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Why Is Magna (MGA) Down 12.4% Since Last Earnings Report?

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It has been about a month since the last earnings report for Magna (MGA - Free Report) . Shares have lost about 12.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Magna due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Magna Beats Q3 Earnings Estimates, Lowers Guidance

Magna delivered third-quarter 2018 adjusted earnings per share of $1.56, beating the Zacks Consensus Estimate of $1.49. Further, the bottom line came in higher than the year-ago figure of $1.39.

Revenues increased 9% year over year to $9.6 billion. However, the top line missed the Zacks Consensus Estimate of $9.8 billion. The quarter witnessed light vehicle production rise 4% in North America while remaining unchanged in Europe.

Moreover, adjusted EBIT declined to 699 million from the year-ago figure of $705 million.

Segment Performances

Revenues at the Body Exteriors & Structures segment was $4.2 billion in the reported quarter compared with $4 billion recorded in third-quarter 2017. Moreover, adjusted EBIT rose 5.2% year over year to $322 million.

Revenues at the Power & Vision segment totaled $2.9 billion in comparison with $2.8 billion recorded in the prior-year quarter. Adjusted EBIT declined 3.4% year over year to $258 million.

Revenues at the Seating Systems segment totaled $1.22 billion compared, almost flat year over year. Adjusted EBIT declined 27.4% year over year to $69 million.

Revenues from the Complete Vehicles segment increased to $1.39 billion in the quarter under review from $938 million in third-quarter 2017. Adjusted EBIT rose 41.2% year over year to $24 million.

Financials

Magna had $884 million of cash and cash equivalents as of Sep 30, 2018, compared with $726 million as of Dec 31, 2017. The company had long-term debt of $3.1 billion as of Sep 30, 2018, compared with $3.2 billion recorded on Dec 31, 2017.

At the end of third-quarter 2018, Magna’s cash flow from operations was $1.08 billion in comparison with $882 million recorded in the third quarter of the prior year.

Capital Deployment

The company’s board of directors has announced a quarterly dividend of 33 cents per share for the third quarter. This dividend will be paid on Dec 7, 2018, to shareholders of record as of Nov 23, 2018.

During the reported quarter, Magna repurchased 9.2 million shares for $520 million.

2018 Outlook

Magna lowered 2018 outlook to take into account lower light vehicle production, lower equity earnings in European transmission joint venture and higher costs in Body Exteriors & Structures segment.  For 2018, the company anticipates light-vehicle production in North America of around 17 million units, marking a decline from the previous anticipation of 17.2 million. For Europe, it is expected to be 22.5 million units, down the prior guidance of 22.6 million units.

Moreover, Magna expects total sales of $40.3-$41.4 billion compared with the prior expectation of $40.3-$42.5 billion. The anticipation for total sales includes projected sales for Body Exteriors & Structures, Power & Vision, Seating Systems and Complete Vehicle, each in the band of $17.3-$17.7 billion, $12.3-$12.6 billion, $5.4-$5.6 billion and $5.9-$6.1 billion, respectively.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.75% due to these changes.

VGM Scores

Currently, Magna has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Magna has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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