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Magna International Inc. (MGA - Analyst Report) witnessed a 28.7% rise in profits to $1.48 per share in the second quarter of 2012 from $1.15 in the corresponding quarter last year, surpassing the Zacks Consensus Estimate of $1.28.

The year-over-year improvement in earnings per share was attributable to higher profits and a fall in share count stemming from repurchase and cancellation of common shares during the period. In absolute terms, profits were $349 million in the reported quarter, up 24% from $282 million in the year-ago quarter.

Revenues went up 5% to $7.7 million in the reported quarter, exceeding the Zacks Consensus Estimate of $7.5 billion. The increase in revenues was driven by improvement in North American and Rest of World (ROW) production sales and higher tooling, engineering and other sales.

Revenues in the quarter were partially offset by a decline in complete vehicle assembly and European production sales. Vehicle production rose 28% to 3.9 billion units in North America and 7% to 3.3 billion units in Western Europe.

Operating income augmented 30% to $470 million in the quarter from $362 million in the year-ago quarter. The year-over-year improvement was driven by margin expansion from increased production sales and newly launched programs.  

Segment Details

Revenues from External Production Sales (comprising North America, Europe and ROW units) went up 7.3% to $6.6 billion in the reported quarter. Adjusted earnings before interest and taxes (EBIT) in the segment spiked 30.7% to $464 million from $355 million in the comparable quarter last year.

Revenues from North America increased 11% to $3.9 billion due to higher production volumes along with the launch of new programs. However, revenues from Europe came down by $9 million to $2.25 billion in the period, due to a fall in production volume along with the depreciation of Euro; resulting in decrease in U.S. dollar sales. Revenues from the Rest of the World increased 24% to $415 million, based on accretive acquisitions and the launch of new programs in the period.

Revenues from the Complete Vehicle Assembly segment went down 11% to $645 million in the quarter with a 6% fall in assembly volumes to 33,064 units. The decline was due to lower volume of Peugeot RCZ and unfavorable currency exchange. Revenues from Tooling, Engineering & Other grew 6% to $511 million for the second quarter of 2012.

Financial

Magna International had $1.4 billion in cash and cash equivalent as of June 30, 2012 compared with $1.3 billion as of December 31, 2011. The cash balance was favorably affected by cash provided from operating activities, partially offset by lower cash flow from investing and financing activities.

The company had total debt of $263 million as of June 30, 2012 compared with $71 million as of December 31, 2011. In the first half of 2012, the company’s cash flow from operations was $693 million compared with $203 million during the first half of 2011. Capital expenditure amounted to $517 million in the period compared with $370 million in the first half of 2011.

Outlook

For full year 2012, Magna expects total production sales in the External Production segment between $24.6 billion and $25.7 billion. Complete Vehicle Assembly sales are projected in the range of $2.3 billion to $2.6 billion.

Thus, total sales of the company are expected between $29 billion and $30.5 billion for the year. Operating margin is expected within 5% with a tax rate of 25% for the year. Capital expenditures for the year are expected between $1.4 billion and $1.5 billion.

Our Take

Magna International, based in Aurora, Canada, is a leading manufacturer and supplier of automotive components. The company designs, develops and manufactures automotive systems, assemblies, modules and components, besides engineering and assembling complete vehicles, primarily for sale to original equipment manufacturers (OEMs) of cars and light trucks. Currently, it retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating.
 

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