Magna International, Inc. (MGA)

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Magna International Inc. (MGA)

Q3 2010 Earnings Call Transcript

November 4, 2010 6:00 pm ET


Don Walker – Co-CEO

Vince Galifi – EVP and CFO

Louis Tonelli – VP, IR


Peter Sklar – Nesbitt Burns

Itay Michaeli – Citigroup

John Murphy – Bank of America-Merrill Lynch

Michael Willemse – CIBC World Markets

Rich Kwas – Wells Fargo

Pat Nolan – Deutsche Bank

Chris Ceraso – Credit Suisse

David Tyerman – Canaccord Genuity

Himanshu Patel – J.P. Morgan

Ravi Shankar – Morgan Stanley

Patrick Archambault – Goldman Sachs

Justin Wu – GMP Securities



Ladies and gentlemen, thank you for standing by and welcome to the Magna International third quarter 2010 results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator instructions) As a reminder, this conference is being recorded today, Thursday, November 4, 2010. I would now like to turn the conference over to Don Walker, Chief Executive Officer. Please go ahead, sir.

Don Walker

Thank you. Good evening and welcome to our conference call. Joining me here in Vienna is Vince Galifi, Chief Financial Officer, and from Aurora is Louis Tonelli, Vice President, Investor Relations.

We issued a press release this afternoon, which covers our third quarter results. You will find the press release, today’s conference call webcast, and a slide presentation to go along with the call, all at the Investor Relations section of our website at Today I will start with some comments on our third quarter and a few other matters. Vince will then review in detail our Q3 results and our revised outlook for 2010. We’ll then open the call to answer your questions.

Before we get started, just as a reminder, the discussion today may contain forward-looking statements within the meaning of applicable securities legislation. Such statements involve certain risks, assumptions and uncertainties, which may cause the company’s actual or future results and performance to be materially different from those expressed or implied in these statements. Please refer to today’s press release for a complete description of our Safe Harbor disclaimer.

Overall, I’m pleased with the third quarter results. In North America, our operations continued their strong performance of the past few quarters, with only a couple of areas of underperformance to address. In Europe, this past quarter, Magna Steyr began to launch the last of its major new programs this year, the MINI Countryman, and produced the last BMW X3 (inaudible).

Over the lifetime of the program, Magna Steyr produced more than 600,000 BMW-X3’s as a sole complete vehicle assembler for the global market. It was quite an accomplishment. As Magna Steyr claims the launch curve on the MINI Countryman along with its other new programs, we should see improved operating earnings at Magna Steyr. I have more to say about Europe in a moment.

Rest of the world sales continued to grow in the third quarter and are up 62% year-to-date as compared to the first nine months of 2009. And despite the continued business growth and ongoing investment and what are new regions for Magna, we have been able to generate earnings in this segment. We will see continued growth in our rest of world segment related to increased business opportunities in a number of high growth and emerging markets, including China, South America, Thailand and India.

We announced last month that we were expanding our presence in South America with our Cosma and Magna Seating operating units, each establishing new production facilities in Sao Paolo area as a result of new business awards. Cosma new facility will produce stamped and welded assemblies beginning in early 2011, and Magna Seating will produce complete seats for new General Motors program opening in 2012. We are also expanding on existing closure systems facility to culminate new mirrors business.

In addition, earlier this week, we completed a new acquisition in the seating area. We acquired a Brazilian seat frame company named Resil with 2010 forecasted sales of approximately $200 million. Resil’s customers include Fiat, Ford, General Motors, Volkswagen, IVECO, and PSA. We expect this transition to close by the end of this year. Our newly awarded business combined with this acquisition together paved the way for a more meaningful presence and the opportunity to further increase our business in the growing South American automotive market.

In September, we announced that Sigi Wolf, with whom I have shared the Co-CEO title for the last 5.5 years, has decided to lead Magna to take a senior role with Russian Machines. We still have a lot of ongoing activity in Russia, and we believe Sigi will provide ongoing advice to us in Russia and we expect an ongoing good working relationship with Russian Machines. Earlier this year, we changed our operating structure to global product groups, which has given group management a global mandate and thus full responsibility for all aspects of their business globally.

Our global product group presidents, along with our strong European group managers, have significant experience in the industry and at Magna. As a result, I believe we have a strong team to profitably grow Magna’s European business. I’m counting on Europe, and in the coming months, will spend more time here visiting a number of our European operations, some of which have been underperforming as well as many high-level customers at a number of our European customers.

We have indicated over the past quarters that our European business has been underperforming and that some restructuring was necessary. I would like to provide some more color on our European operations. We have many operating units that even at a relatively low production volume are generating profits and reasonable returns. We have Magna Steyr, which, as we have said previously, has undergone a complete re-launch of programs with all but the Mercedes G-class being brand new. Results at Magna Steyr is expected to have improved and should continue to improve as we complete the new program launches.

In Russia, we announced this past quarter the opening of three new facilities. These facilities will start generating sales in 2011 and will ramp up in 2012. So right now, we are in an investment mode, and as you know, we expense running costs as incurred. Our electronics business, which has been merged with our powertrain unit, has experienced some launch inefficiencies in its European operations over the past couple of quarters. However, we expect to make progress with these issues in the next few quarters.

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