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UPDATE 2-Magna raises sales forecast after profit beat, Europe recovery
August 9, 2013 / 9:56 AM / 4 years ago

UPDATE 2-Magna raises sales forecast after profit beat, Europe recovery

* Expects 2013 total sales of $33.3 bln-$34.7 bln

* Sees 2013 total production sales of $27.7 bln-$28.7 bln

* 2nd-quarter earnings per share $1.78 vs est $1.64

* Sales rise 16.1 pct to $8.96 bln vs est $8.56 bln (Adds CFO interview, conference call details on Europe turnaround, M&A outlook)

By Solarina Ho

Aug 9 (Reuters) - Canadian auto parts maker Magna International Inc reported a 19 percent rise in its quarterly profit on Friday and raised its sales outlook for the year, buoyed by better-than-expected European and North American earnings.

The results sent Magna’s stock, which have soared some 70 percent so far this year on the Toronto Stock Exchange, to an all-time high on Friday.

Magna’s core business posted a double-digit rise in sales in Europe, where Magna has been pushing to turn around inefficient operations amid the region’s soft recovery. The company said it is continuing to take steps to improve its business in Europe.

“It has taken a lot of hard work and there is certainly more to come, but we are headed in the right direction in Europe,” Chief Executive Don Walker said, adding that he expects continued improvement in the coming quarters.

Further restructuring efforts are being pursued, with $94 million out of total estimated restructuring charges of $100 million still to be taken in the second half of the year. Magna so far has recognized roughly $6 million in those charges.

“Those costs relate to plans and actions that we’re going to take in Europe,” Vince Galifi, chief financial officer, said in an interview, adding that discussions were ongoing with a number of parties including labor and customers. He declined to give details.

“It’s hard to tell whether that’s going to be Q3 or Q4. We do expect we’ll have some announcement before the end of this year. ... We’re pleased with progress we’re seeing in Europe.”

HIKING FORECASTS

Magna raised its sales forecast for the year to $33.3 billion-$34.7 billion from $32.6 billion-$34 billion.

The company also raised its sales forecast for its core business, known as production sales, for the year to between $27.7 billion and $28.7 billion, from a previous range of $27.2 billion-$28.2 billion. Production sales comprise the business of manufacturing vehicle parts, excluding vehicle assembly and tooling operations.

Magna’s fortunes are tied to the health of automakers, particularly Ford Motor Co, General Motors Co and Fiat SpA’s Chrysler. The automakers have seen a steady recovery since the industry bottomed in 2008 and 2009 with bankruptcies by GM and Chrysler.

Magna has continued to diversify, with business in Europe and Asia growing at a faster rate, Galifi said. The company is looking to gain a bigger foothold in Asian markets such as China over the longer term, he said.

NOT RUSHING INTO DEALS

Magna, which typically spends $300 million to $600 million a year on acquisitions, is looking at deals that will help it grow more quickly in priority regions such as emerging markets, executives told analysts during a conference call. But it will not rush into any transactions.

“It’s been pretty quiet this year. We’re still going to have six months to go,” said Galifi.

Executives will meet with the board in September to discuss product strategy and consider possible divestitures, Walker said.

For the second quarter, Magna’s net income rose to $415 million, or $1.78 per share, from $349 million, or $1.48 per share, in the same period last year.

Sales rose 16.1 percent to a record $8.96 billion.

Analysts on average had expected a profit of $1.64 per share on revenue of $8.56 billion, according to Thomson Reuters I/B/E/S.

North American production sales climbed 10 percent to $4.30 billion, while vehicle production fell 7 percent. In Europe, production sales rose 14 percent to $2.56 billion while vehicle production slipped 1 percent. Production sales in the rest of the world jumped 38 percent to $572 million.

Shares were up 3.8 percent at C$83.21 in Toronto, after trading as high as C$83.36, and were up 5.1 percent at $80.85 in New York after hitting $81.01. (Additional reporting by Vijay Vishwas in Bangalore; Editing by Leslie Adler)

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