Magna International Inc. (MGA) posted a profit of $293 million or $2.59 per share in the second quarter of the year compared with a loss of $205 million or $1.83 per share in the prior-year quarter. The company outdid the Zacks Consensus Estimate of $1.51 per share.
Magna benefited from a recovery in light vehicle production (LVP) in its two principal markets, North America and Europe. LVP in North America surged 75% while that in Western Europe increased 13% during the quarter. During the quarter, average dollar content per vehicle in North America and Europe rose by 27% and 8%, respectively.
Magna’s revenues shot up 63% to $6.05 billion, which was higher than the Zacks Consensus Estimate of $5.43 billion. Operating income improved to $373 million from an operating loss of $237 million in the second quarter of 2009.
Revenue from External Production Sales segment (which comprises three geographic regions – North America, Europe, and Rest of World (ROW) soared 71% to $5.05 billion. External production sales in North America jumped 123% to $3.02 billion, Europe increased 23% to $1.77 billion and ROW swelled 69% to $261 million.
Sales in the Complete Vehicle Assembly segment escalated 39% to $590 million, while assembly volumes surged 59% or 8,330 units. Sales in the Tooling, Engineering and Other segment went up 22% or $75 million.
In the first half of the year, Magna’s cash flow from operations improved to $593 million from an outflow of $11 million in the same period of 2009 due to an increase in net income. Capital expenditures increased by $51 million to $297 million during the period.
As of June 30, 2010, Magna had cash and cash equivalents of $1.70 billion. Long-term debt was $84 million as of that date. The long-term debt to capitalization ratio was as low as 1.1%.
Despite the improved results, we remain concerned about the pressure on Magna’s margins, which we believe will contract further due to an unfavorable business mix. Moreover, large OEMs, which are cutting costs to improve profitability, demand pricing concessions from suppliers. This is again translating into pressure on Magna’s margins. As a result, we recommend the shares of the company as Zacks #3 Rank (Hold) in the short term.
MAGNA INTL CL A (MGA): Free Stock Analysis Report
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