Magna lifts outlook, dividend after topping forecasts

TORONTO Fri Mar 1, 2013 4:15pm EST

Magna International Inc. CEO Donald Walker speaks to shareholders at the company's annual general meeting in Toronto May 10, 2012. REUTERS/Fred Thornhill

Magna International Inc. CEO Donald Walker speaks to shareholders at the company's annual general meeting in Toronto May 10, 2012.

Credit: Reuters/Fred Thornhill

TORONTO (Reuters) - mgCanadian auto parts maker Magna International Inc (MG.TO) (MGA.N) raised its full-year sales forecast on Friday and sweetened its quarterly dividend after a fourth-quarter performance that beat expectations.

Shares of Magna, one of the world's largest parts makers, rose after it said its North American operations helped drive total sales last year to a record high. That mirrored a robust, double-digit recovery for vehicle sales in the United States.

The Aurora, Ontario-based company, which is sitting on about $1 billion in cash, also raised its quarterly dividend by 16 percent, to a record 32 cents a share.

"When you put all that together ... the stock is reacting positively on a pretty choppy day in the market," said Todd Coupland, an analyst at CIBC.

Magna shares rose as much as 5.7 percent on Friday. The stock has gained roughly 28 percent in the past six months.

The fortunes of Canadian auto parts makers are tightly tied to the Detroit Three and the health of the U.S. vehicle market, and the parts makers have benefited from the steady recovery of Ford Motor Co (F.N), General Motors Co (GM.N) and Fiat SpA's Chrysler FIA.MI from their recession-induced slump.

Coupland said the outlook is positive, particularly in light of U.S. figures released on Friday that showed the auto industry was on track for a fourth straight month of strong sales.

"People are saying the strength that we saw in 2012 can't continue, yet it has so far in 2013 and the reason is you're getting a kicker, or a tailwind from better (U.S.) housing starts," he said.

WORDS OF CAUTION

Some analysts were less bullish. David Tyerman, an analyst at Canaccord Genuity, cautioned that while U.S. auto sales are forecast to outpace the growth of U.S. economy this year, they are expected to fall back into single digits.

"Based on the guidance they provided so far and what's going on in the industry as a whole, we're going to see a slowing in the results for (Magna) in 2013 and it will probably continue into 2014," Tyerman said. "You can only grow double digits so long in an industry that isn't growing double digits normally."

Even so, Magna bumped up its 2013 sales forecast to a range of $32 billion to $33.4 billion from a range of $31.3 billion to $32.7 billion. Last year, the company posted sales of $30.84 billion, an increase of 7 percent year over year.

It forecast total production sales at between $27 billion and $28 billion, up from the $26.5 billion to $27.5 billion range it had forecast in January.

Production sales are sales from Magna's core business of manufacturing vehicle parts and exclude its smaller vehicle-assembly and tooling operations.

STRONG NORTH AMERICAN SALES

Fourth-quarter profit rose to $351 million, or $1.49 a share, from $312 million, or $1.32, a year earlier. The latest figure topped analysts' average forecast of $1.14 a share.

Sales for Magna, which makes parts ranging from mirrors and auto bodies to electronics and powertrain systems, rose 11 percent to $8.03 billion, in the quarter, exceeding analysts' $7.74 billion forecast.

The company said North American production sales increased 12 percent in the quarter to $3.9 billion, largely reflecting a 12 percent increase in vehicle production to 3.8 million units.

It expects to take a restructuring-related charge of about $150 million this year.

Magna, which also manufactures complete vehicles on a contract basis, has been pushing to turn around inefficient operations in Europe.

CIBC's Coupland said Europe, where production sales rose just 2 percent in the fourth quarter, is the biggest risk factor for Magna.

Magna, whose competitors include Johnson Controls Inc (JCI.N) and TRW Automotive Holdings Corp (TRW.N), posted an overall loss last year for operations in what it calls the rest of the world, generally outside North America and Europe. The segment is a key focus area for Magna, which is investing heavily in China.

South American operations were challenging, the company said, due to a combination of start-up costs, inefficiencies, currency issues, and negotiations with customers.

The company also said it was looking at how to use its large cash pile.

"We're looking at it a lot. Not going to talk specifically about what we're going to do, obviously, until we get something complete, but it's a high priority," Chief Executive Don Walker said during a conference call with analysts.

"We don't want to be sitting on $1 billion of cash just to be sitting on $1 billion of cash."

Shares of Magna closed C$2.17 higher at C$57.02 on the Toronto Stock Exchange on Friday and up $2.29 at $55.51 on the New York Stock Exchange.

(Additional reporting By Maneesha Tiwari and Susan Taylor; Editing by Roshni Menon; and Peter Galloway)

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