Magna Beats, Profits Up 44%

Magna International Inc. (MGA) reported a 44% rise in profit to $1.34 per share (excluding an impairment charge related to write down of real estate) in the first quarter of 2011 from 93 cents per share (excluding a gain from sale of facility) in the same quarter of 2010. The profit exceeded the Zacks Consensus Estimate by 21 cents per share.

In absolute terms, profit increased 58% to $331 million from $210 million a year ago. The improvement was attributable to higher light vehicle production in the company’s two principal markets, North America and Europe.

Sales in the quarter surged 34% to $7.19 billion, exceeding the Zacks Consensus Estimate of $6.52 billion. The increase in sales was attributable to a 17% rise in vehicle production in North America and 10% in Western Europe on a year over year basis.

Magna generated operating income (adjusted) of $409 million (5.7% of sales) during the quarter, up from $264 million (4.9% of sales) in the first quarter of 2010. The increase in operating income was driven by increased margins earned on higher sales as a result of significantly higher vehicle production volumes.

Segment Results

Revenue from External Production Sales segment (which comprises three geographic regions – North America, Europe, and Rest of World or ROW) escalated 33% to $6.06 billion. External production sales in North America soared 34% to $3.56 billion, Europe rose 28% to $2.18 billion and ROW swelled 69% to $316 million. Adjusted EBIT was $408 million versus $261 million a year ago.

Revenues in the Complete Vehicle Assembly segment shot up 51% to $674 million as assembly volumes jumped 85% or 33,302 units. Meanwhile, revenues in the Tooling, Engineering and Other segment rose 31% or $454 million.

Financial Position

As of March 31, 2011, Magna had cash and cash equivalents of $1.57 billion compared with $1.88 billion as of December 31, 2010. Long-term debt stood at $75 million, reflecting a low long-term debt-to-capitalization ratio of 0.87%.

In the quarter, Magna had a cash outflow of $112 million from operations compared with an inflow of $40 million in the same period of 2010 due to unfavorable changes in non-cash operating assets and liabilities. Meanwhile, capital expenditures increased by $16 million to $144 million during the period.

Guidance

For the full year 2011, Magna anticipates sales in the range of $27.1 billion–$28.5 billion ($24.8 billion–$26.3 billion previously) based on light vehicle production volumes of 13.2 million units in North America (12.9 million units previously) and 13.6 million units in Europe (13.3 million units previously). Meanwhile, the company reiterated its operating margin guidance of low to mid 5% and capital spending guidance of $1.0–$1.1 billion for the year.

Our Take

Magna commands a strong competitive position in the industry, as it is one of the few providers of a complete range of interior and exterior auto systems to global auto companies. However, Magna is likely to lose out on market share to its Asian counterparts, and it faces threats from rising material costs.

These factors have led the company to retain a Zacks #3 Rank on its stock, which translated to a recommendation of Hold for the short term (1–3 months) and we have reiterated our recommendation of “Neutral” for the long term (more than 6 months).

Peer Performance

Magna’s competitor, Dana Holding Corporation (DAN), reported a robust increase in profit to 34 cents per share in the first quarter of 2011 from 6 cents per share in the prior-year period driven by positive impact from new labor union agreements, restructuring of balance sheet, investment in key markets.

The company has beaten the Zacks Consensus Estimate by 6 cents per share. Sales in the quarter grew 20% to $1.8 billion, up from the Zacks Consensus Estimate of $1.69 billion.

DANA HOLDING CP (DAN): Free Stock Analysis Report

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