Magna: BMO Reiterates Targets, Calls Q1 Results Mixed

Last week Magna International (TSX: MG) posted its first quarter financial results. The company reported total sales of $9.6 billion, down 5% year over year but beating analysts’ estimates of $9.1 billion. The company reported gross margins of 12.9%, or $1.24 billion, while operating profit cratered to $420 million, down almost 50% year over year.

In the same breath, Magna’s net income dropped 40% year over year to $364 million, representing earnings per share of $1.23. The company reported an adjusted EBIT of $507 million, down from $770 million last year during the same time.

The company also announced that global light vehicle production was down 7% year over year and specifically European production was down 16%. As a result, the company has lowered its full-year 2022 guidance on a number of line items and production results.

Magna now estimates the number of light vehicles produced during the full year in North America, Europe, and China to be 14.7, 16.4, and 24.4 million units, respectively, which is down from the 15.2, 18.5, and 24.2 million units it previously guided for, respectively.

On the line item guidance, they now expect total sales to be between $37.3 and $38.9 billion, down from $38.8 to $40.4 billion, this comes after the company lowered every single line item guidance. Additionally, they now expect adjusted EBIT margin to be 5% to 5.4%, down a full percentage point from previous guidance. Lastly, they expect net income attributable to Magna to be $1.3 to $1.5 billion, down from $1.7 to $1.9 billion.

On the earnings call, Magna said that the lowered guidance represents a “worsened geopolitical and macroeconomic environment,” and that they expect the chip shortage to continue throughout 2022. Meanwhile the firm faced additional headwinds in both Russia and China. In Russia, it has now idled all production, while in China their zero COVID policy has impacted the business’s sales and production.

Magna International currently has 13 analysts covering the stock with an average 12-month price target of US$85. Out of the 13 analysts, 2 have strong buy ratings, 9 have buy ratings, 1 analyst has a hold rating and another analyst has a sell rating on the stock. The street high currently sits at US$120.

In BMO Capital Markets’ note on the results, they reiterate their market perform rating and US$63 12-month price target saying that the results seemed mixed. While the company lowered its guidance it came in line with BMO’s estimates but below the consensus estimates.

On the first quarter results, BMO says the company beat all of BMO’s estimates, primarily they mention that Magna reported an adjusted EPS of $1.28 while their estimate was $1.09. They say that this beat came from lower operating costs, lower tax rates, and better than expected sales.

They add, “we believe the beat suggested that Magna is ably managing the global downturn in vehicle production volumes.”

On the lowered guidance, BMO says that both the production and results guidance being lowered did not come as a surprise and that it was generally in line with their estimates.

The most notable thing BMO talks about is that during Magna’s earnings call, management stated they would see an additional $290 million in net input costs. This is on top of the $275 million the company talked about in the fourth quarter. As such, the total impact from higher input costs is now up to $565 million.

Below you can see BMO’s updated estimates.

Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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