Canadian manufacturer Magna sees earnings decline in fourth quarter due to tariffs

25 February, 2019

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Canada-based automotive supplier Magna International Inc said its profits declined in the fourth quarter despite record sales due in part to tariffs and investments in electric and autonomous vehicles.

“Despite some headwinds, we are positioned for another good year,” CEO Donald Walker told analysts in a conference call. The official expressed frustration at the Trump administration's tariffs against Mexican, Canadian and Chinese steel and aluminum, since Magna operates 58 manufacturing facilities in the United States.

“I think the tariffs continue to hurt us,” Walker said. “Tariffs within the NAFTA region...(are) bad for all three countries, including the States, because their input costs become higher, and obviously, it’s less competitive. They're mainly hurting our U.S. plants.” Magna expects the tariffs will cost it US$45 to 50 million in 2019.

Net income attributable to Magna fell 18.4% to US$456 million in the fourth quarter from US$559 million a year earlier. However, full-year 2018 net income increased 4.5% to a record US$2.3 billion on record sales of US$40.8 billion, up 12% from 2017.

Fourth quarter sales grew nearly 5% from a year earlier, to a record US$10.14 billion, as Complete Vehicle assembly sales soared 39% to US$1.7 billion. Demand was lifted by new launches for such automakers as Daimler and Jaguar.

Sales at Magna’s biggest unit, Body Exteriors & Structures, fell 4% to US$4.18 billion. The decrease in sales was primarily due to lower production volumes on certain existing programs and a US$108 million decrease due to the weakening of the Canadian dollar, euro and Russian ruble, each against the U.S. dollar.

The loss was partially offset by the launch of new programs, including the Ram 1500 Pickup, GMC Sierra & Chevrolet Silverado, BMW X3 and the Mercedes-Benz G-Class.

The company’s Power & Vision division, which provides parts for electric and self-driving vehicles, recorded a 1% increase in sales to US$2.99 billion. The increase in sales was primarily due to the launch of new programs, including the GMC Sierra and Chevy Silverado, Porsche Cayenne, BMW X3, Volvo XC60.

Revenue from its Seat Systems division hiked 10% to US$1.44 billion. This increase was primarily due to the launch of new programs, including the BMW X5, Lynk & Co. 01 and 02 and the Skoda Kodiaq and higher production volumes on certain existing programs.

Magna said it will invest US$70 million in next-generation vehicles in 2019, down from US$100 million in 2018, which will continue to erode margins in the power and vision unit.

The company operates 33 production facilities in Mexico. Except for its Complete Vehicle manufacturing division, every other business branch of Magna International has presence in the country. Overall the company’s workforce in Mexico currently totals more than 30,000 employees.

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