Magna Q2 profits hit record on 3% revenue gain

on Aug12

A Mercedes-Benz G-Class SUV is assembled at Magna International’s plant in Graz, Austria, in Dec. 2015. Magna CEO Don Walker said the company is “still expecting margins in Europe to expand.” Photo credit: BLOOMBERG

Magna International Inc. reported record second-quarter net income of $561 million, up 0.5 percent from a year earlier.

Net revenue in the quarter ended June 30 rose 3 percent to $9.68 billion, driven in part by Asian sales that increased 10 percent to $681 million. Sales in North America, Magna’s largest market, edged up 0.9 percent to $5.37 billion, while European sales advanced 3.3 percent to $3.63 billion.

The Canadian auto supplier’s quarterly financial report comes as talks to revamp the North American Free Trade Agreement begin next week in Washington. Magna, which has major operations in each of the member countries, warned Friday the risks to its business are “the growth in protectionism and the implementation of measures that impede the free movement of goods, services, people and capital.”

The company said North American production fell 3 percent during the quarter from a year earlier to 4.45 million units. The decline in output was offset by a gain in revenue from new contracts to build parts and components for models such as the Jeep Compass, Chevrolet Equinox and Lincoln Continental.

In Europe, Magna said gains in complete vehicle assembly and tooling revenue were offset by a 1 percent dip in external production revenue — or sales of major parts and component systems. European vehicle production fell 1 percent to 5.84 million units.

Revenue gains in Magna’s Asia region reflected a 16 percent increase in external production revenue, offset by a 17 percent dip in tooling and engineering sales.

Magna said the cost of its goods sold rose 2.8 percent to $8.28 billion during the second quarter on higher materials and labor outlays, in addition to acquisition costs.

Magna, in addition to building a variety of parts, assembles vehicles on contract for automakers at plants around the world. Its biggest customers include General Motors, Ford Motor Co. and Volkswagen AG.

Sales in Magna’s complete vehicle assembly business surged 14 percent to $743 million. The gain in assembly business was due in large part to the start of BMW 5-series output at its Graz, Austria, plant, the company said in a statement.

Revenue from Magna’s tooling and engineering business declined 3 percent to $772 million.

Magna said much of the decline in the tooling business was due to weak European, Canadian and British currencies against the U.S. dollar. Magna said it recorded tooling and engineering sales for models including the Chevrolet Silverado, Chevrolet Traverse, Porsche Panamera and BMW 4 series in the second quarter.

The supplier, raising its outlook for the remainder of 2017, said it anticipates sales revenue of between $37.7 billion and $39.4 billion for the year, up from an earlier range of between $36.6 billion and $38.3 billion. It anticipates North American vehicle production dipping slightly to 17.4 million units, along with European production of 22.1 million units.

Magna International CEO Don Walker, in a conference call with analysts, said the company was “still expecting margins in Europe to expand” and “a fairly strong second half in North America.”

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