Magna Earnings: Despite UAW Strike, Reports Solid Results and Tweaks Guidance

No-moat-rated Magna MG reported third-quarter earnings per share before special items of $1.46, beating the $1.33 FactSet consensus by $0.13 and up $0.36 from the $1.10 result reported last year. Higher customer volumes on less supply chain disruption and better throughput were partially offset by customers’ UAW strike, increased engineering spending, and inflationary cost pressures. Revenue jumped 15% to $10.7 billion, up from $9.3 billion in the prior year on customer volume, new business backlog, the Veoneer acquisition, and customer cost recoveries. The top line beat consensus by 3%. Organic revenue increased 10%, 2 percentage points better than an 8% increase in global production weighted to Magna’s customer base.

Adjusted EBIT surged 36% to $615 million for a 5.8% margin from $452 million and a 4.9% margin last year, beating consensus by 14%. Volume leverage and cost initiatives supported margin expansion, partially offset by the UAW strike, higher engineering and launch costs, plus industry headwinds. Free cash flow was $23 million, up $233 million from negative $210 million last year on increased earnings and favorable working capital, partially offset by higher capital spending for new business.

Management tweaked 2023 guidance tightening the range of revenue to $42.1 billion-$43.1 billion versus $41.9 billion-$43.5 billion previously. Adjusted EBIT is forecast at 5.1%-5.4% versus prior at 4.8%-5.2% after excluding acquisition intangible amortization from adjusted EBIT beginning with the third quarter. Due to industry headwinds, we forecast 2023 at the low end of guidance, resulting in our revenue estimate increasing to $42.1 billion from $41.9 billion, but our 4.8% margin assumption comes to 5.1% after excluding amortization. Adjustments to our model had minimal effect on our fair value estimate, while the time value of money added $1. The 4-star-rated shares of Magna currently trade at a 26% discount to our new $72 fair value estimate.