Magna shares plunge after disappointing Q4 results: ‘Another difficult year’

Shares of Magna International Inc. were down almost 15 per cent in late-morning trading Friday as the company reported financial results that came in below expectations.

“2022 was another difficult year for the automotive industry and for Magna,” said company chief executive Swamy Kotagiri on an earnings call with analysts.

Supply disruptions that were expected to have cleared up last year did not, leading to continued volatility in auto production that made for significant inefficiencies in Magna’s operations, he said.

The combination of last-minute production stops at its automaker customers, operating underperformance at some facilities, and higher warranty expenses contributed to a squeeze in fourth quarter margins, said Kotagiri.

“Unfortunately, we ended a difficult year with disappointing Q4 results relative to our expectations entering the quarter.”

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The auto parts company, which keeps its books in U.S. dollars, says it earned US$95 million or 33 cents per share in the quarter ended Dec. 31, down from US$464 million or US$1.54 per diluted share in the last three months of 2021.

Sales totalled US$9.57 billion, up from US$9.11 billion a year earlier.

On an adjusted basis, Magna said it earned 91 cents per diluted share in the fourth quarter of 2022, down from an adjusted profit of US$1.30 per diluted share in the same quarter a year earlier.

Analysts on average had expected a profit of US$1.02 per share, according to estimates compiled by financial markets data firm Refinitiv.

The company’s margin on earnings before interest and taxes declined to 3.7 per cent for the fourth quarter, while in November it had revised down its margin expectations to between 4.8 per cent and five per cent for the year. The lower margins led to free cash flow that was also came in below its outlook.

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The results helped push the company’s share price down $12.85, or 14.8 per cent, in mid-morning trading on the Toronto Stock Exchange.

Looking ahead, Magna doesn’t expect a quick recovery as margins for 2023 are expected somewhere in the wide range of between 4.1 per cent and 5.1 per cent, compared with 5.6 per cent in the fourth quarter of 2021.

The company expects greater improvements by 2025, with margins of between 6.7 and 7.8 per cent, when production volatility and other pressures are expected to have eased.

“We are hoping that the market stabilizes,” said Kotagiri.