Magna International, Inc. (MGA)

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Magna International Inc. (MGA)

Q2 2010 Earnings Call Transcript

August 6, 2010 8:30 am ET

Executives

Don Walker – Co-CEO

Vince Galifi – EVP and CFO

Analysts

Peter Sklar – BMO Nesbitt Burns

Itay Michaeli – Citigroup

John Murphy – Bank of America/Merrill Lynch

Chris Ceraso – Credit Suisse

Michael Willemse – CIBC World Markets

Pat Nolan – Deutsche Bank

David Tyerman – Canaccord Genuity

Himanshu Patel – JPMorgan

Patrick Archambault – Goldman Sachs

Richard Kwas – Wells Fargo

Presentation

Operator

Welcome to the Magna International, Inc. second quarter results 2010 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, Friday, August 6, 2010.

I would now like to turn the conference over to Mr. Don Walker, Co-Chief Executive Officer at Magna International. Please go ahead, sir.

Don Walker

Thank you. Good morning and welcome to our conference call. Joining me today are Louis Tonelli, Vice President, Investor Relations and Vince Galifi, Executive Vice President and Chief Financial Officer.

We issued a press release earlier this morning, which covers our second quarter results. You’ll 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 Web site at www.magna.com.

Today, I will first comment on our second quarter. Vince will then review in detail our Q2 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.

We posted strong second quarter results in a period when vehicle production in our primary markets remained low by historical standards. Light vehicle production in North America and Western Europe improved relative to the second quarter of 2009, representing the third consecutive quarter of such year-over-year increases in both of our principal markets.

In North America, light vehicle production increased 75% as compared to the second quarter of 2009 when both General Motors and Chrysler were operating under bankruptcy protection. A sustained level of higher North American auto sales in 2010, as compared to the first half of 2009, as well as dealer inventory levels that remain below long-term historical averages have contributed to improved North American light vehicle production.

In Western Europe, light vehicle production increased 13% over the second quarter of 2009. While we have been concerned about the potential negative impacts of vehicle sales pulled forward as a result of vehicle scrappage programs in place in Europe during 2009 and early 2010, as well as recent macroeconomic factors impacting certain European countries, vehicle sales in a number of European markets remained relatively strong in the second quarter, as have imports of European-built vehicles into North America.

Beyond the improved level of light vehicle production in North America and Western Europe, which drove our higher sales, our strong second quarter results reflect among other things the benefit of our efforts over the past few years to restructure, right-size and otherwise reduce costs across the organization and the benefit of our efforts to improve underperforming operations around the world.

With respect to Europe specifically, recall that we expected our Magna Steyr business to improve as we move towards the end of the launches of new vehicles in Graz. Magna Steyr improved sequentially in Q2 from Q1 as the Peugeot RCZ and Aston Martin Rapide continued to ramp. Graz is beginning the launch of the MINI Countryman this quarter. We should see further improvements in Magna Steyr’s results as we continue to ramp.

Additionally, our European business, ex-Magna Steyr improved in Q2 2010, relative to Q1. We continued to focus on improving our overall operating results in this region.

Given Magna’s continued profitability and our higher expectations for vehicle production in our key markets, our Board of Directors yesterday increased our quarterly dividend to $0.30 for Class A Subordinate Voting or Class B Share in respect of the second quarter of 2010. This dividend is payable on September 15 to shareholders of record on August 31.

Finally, we announced on May 6, 2010 that we had entered into a transaction agreement with the Stronach Trust in which our shareholders were to be given the opportunity to decide whether to eliminate the dual class share capital structure.

More than 75% of the minority holders of our Class A Subordinate Voting Shares approved the proposed transaction at a special meeting of Magna’s shareholders held at last month. A fairness hearing on the proposal is scheduled in Ontario Superior Court for next week, August 12 and 13.

With that, I will pass the call over to Vince.

Vince Galifi

Thanks, Don and good mornings everyone. I would like to review our financial results for the second quarter ended June 30, 2010. Please note all figures discussed today are in U.S. dollars.

Appendix A in the slide package accompanying our call today includes a reconciliation of certain key financial statement lines between reported results and results excluding unusual items for the second quarter of 2010 and 2009 respectively.

In the second quarter of 2010, we recorded restructuring charges which resulted in a $24 million reduction in operating income, a $21 million reduction income and a $0.19 reduction in diluted earnings per share. The restructuring charges relate to activities initiated prior to 2010 at three facilities in North America.

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