Canadian suppliers feel fallout from U.S. GM strike, trade war
Canada’s largest auto-parts suppliers took a financial hit from the prolonged General Motors Co. strike in the United States, according to financial results released this week.
Magna International Inc. revised its annual sales outlook downward largely due to the labour action that had 48,000 United Auto Workers on the picket lines for six weeks as their union bargained with GM over tiered wages, benefits and the automaker’s future manufacturing footprint.
The Aurora, Ont.-based manufacturer on Friday said it expects sales of between $38.7 billion and $39.8 billion for the year, about $200 million lower than its previous guidance. It also revised net income down by about $100 million to $1.8 billion from $1.9 billion. For the third quarter, Magna’s sales fell three per cent to $9.3 billion, matching a three-per-cent dip in global light-vehicle production.
“All things considered, our third-quarter earnings were relatively in line with our expectations,” Magna’s chief financial officer Vince Galifi said in a statement.
Analysts had expected Magna, North America’s largest parts supplier, to lower its outlook based on the GM strike. The company had previously stated that it idled a few plants and temporarily laid off some workers during the strike.
The revenue impact appeared “somewhat larger than expectations consistent with recent peer results,” Citi analyst Itay Michaeli noted to clients, adding the downward revisions were in line with analysts’ expectations.
Magna said its revenues were also dampened by higher-than-expected launch costs and impairment charges related to joint ventures at Getrag, a German transmission systems builder it bought in 2016.
Magna’s stock price fell a little more than one per cent on Friday.
Linamar Corp., Canada’s second-largest auto-parts supplier, reported an impact of about $1 million per day from the GM strike, but its transportation sales edged up 0.5 per cent to $1.36 billion in the three months ended Sept. 30.
“We are very pleased to report growth in our transportation segment earnings despite the impact of the General Motors strike and challenging markets,” Linamar chief executive Linda Hasenfratz said in a statement on Wednesday.
The Guelph, Ont.-based company faced stronger headwinds in its smaller industrial segment, where revenue fell 21.5 per cent to $380.6 million in the quarter. It blamed the U.S.-China trade war for its lower agriculture-related sales, which were also hampered by poor crops and low commodity prices.
Linamar also found that key customers in North America and Europe decreased capital spending to accommodate for the uncertainty in the markets.
The success in Linamar’s transportation segment tracked “substantially above” analyst expectations while industrial sales fell surprisingly short, BMO analyst Peter Sklar noted to clients.
However, there were fewer orders for industrial lifts, booms and harvesting equipment due to the “global economic uncertainty caused by Brexit, trade issues with China, and other macro factors,” Sklar said, resulting in scaled-back production.
Linamar’s stock price ended the week about two per cent above its pre-results level.