November 5, 2015 / 10:35 AM / in 2 years

Auto parts maker Magna says factory glitches to hurt profit

(Reuters) - Canadian auto parts maker Magna International Inc said operational glitches at three of its plants in North America would weigh on its earnings in the current quarter and spill over to the first half of next year.

Magna’s Toronto shares were down 12 percent at C$61.30 in early trading.

Increased downtime due to breakdowns at its facilities, two of which are in Canada, weighed on its third-quarter earnings as customers were seeking production at full tilt, Magna Chief Executive Don Walker said.

Magna also engineers and assembles vehicles for BMW’s Mini and Daimler’s Mercedes-Benz.

Walker said the company was looking closely at any impact related to its customer, Volkswagen AG VOWG_p.DE, which has been hit by a diesel emissions scandal.

Volkswagen accounted for about 11 percent of Magna’s global sales last year.

“I don’t know how anybody can say it’s going to have absolutely no impact because we don’t know what the impact is going to be yet,” Walker said on a conference call with analysts on Thursday.

The scandal initially centered on software on up to 11 million diesel vehicles worldwide that Volkswagen admitted vastly understated their actual emissions of smog-causing pollutant nitrogen oxide.

Magna reported a smaller-than-expected third quarter profit and cut its full-year operating margin forecast, saying weak demand in Asia due to lower vehicle production is also weighing on its earnings.

The company said it now expects 2015 operating margin to be about 7.7 percent, lower than the 8 percent it forecast in August.

However, the company raised the low end of its 2015 sales forecast to $31.3 billion from $30.9 billion. Magna kept the top end of the guidance unchanged at $32.6 billion.

The company’s revenue fell 7 percent to $7.66 billion in the third quarter ended Sept. 30, hurt by a strong U.S. dollar..

Magna, which gets nearly half of its total revenue from outside North America, said the strong dollar reduced sales by about $870 million.

Net income attributable to Magna fell 3.5 percent to $470 million, or $1.13 per share.

According to Thomson Reuters I/B/E/S, the company earned 97 cents per share on an adjusted basis, lower than the average analyst estimate of $1.09.

Magna’s U.S.-listed shares were down 12 percent at $46.46.

Reporting by Amrutha Gayathri in Bengaluru and Allison Lampert in Montreal; Editing by Maju Samuel

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