Magna (MGA) Down 50.7% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Magna (MGA). Shares have lost about 50.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Magna due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Magna Q4 Earnings Surpass Q4 Estimates, Down Y/Y

Magna delivered adjusted earnings per share of $1.41 in fourth-quarter 2019, beating the Zacks Consensus Estimate of $1.32. Stellar revenues in the Body Exteriors & Structures, Power & Vision and Seating Systems segments led to this outperformance. However, the bottom-line figure declined from the year-ago quarter’s $1.63.

The company’s revenues declined 7.3% year over year to $9,395 million due to a drop in light vehicle production in North America, the General Motors (NYSE:GM) strike, unfavorable foreign-currency translation impact and divestiture of the Fluid Pressure & Controls (FP&C) business. However, the reported figure surpassed the Zacks Consensus Estimate of $9,187 million.

Adjusted EBIT slid to $590 million from the year-ago figure of $730 million, primarily due to softer sales.

Segmental Performances

The Body Exteriors & Structures segment revenues dropped 6% year over year to $3,923 million in the reported quarter due to lower light vehicle production in North America, the GM strike, unfavorable foreign-currency translation impact, and net customer-price concessions. The figure, however, outpaced the Zacks Consensus Estimate of $3,854 million. Adjusted EBIT declined to $289 million from the prior-year quarter’s $356 million, reflecting lower scrap steel and aluminum recoveries as well as higher warranty and launch costs.

The Power & Vision segmental revenues fell to $2,725 million from the prior-year figure of $2,987 million, largely due to the divestiture of the FP&C business, negative foreign-currency translation impact, lower light vehicle production in North America, the GM strike and net customer-price concessions. However, the segment’s revenues surpassed the Zacks Consensus Estimate of $2,560 million. Adjusted EBIT declined to $163 million from the $254 million recorded in fourth-quarter 2018. This downside resulted mainly from elevated engineering costs in the company’s ADAS business and higher net warranty costs.

Revenues in the Seating Systems segment decreased to $1,426 million in the October-December quarter from the prior year’s $1,435 million, due to bleak light vehicle production in North America, the GM strike, unfavorable foreign-currency translation impact, and net customer-price concessions. Yet, the reported figure exceeded the Zacks Consensus Estimate of $1,392 million. Adjusted EBIT declined to $79 million from the $110 million recorded in the prior year. This downside largely resulted from higher commodity, warranty and launch costs.

The Complete Vehicles segment revenues were down 13% to $1,461 billion, year on year, primarily due to lower volumes of the Jaguar I-Pace and BMW 5-Series and negative foreign-currency translation impact. The revenue figure also missed the Zacks Consensus Estimate of $1,469 million. Adjusted EBIT grew to $44 million from the $24 million witnessed in fourth-quarter 2018 on higher sales, and lower launch and operational improvements.

Financials

Magna had $1,276 million of cash and cash equivalents as of Dec 31, 2019, compared with $684 million as of Dec 31, 2018. It had long-term debt of $3,062 million as of Dec 31, 2019, reflecting a decline from $3,084 million recorded as of Dec 31, 2018. The long-term debt-to-capital ratio stands at 22.63%, as of Dec 31, 2019.

At the end of fourth-quarter 2019, the company’s cash flow from operations was $1,696 million, in comparison with $1,598 million at the end of fourth-quarter 2018.

Share Buyback & Dividend

During the December-end quarter, the company repurchased 4.7 million shares of common stock for $254 million and 25.8 million shares for $1.29 billion, respectively.

Magna’s board of directors announced a dividend of 40 cents per share for the final quarter of 2019, payable on Mar 20, to shareholders of record as of Mar 6, 2020.

Guidance

For 2020, the company projects consolidated revenues of $38-$40 billion. Net income is expected to lie between $1.8 billion and $2 billion.
Magna anticipates adjusted EBIT margin of 6.7-7%, while capital spending is projected at $1.7 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -5.84% due to these changes.

VGM Scores

At this time, Magna has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Magna has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.