Magna Q3 earnings flat on challenges at European plants

Company reports 7.3% rise in sales to $9.5 billion

Magna's quarterly sales in North America fell as automakers produced fewer vehicles.
UPDATED: 11/9/17 11:15 am ET -- corrected

Editor's note: A previous version of this story mischaracterized some of Magna's regional sales. North American sales were down and European sales increased.

Canadian auto parts maker Magna International Inc. said third-quarter profits were flat despite rising revenue as the company was hampered by challenges at two newly acquired European plants.

Net income of $503 million was the same as reported a year earlier, Magna said in a statement Thursday. Operating income before taxes was $670 million, compared with $692 million in the third quarter of 2016

Sales rose 7.3 percent to $9.5 billion.

Magna said it faced challenges at two Getrag powertrain plants in Europe. One plant experienced “unplanned and unexpected product launch costs,” while another faced volume shortfalls because of lower customer demand.

Magna agreed in July 2015 to buy German manufacturer Getrag for $1.9 billion.

Third-quarter income at Getrag plants fell $20 million. The profitability of joint ventures in Asia was also down because of lower volumes there.

The company, headquartered in Aurora, Ontario, reports earnings and sales in U.S. dollars.

Sales up

Magna’s 7.3 percent increase in quarterly sales was helped by strong demand in Europe, which offset declining light-vehicle production in North America.

Magna managed to achieve the sales increase during a period in which European light-vehicle production increased 8 percent and North American light-vehicle production decreased 7 percent.

Sales in Europe rose 14 percent to $2.5 billion in the third quarter.

Meanwhile, the bulk of Magna's sales are still in North America, where revenue was down 5 percent to $4.6 billion. For the year, the company said it still expects North American sales to be between $19.2 and $19.6 billion, nearly double European sales.

Third-quarter sales in Asia rose 5 percent to $576 million.

Magna CEO Don Walker said light-vehicle production in North America will likely continue to fall over the next few years. He didn’t say how that might affect his company’s business plan, which is currently being tweaked.

Vehicle assembly

Magna counts General Motors, Volkswagen AG, BMW AG and Ford Motor Co. as its biggest customers.

It also assembles cars under contract from some automakers, and that business was brisk in the quarter.

Complete vehicle assembly sales increased 55 percent in the third quarter of 2017, largely reflecting the launch of the BMW 5 series at Magna’s assembly facility in Graz.

Walker said he was pleased with the third-quarter results.

“Our product breadth combined with complete vehicle design and engineering capabilities uniquely positions Magna to be a supplier of solutions,” he said in a statement.

Investing and NAFTA

Citing “capital spending discipline,” the company scaled back its projected capital spending to $1.9 billion, down slightly from $2 billion.

Walker said the future of NAFTA is affecting business decisions.

“The whole thing with NAFTA is still up in the air. Anybody that is contemplating big investments long term is waiting or is biased to invest in the U.S. until there is an outcome,” Walker said. “I can’t think of any changes we’ve made [to our business plan]. We’re just going to wait and see what’s coming up.”

He’s also keeping an eye on Bill 148, which hasn’t yet come into law in Ontario. The bill includes a mandatory $15 Canadian per hour minimum wage, requires employers pay part-time employees the same wage per hour as full-time workers, and requires companies to give employees more advanced notice to changing schedules. The bill could affect investment decisions, Walker said.

“I’m not sure what the government is trying to do,” he said. “We’re waiting to see what happens in a couple different areas.”

You can reach Greg Layson at glayson@autonews.com

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