Magna International Inc. (MGA) showed a profit of $243 million or 99 cents per share (before unusual items) in the fourth quarter of 2010 in sharp contrast to a loss of $5 million or 2 cents per share (before unusual items) in the corresponding quarter of 2009. However, the company failed to meet the Zacks Consensus Estimate of $1.02 per share.
The improved results were attributable to better margins earned on increased sales on the back of significantly higher vehicle production volumes. Vehicle production increased 7% both in North America and in Europe to 2.99 million units and 3.54 million units, respectively.
Besides, lower costs as well as productivity and efficiency improvements at some of company’s facilities also contributed to the growth in earnings. However, the growth in earnings was partially offset by an increase in the weighted average number of diluted shares outstanding during the quarter.
Revenues in the quarter appreciated 22% to $6.60 billion, driven by higher sales in all the segments. The company generated operating income of $222 million (3.4% of sales) compared with an operating loss of $125 million (2.3%) in the fourth quarter of 2009. The increase in operating income was driven by the same factors that affected the profit during the quarter.
Segment Results
Revenues from External Production Sales segment (which comprises three geographic regions – North America, Europe, and Rest of World or ROW) escalated 21% to $5.28 billion. External production sales in North America grew 25% to $3.03 billion, Europe scaled up 14% to $1.96 billion and ROW soared 32% to $292 million. These reflected growth in average dollar content per vehicle by 17% to $1,015 in North America and 6% to $553 in Europe.
Revenues in theComplete Vehicle Assembly segment rose 19% to $608 million as assembly volumes surged 59% or 9,315 units. Meanwhile, revenues in the Tooling, Engineering and Other segment swelled 30% or $710 million. Sales in both the segments were negatively impacted by weakening of the euro against the U.S. dollar.
Dividend Raised Again
Due to higher profits, the company raised its quarterly cash dividend by 39% to 50 cents per share from 36 cents per share for the fourth quarter of 2010 on top of a 20% increase to 36 cents per share from 30 cents per share for the third quarter of the 2010.
On November 24, 2010, Magna has completed a two-for-one stock split, which was implemented by way of a stock dividend. Therefore, after giving effect to the stock split, the increased dividend will be 25 cents per share, up from 18 cents per share. This dividend is payable on March 23, 2011 to shareholders of record on March 11, 2011.
Full Year Performance
For full year 2010, Magna reported a profit of $1.01 billion or $4.33 per share (before unusual items) compared with a loss of $298 million or $1.33 per share (before unusual items) in the previous year. The profit was close to the Zacks Consensus Estimate of $4.32 per share.
Higher light vehicle production in North America and Europe and positive impact from the company’s efforts to reduce costs and to improve underperforming operations around the world led the growth in yearly profit.
Light vehicle production in North America zoomed 39% to 11.95 million units in 2010, compared to the historically low level in 2009 led by improvement in auto sales. Light vehicle production in Western Europe went up 12% to 13.30 million units during the year, driven by strong vehicle sales in certain European countries as well as increased exports of European-built vehicles into other markets, particularly China.
Sales in the year leapt 39% to $24.10 billion driven by increased sales in all the segments. The company earned an operating income of $1.20 billion (5% of sales) during the year in contrast to an operating loss of $511 million (2.9%) in the previous year due to the same factors affecting the annual profit.
Financial Position
As of December 31, 2010, Magna had cash and cash equivalents of $2.11 billion compared with $1.33 billion in the corresponding period a year ago. Long-term debt stood at $71 million, reflecting a low long-term debt-to-capitalization ratio of 0.9%.
In 2010, Magna’s cash flow from operations more than tripled to $1.87 billion from $527 million in the same period of 2009, primarily due to an increase in profit. Meanwhile, capital expenditures increased to $784 million to $629 million during the period.
2011 Outlook
For the full year 2011, Magna anticipates sales in the range of $25.6 billion–$27.1 billion based on light vehicle production of 12.9 million units in North America and 13.3 million units in Western Europe. Complete vehicle assembly sales are anticipated in the range of $2.4 billion–$2.7 billion. The company also expect operating margin (excluding unusual items) of 5% for the year.
Our Take
Magna, based in Aurora, Canada, is a leading manufacturer and supplier of automotive components. The company designs, develops and manufactures automotive systems, assemblies, modules and components, besides engineering and assembling complete vehicles, primarily for sale to original equipment manufacturers (OEMs) of cars and light trucks. Its principal customers include BMW, Chrysler/Fiat, Daimler, Ford Motor (F), General Motors (GM) and Volkswagen, which constitute more than 80% of its total revenues.
The company 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. Increasing content per vehicle is the main driver of Magna’s growth. Further, the company is gaining from major business wins. These led the company to retain a Zacks #1 Rank on its stock, which translated to a recommendation of “Strong Buy” for the short term (1 to 3 months).
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