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Magna International Inc. (MGA - Analyst Report) reported adjusted earnings per share of $1.13 in the third quarter of 2012, up 20.2% from 94 cents in the year-ago quarter and outpaced the Zacks Consensus Estimate by 10 cents.

Net income increased 17.2% to $265.0 million from $226.0 million in the third quarter of 2011. Adjusted profit in the quarter excludes gain from the acquisition of 27% interest in Magna E-Car Systems Partnership of $125.0 million or 53 cents per share versus expense related to disposal of an interior systems operation and cost associated with settlement of claims of $124.0 million or 52 cents in the third quarter of 2011.

Meanwhile, on a reported basis, profits improved significantly to $390.0 million or $1.66 per share in the third quarter of 2012 from $102.0 million or 42 cents in the corresponding quarter last year. The year-over-year growth in earnings was attributable to higher profits and a fall in share count stemming from repurchase and cancellation of common shares during the period.

Revenues went up 6.3% to $7.4 billion in the reported quarter, exceeding the Zacks Consensus Estimate of $7.0 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, partially offset by decline in sales from European business and complete vehicle assembly.

Vehicle production rose 15% to 3.7 million units in North America. However, production declined 7% to 2.8 million units in Western Europe.

Adjusted operating income increased 20.5% to $347.0 million in the quarter from $288.0 million in the year-ago quarter. The year-over-year improvement was driven by higher margins from increased sales and launch of new programs together with improvement in productivity and efficiency in certain facilities.

Segment Details

Revenues from External Production Sales (comprising North America, Europe and ROW units) went up 5.9% to $6.1 billion in the reported quarter. Adjusted earnings before interest and taxes (EBIT) in the segment rose 24% to $346.0 million from $279.0 million in the comparable quarter last year.

Revenues from North America increased 7.5% to $3.6 billion due to the launch of new programs and higher production volume. However, revenues from Europe came down by 1.9% to $2.0 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 ROW increased 35.1% to $493.0 million, due to the completion of acquisitions of ThyssenKrupp Automotive Systems Industrial do Brasil Ltda. and the launch of new programs in the period.

Revenues from the Complete Vehicle Assembly segment went down 6.5% to $620.0 million in the quarter with a 9% fall in assembly volumes to 29,153 units. The decline was due to lower volume of Peugeot RCZ, MINI Countryman and unfavorable currency exchange. Revenues from Tooling, Engineering & Other grew 27.1% to $656.0 million for the third quarter of 2012.

Financial

Magna International had $1.4 billion in cash and cash equivalents as of September 30, 2012, compared with $1.3 billion as of December 31, 2011. The company had long-term debt of $258.0 million as of September 30, 2012 compared with $71.0 million as of December 31, 2011. Long-term debt to capitalization ratio declined to 2.7% as of September 30, 2012 from 0.1% as of December 31, 2011.

In the first nine months of 2012, the company’s cash flow from operations was $1.1 billion compared with $448.0 million during the first nine months of 2011. Capital expenditures amounted to $796.0 million in the period compared with $708.0 million in the first half of 2011.

Outlook

For full year 2012, Magna expects total production sales in the External Production segment between $25.5 billion and $26.1 billion. Complete Vehicle Assembly sales are projected in the range of $2.4 billion to $2.6 billion.

Thus, total sales of the company are expected between $30.3 billion and $31.2 billion for the year. Operating margin is expected to be mid 5% with a tax rate of 25% for the year. Capital expenditures for the year are expected to be $1.4 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. Its primary competitors include Dana Holding Corporation (DAN - Snapshot Report). Currently, it retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating.

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