Magna says virus outbreak disrupting parts supply chain

by The Canadian Press (CPSTF)

AURORA, Ont. – Magna International Inc. says its operations in China are still running under capacity because of the novel coronavirus outbreak, but that it’s too early to say what the long-term impacts might be.

The Aurora, Ont.-based auto parts maker says that many of its 55 manufacturing plants and 13 development and sales offices are back up and running, though not at full capacity, while some are still closed.

The biggest impacts for Magna of the virus known as COVID-19, however, may be from disrupted parts shipments to its larger operations aboard, said CEO Don Walker on a conference call Friday.

“We are relatively small in China, so the biggest thing that I’m interested in, quite frankly is, is the production holes in the shipments that are coming back to Europe and North America.”

Company CFO Vincent Galifi said the company is still uncertain what kind of effect the outbreak will have on sales. It also doesn’t yet know what additional costs it will incur due to plant inefficiencies resulting from their lower staffing levels.

“It is too early to tell. Our plants have been resuming operations, albeit at lower utilization levels. We’ll get a better feel as we get to the end of Q1,” said Galifi.

He said that the company doesn’t expect to take longer-term impairment charges because of the virus, as production levels should return to normal eventually.

The company has maintained its 2020 outlook, though it notes it has not made any adjustments from COVID-19 since it’s still too early to say when customer operations will fully resume, how well they will be able to recover lost production, and what risks there are to the supply chain.

Uncertainty on the virus did not stop the company from raising its quarterly dividend to 40 cents per share, up from 36.5 cents per share, as it reported a fourth-quarter profit attributable to the company of US$440 million.

The increased payment to shareholders came as Magna says its latest profit amounted to US$1.43 per diluted share compared with a profit US$456 million or US$1.37 per diluted share a year ago when it had more shares outstanding.

Sales for the company, which keeps its books in U.S. dollars, totalled nearly $9.4 billion, down from $10.1 billion in the fourth quarter of 2018. Sales were hit by the protracted General Motors strike that contributed to a seven per cent cut in light vehicle production, as well as a three per cent decline in European production.

On an adjusted basis, Magna says it earned $1.41 per diluted share in its most recent quarter, down from an adjusted profit of $1.63 per diluted share in the same quarter a year earlier.

Analysts on average had expected an adjusted profit of $1.33 per share, according to financial markets data firm Refinitiv.