Magna Q1 net income falls 43%, but 2023 outlook improves

First-quarter net income at Magna International Inc., North America's largest auto supplier, fell 43 percent from a year earlier to $209 million as inflationary pressures took a bite out of the company's bottom line.

The supplier said higher labor, energy and engineering costs cut into its profit margin, as did lower scrap steel and aluminum sales and inefficiencies at a facility in Europe.

But sales in the period rose 11 percent from a year earlier to $10.67 billion, benefiting from improved light-vehicle production in North America and Europe and the launch of new programs. And Magna increased its financial outlook for the year on better global vehicle production estimates and as the company works to reduce expenses and improve its cost structure, CEO Swamy Kotagiri said.

"We have remained focused on driving operational improvements, working with our customers to recover inflationary costs and executing on our strategy to deliver long-term value," Kotagiri said on a Friday call with analysts.

Magna shares finished 7.5 percent higher at $54.00 when the market closed Friday.

The results come as Magna, like the rest of the supply base, navigates financial pressures brought on by inflation and numerous supply chain challenges, which have combined to significantly reduce profit margins compared with before the pandemic.

As it manages those pressures, the company said it is focusing on improving operations.

In the short term, that includes consolidating and restructuring its management and engineering functions and working to re-price underperforming programs. In the long term, Magna anticipates improved performance from the adoption of more smart manufacturing capabilities, including a gradual increase in automation and greater use of analytics, as well as reduced costs from decreases in component pricing and through managing its supply base.

The company now expects net income for the year of $1.3 billion to $1.5 billion, up from its previous estimate of $1.1 billion to $1.4 billion. It projects sales of $40.2 billion to $41.8 billion, compared with prior expectations of $39.6 billion to $41.2 billion.

It also anticipates about $8 billion in sales growth over the next three years as it launches new programs.

Programs announced by Magna in the first quarter included launching its ClearView camera monitoring system on Ram 2500 and 3500 heavy-duty trucks, supplying battery enclosures for General Motors electric pickups and providing e-drive systems for an unnamed premium automaker based in Europe.

The company expects revenue from e-powertrains, battery enclosures and advanced driver-assistance systems to surge in the coming years, from less than $1 billion in 2022 to between $6.5 billion and $7 billion by 2027. Those businesses will be profitable by 2025, Magna said.

Those projections do not include the pending acquisition of Veoneer's active safety business, which Magna announced in December. Magna said Friday that it issued $1.6 billion in debt in the first quarter in part to finance the deal.

First-quarter sales in Magna's body exteriors and structures division rose 8.9 percent to $4.44 billion thanks to new program launches and higher light-vehicle production compared with a year earlier, when the war in Ukraine and parts shortages were hitting worldwide output even harder.

Sales in the company's power and vision unit climbed 9.1 percent in the same period, while revenue from its seating business jumped 8 percent.

Revenue from Magna's complete vehicle assembly business rose 28 percent from the first quarter of 2022 on higher production. The company built 33,900 vehicles for automakers, up from 24,600 a year earlier.

Magna ranks No. 1 on the Automotive News list of the top 100 parts suppliers to North America, with parts sales of $16.65 billion in 2021.