Shares of Magna International Inc. (TSX:MG) tumbled 21 per cent Friday after it reported weaker than expected second-quarter results.
The auto parts giant recorded net income of $282 million in the second quarter, or $1.15 per share, down from net income of $294 million, or $1.30 per share, in same quarter of 2010. Analyst estimates had been for earnings $1.32 per share, according to Thomson Reuters.
Magnas stock lost 21.4 per cent of its value in early trading, down $9.70 to $35.61 per share on the Toronto Stock Exchange on a day during which the entire index experienced significant declines.
During the quarter, Magna booked a $9-million writedown on real estate, which amounted to a hit of four cents per share.
The cost of its goods sold increased $1.4 billion during the quarter to $6.5 billion, compared to $5.1 billion in the same quarter of 2010. The cost of goods sold as a percentage of total sales grew to 88.3 per cent from 86.4 per cent in the year-earlier.
The increase was largely due to higher commodity costs, operational inefficiencies, an increase in complete vehicle assembly sales which have a higher material content and higher employee profit sharing.
Depreciation and amortization costs also added $172 million to the loss, $10 million more than a year ago, largely due to an increase in U.S. dollar depreciation and the relative strengthening of Canadian dollar and the euro.
Magna and other auto parts companies are feeling pressure from the loonies continued strength, which is driving Canadian labour costs higher and making Canadian parts more expensive for other countries.
The bright spot for the company came in its revenue figures, which came in 24 per cent higher than a year ago, with sales of $7.3 billion. Analysts had been expecting $6.93 billion in revenue.
The better revenue came as demand for parts in the global auto industry picks up. Vehicle production increased two per cent in Western Europe but was relatively flat in North America from the second quarter of 2010.
Sales in production, complete vehicle assembly, tooling and other sales all increased in the second quarter.
Complete vehicle assembly sales increased 23 per cent or $728 million for the second quarter,while volumes grew 57 per cent to about 35,000 units.
The company also raised its 2011 guidance and now expects between US$27.5 and $28.9 in total sales, compared to between US$27.1 billion and $28.5 billion projected in the first quarter.
Founder Frank Stronach, the tool and die maker who went on to build a multibillion-dollar international auto parts empire, stepped down as chairman of Magna International Inc. (TSX:MG) after the companys annual meeting in April. Former ontario premier Mike Harris replaced him.
In June, Stronach sold more than six million Magna shares for proceeds of less than $300 million cash. The 78-year-old has been selling shares gradually since last fall when regulators and the ontario Superior Court approved a controversial $863-million deal to buy out his multiple-voting shares. Magna has more than 102,000 employees at 263 plants and 84 product development, engineering and sales centres around the world.
