A month has gone by since the last earnings report for Magna (MGA). Shares have lost about 5.4% 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 Surpasses Q3 Earnings & Revenue Estimates
Magna International delivered adjusted earnings per share of $1.41 in third-quarter 2019, beating the Zacks Consensus Estimate of $1.38, mainly aided by increased revenues at the Seating Systems and Complete Vehicles segment. However, the bottom line declined from the year-ago quarter’s $1.56.
The company’s revenues declined 3% year over year to $9,319 million owing to unfavorable foreign currency translation and divestitures. However, the metric surpassed the Zacks Consensus Estimate of $9,305 million.
Adjusted EBIT declined to $558 million from the year-ago figure of $699 million, thanks to the General Motors strike and net customer price concessions.
Revenues at the Body Exteriors & Structures segment fell 5% year over year to $4 billion in the reported quarter due to lower vehicle production, the General Motors strike, unfavorable foreign currency translation, and net customer price concessions. Adjusted EBIT declined to $306 million from the prior-year quarter’s $326 million, reflecting lower scrap steel recoveries as well as higher commodity, warranty and launch costs.
Revenues at the Power & Vision segment fell to $2.7 billion from the prior-year figure of $2.9 billion, largely due to negative foreign currency translation, lower vehicle production, the GM strike and net customer price concessions. Adjusted EBIT declined to $167 million from $259 million in third-quarter 2018, mainly because of higher engineering and other costs in the company’s ADAS business, and lower equity income.
Revenues at the Seating Systems segment rose to $1,266 million in the quarter under review from the prior-year $1,219 million owing to programs launches and the acquisition of VIZA. Adjusted EBIT declined to $56 million from $69 million recorded in the prior year. The decline was largely due to lower sales at a number of facilities, higher commodity costs, launch costs and operational inefficiencies at the South Carolina facility.
Revenues at the Complete Vehicles segment rose 9% year over year to $1.5 billion, primarily driven by the launches of BMW Z4 and Toyota Supra programs as well as continued ramp-up of the Mercedes G-Class and Jaguar I-PACE. Adjusted EBIT grew to $29 million from $24 million in third-quarter 2018 on higher sales, and lower launch and other costs.
Magna had $769 million of cash and cash equivalents as of Sep 30, 2019, compared with $684 million as of Dec 31, 2018. It had long-term debt of $3,021 million as of Sep 30, 2019, reflecting a decline from $3,084 million recorded as of Dec 31, 2018. The debt-to-capital ratio stands at 21.19%, as of Sep 30, 2019.
At the end of third-quarter 2019, the company’s cash flow from operations was $750 million, in comparison with $1.08 billion at the end of third-quarter 2018.
Share Buyback & Dividend
During the September-end quarter, the company repurchased 6.8 million shares of common stock for $342 million.
Magna’s board of directors announced a dividend of 36.5 cents per share for the third quarter of 2019, reaching the total to $109 million.
For 2019, the company projects consolidated revenues in the range of $38.7-$39.8 billion, down from previously mentioned $38.9-$41.1 billion.
The company anticipates adjusted EBIT margin of 6.3-6.5%, reflecting a drop from the prior guidance of 6.6-6.9%.
Magna’s free cash flow expectations remain at the range of $1.9-$2.1 billion despite the lowering of the consolidated sales and margins projections for 2019.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -10.14% due to these changes.
Currently, Magna has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Magna has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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