TORONTO — Magna International Inc. cut its outlook for the year due to lower than expected global auto production and increased costs as it reported a first-quarter profit of US$364 million Friday.
Magna, which keeps its books in U.S. dollars, said the profit amounted to US$1.22 per diluted share for the quarter ended March 31, down from a profit of US$615 million or US$2.03 per diluted share a year earlier.
The Aurora, Ont.-based auto parts company said it expects supply constraints to continue for the remainder of 2022, particularly in semiconductors.
It also said its operations in Russia “remain substantially idle.” In early March, Magna said it would pause operations at its six facilities in Russia in response to the country’s invasion of Ukraine.
The plants in Russia make parts primarily for Hyundai and Volkswagen cars and employ around 2,000 people. Magna’s Russia operations generated sales of $371 million in 2021.
“Effectively, what we’ve done is we have zero sales for Russia on a go-forward basis for 2022,” said Magna chief financial officer Patrick McCann during the company’s earnings call with analysts.
The mandatory COVID-19 lockdowns and stay-at-home orders in China are also starting to put some strain on the business, impacting sales and production, the company said Friday. Light vehicle production volumes in China were better than expected in the first quarter, but the company has reduced expectations for the rest of the year.
Some other risks to Magna’s bottom line include energy security in Western Europe, particularly in Germany and Austria where the company has significant operations, and inflation related to energy, commodities, transportation, and logistics. However, Magna sees inflation pressures being somewhat less of an issue in the second half of 2022.
“I would say, just broadly, that the inflation impacts will be heavier weighted towards the first half of the year compared to the second half of the year,” said McCann.
Magna’s first-quarter salestotaled US$9.64 billion, down from US$10.18 billion in the first three months of 2021.
On an adjusted basis, Magna said it earned US$1.28 per diluted share, down from an adjusted profit of US$1.86 per diluted share a year earlier.
In its outlook for the full year, Magna said it now expects sales to total between US$37.3 billion and US$38.9 billion, down from an earlier forecast of between US$38.8 billion and US$40.4 billion.
Net income attributable to Magna is expected to be between US$1.3 billion and US$1.5 billion, down from its previous forecast of between US$1.7 billion and US$1.9 billion, according to the updated outlook.
“We believe the company navigated the issues well in the quarter, and we expect management to remain focused on reducing expenses and to align the business with market demand,” Edward Jones analyst Jeff Windau said in a note. “While we anticipate near-term volatility with production volumes, we believe there is long-term demand for vehicles.”
The company is down over one per cent today and down about 23 per cent year-to-date.
This report by The Canadian Press was first published April 29, 2022.
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