.93 million units, while external production sales also declined 9% to US$1.55 billion. The company noted that the decline in vehicle production in Europe during the quarter was less substantial than the 34% decline in European vehicle production experienced during the first half of 2009. Magna said vehicle sales were helped by various "scrappage" programs in several European countries.
The company's North American average dollar content per vehicle increased 8% during the quarter, while European average dollar content per vehicle was essentially unchanged from the same period last year.
Meanwhile, external production sales in Rest of World, comprising primarily Asia, South America and Africa, surged 35% to US$193 million for the third quarter, mainly driven by increased production in China, Korea and Brazil, and on the launch of new programs subsequent to the year-ago quarter in China and Japan.
Magna's complete vehicle assembly sales for the quarter decreased 38% from the prior-year quarter to US$428 million, while complete vehicle assembly volumes declined 42% to approximately 14,700 units. Tooling, engineering and other sales for the latest quarter decreased 32% to $330 million from $487 million in the same period last year.
Year-To-Date Results
For the first nine months of fiscal 2009, Magna's net loss was US$354 million or US$3.17 per share, compared to net income of US$219 million or US$1.92 per share in the previous-year period.
Operating loss for the period was US$386 million, compared to operating income of US$493 million a year ago.
Sales for the nine-month period fell 36.7% to US$11.95 billion from US$18.87 billion in the same period last year.
Magna's vehicle production in the nine months declined 41% to 5.8 million units in North America and 27% to 8.5 million units in Europe.
Looking ahead, Magna noted that future vehicles sales and production may be negatively impacted as the CARS program in the U.S. ended in the third quarter of 2009 and as several European programs have reached, or are close to their funding limit.
Other Developments
In early September, General Motors agreed to sell its majority stake in its Opel and Vauxhall units to a Magna-led consortium. Magna had teamed up with Russian auto maker OAO GAZ Group and state-controlled Russian financial group OAO Sberbank for the deal, which was originally expected to be signed in early October and close by the end of November. However, on November 3, General Motors said that its board of directors has decided to terminate the sale process for Opel.
Stock Quotes
MGA closed Thursday's regular trading session on the NYSE at US$44.20, up US$0.62 or 1.42% on a volume of 1.61 million shares. In the past 52 weeks, the stock has been trading in a range of US$19.63-US$51.96.
On the Toronto Stock Exchange, MG.A.TO closed Thursday's regular trading session at $47.07, down C$0.27 or 0.57% on a volume of 0.43 million shares. The stock has been trading in a range of C$0.39-C$47.45 in the past 52 weeks.
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