Magna International Inc. said its second-quarter income plunged 28 percent to $452 million as the diversified auto supplier posted weaker results across most of its core business lines.
Revenue fell 1 percent to $10.1 billion.
The company also trimmed its sales forecast for the year on Thursday, as it expects a drop in vehicle production in Europe and North America due to weak global demand and the impact of U.S.-China trade tensions.
The North American automotive industry has been grappling with the fallout of the trade war, with several automakers already warning of higher costs as tariffs add billions of dollars in costs to vehicle production and assembly.
“I think our view today, which obviously we’ll have to fine tune as we get into our 2020 outlook, is that there will probably be a little more softening in North America, and in Europe, as well,” Magna CFO Vince Galifi said during a call with investors.
"China, hopefully, has bottomed out. I’d say from a macroeconomic perspective, there is heightened uncertainty with various trade discussions going on around the globe. It’s something that we’re monitoring very closely.”
The supplier said it now expects total sales of $38.9 billion to $41.1 billion in 2019, compared with its previous estimate of $39.1 billion to $41.3 billion.
Magna shares rose 4 percent to $50.33 in morning trading.
Lower production
The company -- which also assembles cars in Austria for BMW, Daimler and Jaguar Land Rover -- cut its forecast for light vehicle production volume in North America to 16.6 million from 16.7 million. For Europe, it was trimmed to 21.4 million from 21.5 million.
In China, where vehicle production fell 19 percent in the second quarter, Magna cut 2019 vehicle production estimates for its top 30 vehicles to 2.6 million units from 2.8 million.
Excluding one-time items, the company earned $1.59 per share, while analyst were expecting $1.53, according to IBES Refintiv data.
Sales in North America, Magna’s largest market, were down 4 percent to $5 billion, while sales in Asia tumbled 22 percent to $547 million. European sales gained 4 percent to $4.5 billion, while sales in other markets grew 12 percent to $155 million.
Margins fall
Adjusted earnings before interest and taxes fell 16 percent from a year earlier to $677 million. Magna blamed lower margins on higher engineering costs related to advanced driver-assistance systems, as well as the costs of launching a new seating facility.
“We should start to see light at end of the tunnel by the end of the year, so we should see some of that margin improvement come back in 2020,” Galifi said.
Revenue from Magna’s body exteriors and structures business fell 6.8 percent from a year earlier to $4.2 billion. Magna pinned the lower sales on decreased production volume, the end of business related to Chevrolet Cruze production and weak exchange rates for Canadian, European and Chinese currencies.
Sales in its power and vision unit, which includes powertrains, electronics, mirrors and lighting, dipped 12 percent from a year earlier to $2.81 billion.
Seating unit revenue rose 2 percent to $1.45 billion due in large part to new program launches. Sales revenue at its vehicle assembly business surged 41 percent to $1.8 billion as assembly volumes rose 28 percent.
Better than expected
Magna noted that when excluding the impact of currency translation, and less revenue generated by divested businesses, most of its units improved their performance.
CEO Don Walker said the company actually posted better results than its own internal projections.
"Second quarter results came in slightly ahead of our expectations and our sales once again outpaced global vehicle production," Walker said in a statement. "We have been taking steps to optimize our business in response to lower industry volumes. Our 2019 outlook is largely unchanged despite our expectation of continued challenging automotive market conditions."
Antitrust investigation
Magna said in its earnings report that it is the subject of “a formal administrative proceeding into alleged anticompetitive behavior” by the Brazilian government. The supplier said it was informed of the proceeding in May.
Brazil’s competition authority had visited one of the company’s offices in the country in September 2014 as part of an antitrust investigation related to door latches, Magna said. The company said such proceedings can “continue for several years.”
Magna said Brazil could impose penalties or fines if “wrongful conduct is found,” though it said it “does not currently anticipate any material liabilities” to stem from the review.
Magna ranks No. 3 on the Automotive News Europe list of top 100 global parts suppliers, with worldwide sales to automakers of $40.8 billion in 2018. Europe accounted for 42 percent of the total.
Reuters and Automotive News staff contributed to this report
