Magna lowers 2018 outlook due to tariffs, trade negotiations uncertainty
Canada’s largest auto parts maker anticipates net income to drop by $100 million
AURORA, Ont. – Magna International Inc. has lowered its expectations for the second half of 2018 amid uncertainty surrounding tariffs and trade negotiations between the United States and other countries, including Canada and China.
Canada’s largest auto parts maker has edged down its full-year estimates for sales, margins and other key metrics but Magna chief executive Don Walker told analysts Wednesday that it’s difficult to know what will happen longer-term.
‟As far as what’s going on with all of the tariff activity, it’s certainly in flux. Internally, it’s extremely complicated to just get our arms around everything,” Walker said in a quarterly conference call.
Magna now estimates that its total sales will be in a range of $40.3 billion to $42.5 billion, down about 1.4 per cent from the previous outlook range.
Adjusted net income attributable to Magna is now estimated at $2.3 billion to $2.5 billion, down $100 million from both the top end and lower end of the range. Meanwhile, pre-tax margin is now estimated at between 7.7 per cent and 7.9 per cent – down from 7.9 per cent and 8.2 per cent.
‟As far as what happens with tariffs long-term, it’s anybody’s best guess,” Walker said. ‟I would hope that eventually we will get to the point where we have got an agreement on NAFTA – in which case I think everything between Canada, the U.S. and Mexico gets resolved.”
The United States has already imposed 25 per cent tariffs on imported steel and 10 per cent tariffs on imported aluminum from many countries – increasing costs for manufacturers like Magna that use the metals in their products – and is investigating the potential for new tariffs on automotive imports.
In addition to those tariffs, which affect NAFTA partners Canada and Mexico, the United States has threatened to hit a wide range of imports from China with billions of dollars of tariffs.
On Tuesday, the Trump administration announced it would go ahead with previously announced 25 per cent tariffs on an additional $16 billion of Chinese imports. There was no immediate response from Beijing.
Washington also has threatened possible penalties on a $200 billion list of Chinese goods. Beijing says it is ready to retaliate against $60 billion of American imports.
Magna – which has manufacturing operations in all three NAFTA countries, China and throughout Europe, recorded $626 million in net income during the second quarter, or $1.77 in diluted earnings per share, with overall revenue up $1.14 billion from the same time last year to $10.28 billion – a record second quarter for Magna.
The Aurora, Ont., auto parts maker, which keeps its books in U.S. dollars, says the figures are an improvement from $548 million in net income and $1.44 per share in the same quarter of 2017.
Magna said its per-share earnings benefited from several factors including U.S. tax reforms and the favourable impact of a reduced share count.
Adjusted diluted earnings per share grew 15 per cent to $1.67 compared to $1.45 in the second quarter of 2017. Magna says it returned $844 million to shareholders through repurchases and dividends.
Magna also reports that sales during the quarter amounted to $10.28 billion, an increase of 12 per cent over 2017 thanks to growth in each of its operating segments.
Magna says its light vehicle production increased seven per cent in Europe and was essentially unchanged in North America.