Canadian auto-industry supplier Magna International (NYSE:MGA) said on Feb. 19 that its fourth-quarter net income jumped 68% from a year ago, to $738 million, as its automaker clients produced more vehicles than expected. 

On an adjusted basis, excluding one-time items, Magna earned $2.83 per share in the fourth quarter, well ahead of the $2.03-per-share Wall Street consensus estimate reported by Thompson Reuters. Magna's fourth-quarter revenue of $10.57 billion was also above the consensus estimate of $10.12 billion.

As expected, Magna's full-year 2020 net income fell from $1.76 billion in 2019 to $757 million. Despite the expected decline, the final result was also above Wall Street expectations.  

The Magna logo on a red vehicle's door.

Image source: Magna International.

What happened at Magna in 2020

Magna, like other auto suppliers, had a lot to manage amid the COVID-19 pandemic, including factory shutdowns and restarts at facilities (over 300 of them, in Magna's case) throughout the world. But the company's business recovered and grew (by about 5%) in the second half of 2020, setting the stage for a good 2021.

Highlights:

  • An ongoing cost-reduction program was successful, reducing costs by about $200 million per year going forward.
  • Magna won expanded collaborations with electric-vehicle start-up Fisker (NYSE:FSR) and battery maker LG Chem (OTC:LGCLF). Magna's contract-manufacturing arm, Magna Steyr, will build Fisker's Ocean electric SUV. 
  • Magna's sales growth in North America, Europe, and Asia outpaced the overall markets' in the second half of 2020, on rising demand for components for advanced driver-assist systems and electric vehicles. 
  • Magna's adjusted EBIT (earnings before interest and tax) margin rose to 10.4% in the fourth quarter from 6.3% a year ago -- a strong result for an auto supplier. 

Magna's fourth-quarter result also benefited from a good year-over-year comparison: The company's results were hit hard in the fourth quarter of 2019 by the protracted strike against General Motors' (NYSE:GM) U.S. factories. 

Cash, debt, and one-time items

Magna ended 2020 with $3.27 billion in cash on hand, up from $1.28 billion at the end of 2019. Against that, it had $3.97 billion of long-term debt at year end versus $3.06 billion at the end of 2019.

Magna took about $100 million in one-time charges in the fourth quarter, most of which were related to restructuring efforts, including that cost-reduction push and the closure of two Magna factories related to Ford Motor Company's (NYSE:F) decision to end its manufacturing in Brazil. 

Looking ahead: Magna's guidance for 2021 and 2023

Magna provided guidance for 2021 and a forecast of its sales and margin in 2023. 

Metric 2021 Guidance 2023 Guidance
Revenue Between $40 billion and $41.6 billion Between $43 billion and $45.5 billion
Adjusted EBIT margin Between 7.1% and 7.5% Between 8.1% and 8.6%
Net income Between $2.1 billion and $2.3 billion Not provided
Capital spending About $1.6 billion Not provided

Data source: Magna International. "Adjusted EBIT" is earnings before interest and tax minus one-time items.

Magna said that it will update the 2021 guidance as the year unfolds. 

The raw numbers

Note that while Magna is a Canadian company, it reports its results in U.S. dollars.

Metric Q4 2020 Q4 2019 Full Year 2020 Full Year 2019
Revenue $10.57 billion $9.39 billion $32.65 billion $39.43 billion
Adjusted EBIT $1.1 billion $590 million $1.68 billion $2.55 billion
Adjusted EBIT margin 10.4% 6.3% 5.1% 6.5%
Net income $738 million $440 million $757 million $1.77 billion
Adjusted earnings per share $2.83 $1.41 $3.95 $6.05

Data source: Magna International. "EBIT" is earnings before interest and tax. "Adjusted" figures exclude one-time items.

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