Magna cuts guidance on weak auto sales

Magna International Inc. cut its expectations for North American vehicle production on Wednesday as it reported a drop of more than 10 per cent in second-quarter earnings.

The Ontario-based auto parts maker, which keeps its books in U.S. dollars, said it earned $227 million US or $1.98 per share for the three months ended June 30 compared with a profit of $262 million or $2.35 per share a year ago.

Sales in the quarter were $6.71 billion, down from $6.73 billion.

Magna attributed the lower profits to a decrease in operating income partially offset by lower income taxes.

The average analyst estimate had been for earnings of $1.82 per share on $6.58 billion in revenue, according to Thomson Financial.

For 2008, the company said it now expects light vehicle production to total 13.2 million units in North America and approximately 15.6 million units in Europe.

Sales for the year are expected to be between $24.3 billion and $25.6 billion.

That is down from guidance in May for sales between $25.5 billion and $26.8 billion, based on full year 2008 light vehicle production volumes of 14.2 million units in North America and 15.6 million units in Europe.

For the second quarter, Magna said increases in European and the rest of world were offset by lower North American sales.

North American and European average dollar content per vehicle increased two per cent and 23 per cent respectively over the second quarter of 2007, while North American vehicle production fell 14 per cent and European vehicle production was essentially unchanged.

Complete vehicle assembly sales fell one per cent to $1.05 billion for the second quarter of 2008 compared with $1.06 billion a year ago, while complete vehicle assembly volumes fell 28 per cent to 39,726 units.

Magna has 82,000 employees in 241 manufacturing operations and 62 product development and engineering centres in 23 countries.

Last month, Magna acquired Technoplast, a supplier of plastic exterior and interior components in Nizhny Novgorod, Russia.

Technoplast supplies several programs for GAZ Group, the largest Russian maker of commercial vehicles, which is a subsidiary of Russian Machines, controlled by billionaire Oleg Deripaska. Last year, the wealthy Russian invested $1.54 billion US in Magna.

Magna shares were up $1.75, or about four per cent, at $64.04 Wednesday on the Toronto Stock Exchange.