UPDATE 2-Magna 2014 forecast lags on revenue, exceeds on margin

Wed Jan 15, 2014 11:14am EST

By Susan Taylor

TORONTO Jan 15 (Reuters) - Canadian auto parts maker Magna International Inc forecast 2014 revenue slightly below analysts' expectations on Wednesday, but estimated strong operating margins as it restructures its European operations.

The company, one of the world's largest parts suppliers, said its outlook also reflected efforts to expand its business in high-growth areas, notably Asia.

Shares of the Aurora, Ontario-based company rose 97 Canadian cents, or 1 percent, to C$93.11 on the Toronto Stock Exchange after it issued its forecast.

RBC Capital Markets analyst Steve Arthur said the company's outlook of operating margins in the "mid 6 percent range" was above his forecast of 6.3 percent and the analysts' average estimate of 5.9 percent.

"It signals continued progress in European margin improvement," Arthur wrote in a note to clients.

In slides that will accompany its presentation at the 2014 Deutsche Bank auto conference later on Wednesday, the company also cited reduced losses in South America, lower assembly sales and further strengthening of Asia-Pacific margins.

Magna, which has 316 plants in 29 countries, said in a statement that it expected total 2014 sales of $33.8 billion to $35.5 billion, lagging the analysts' average estimate of $35.8 billion, according to Thomson Reuters I/B/E/S.

Total 2014 production sales, Magna's core business of manufacturing vehicle parts, are estimated at $28.6 billion to $29.9 billion.

For 2016, the company estimates that total production sales will rise by about $3.6 billion from this year.

BMO Capital Markets analyst Peter Sklar said the 2016 revenue forecast appeared "modest" and suggested the value of Magna's parts in the average vehicle, or content per vehicle, would increase less than 2 percent a year in North America and be flat in Europe.

The company forecast 2014 capital spending at about $1.4 billion, up slightly from $1.3 billion in 2013.

Magna, which also manufactures complete vehicles on a contract basis, said it expected sales in that segment to dip to between $2.6 billion and $2.9 billion in 2014 from a revised 2013 forecast of $3 billion to $3.2 billion.