TORONTO -- Magna International delivered a lower than expected 20-percent rise in third-quarter profit on Tuesday, squeezed by higher raw materials costs and customer demands for lower prices.
The big Canadian auto-parts group also offered an uncertain outlook for the fourth quarter, citing the challenges faced by the Big 3 North American automakers, which are its major customers.
Magna said lower output of some of its high-content auto platforms and weak North American auto production contributed to third-quarter results that fell short of its own estimates.
It also also said "significant" price increases for key commodities used in its parts production, most notably steel and resin, challenged its ledger.
Magna reported net income of $159 million, or $1.44 a share, for the period ended Sept. 30, up from a profit of $132 million, or $1.37 a share, in the same quarter last year.
But excluding unusual items related to a favorable decision in a lawsuit and restructuring charges, the company exited the quarter with a profit of $1.40 a share, according to Westwind Partners Inc. analyst Youssef Abboud.
Analysts had expected Magna to earn $1.44 a share in the quarter, according to the average estimate of nine analysts polled by Reuters Estimates.
Magna International ranks No. 3 on the Automotive News list of the top 100 global suppliers with worldwide original-equipment automotive parts sales of $19.93 billion in 2004.
Abboud, who has a "sell" rating on Magna shares with a $62 target price, does not expect Magna's profit-hungry customers to ease up on demands for lower prices from their suppliers any time soon.
Magna looks to General Motors, DaimlerChrysler and Ford Motor Co., all of which are losing market share to Japan-based automakers, for the bulk of its business.
"This is something happening across the industry and it will continue because GM and Ford are facing problems and they need to cut their costs," said Abboud. "And they will continue to ask their suppliers to cut their prices and this is not only true for Magna but for every other supplier as well."
Revenue at Magna during the quarter increased 12 percent to $5.38 billion from $4.78 billion as its average dollar content per vehicle increased in both North America and Europe.
Magna said the average dollar value of its products in North American vehicles jumped 24 percent, while European content rose 14 percent.
Unusual items recorded in the third quarter included $26 million it received from a favorable decision in a lawsuit it started in 1998 over defective materials installed by a supplier in a real estate project.
Magna also took a $14 million charge related to a facility in Europe and the privatization of Tesma International, Decoma International and Intier Automotive.
It said weaker auto production and economic uncertainty could hurt its full-year results, as could price concessions demanded by its customers.
"Some of our customers have demanded, and in light of challenging automotive industry conditions may continue to demand, additional price concessions and retroactive price reductions," the company said in a statement.
"Such concessions could have a material adverse effect on our profitability to the extent that they are not offset through cost reductions or improved operating efficiencies."
The company expects consolidated sales for 2005 of $22.3 billion to $22.9 billion, up from $20.7 billion in 2004.
However, Magna said its diluted earnings per share in 2005, minus restructuring costs and other unusual items, will fall short of the previous year.
While Magna said the first three quarters of 2005 were challenging for the automotive industry, it said its financial situation leaves it well-positioned to grow and take advantage of weakness at some of its competitors.
Delphi Corp., one of Magna's rivals, filed for the biggest bankruptcy protection case in automotive history last month due to high wage and benefit costs.
"The relative weakness of some our competitors has provided, and we believe will continue to provide, business opportunities for us," Mark Hogan, Magna's president, said on a conference call.