Magna stock tumbles as it lowers outlook: Long-term is ‘anybody’s guess,’ says CEO
Magna International Inc. stock had one of its biggest one-day declines of the year on Wednesday.
The automotive giant had lowered expectations for the second half of 2018 amid uncertainty surrounding tariffs and trade negotiations involving the United States and other countries including Canada and China.
Chief executive Don Walker told analysts Magna is edging down its estimates for sales, margins and other key metrics for 2018, even though its secondquarter results were strong.
“As far as what happens with tariffs long-term, it’s anybody’s best guess,” Walker said.
“I would hope that eventually we will get to the point where we have got an agreement on NAFTA — in which case I think everything between Canada, the U.S. and Mexico gets resolved.”
Walker also noted Magna has experienced more volatility than usual with some of the Chinese automakers that buy its products.
That contributed to a lowered estimate for production volumes for the remainder of 2018 and lower equity income from its joint ventures with German transmission supplier Getgrag.
Following the early-morning announcement, Magna stock dropped more than seven per cent, or $5.85, to $71.03.
That eclipsed a 5.4 per cent decline for Magna shares on March 22, which had been the biggest of 2018.
The March dip in Magna stock came shortly after U.S. President Donald Trump announced the United States could impose up to $60 billion of tariffs on imports from China.
His administration confirmed Tuesday that $16 billion worth of those tariffs will be imposed, on top of $34 billion in tariffs the U.S. began imposing in July.
“As far as what’s going on with all of the tariff activity, it’s certainly in flux. Internally, it’s extremely complicated to just get our arms around everything,” Walker said Wednesday in a quarterly conference call.
Magna, which keeps its books in U.S. dollars, now estimates its total sales for 2018 will be in a range of $40.3 billion to $42.5 billion, down about 1.4 per cent from the previous outlook range.
Adjusted net income attributable to Magna is now estimated at $2.3 billion to $2.5 billion, down $100 million from both the top end and lower end of the range.
Meanwhile, pre-tax margin is now estimated at between 7.7 per cent and 7.9 per cent — down from 7.9 per cent and 8.2 per cent.
The United States has already imposed 25 per cent tariffs on imported steel and 10 per cent tariffs on imported aluminum from many countries — increasing costs for manufacturers like Magna.
The United States has also threatened to hit up to US$200 billion worth of imports from China — essentially everything — with higher tariffs.