Canadian auto-industry supplier Magna International (MGA 1.02%) 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.
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 (FSRN -14.37%) 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' (GM -0.17%) 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 (F 0.66%) 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.
