January 11, 2012 / 1:27 PM / in 6 years

Magna forecasts higher 2012 sales, shares rise

(Reuters) - Auto parts maker Magna International Inc (MG.TO) forecast a modest rise in its 2012 sales on Wednesday, lifting its hard-hit stock, as it predicted higher vehicle production in North America and expansion in fast-growing emerging markets.

Hurt by sluggish economic growth in North America and Europe, the Canadian company has been aggressively expanding outside its traditional markets into emerging regions such as China and Brazil.

“Going out to 2014, 20 percent of our sales will be in relatively new market areas for us: in Asia, South America and Central and Eastern Europe,” Chief Executive Don Walker said at an auto industry conference in Detroit.

Walker said Magna was in the process of launching 40 new facilities between 2012 and 2014, mostly in emerging markets.

The company is the biggest manufacturer of auto parts in North America, where its top customers are the “Big Three” Detroit automakers. It is also one of the biggest auto parts suppliers in Europe.

Releasing its outlook for 2012, Magna said earlier on Wednesday that it expects total annual sales to rise to between $27.8 billion and $29.3 billion.

That was in line with analysts forecasts and compares with a sales forecast for 2011 of $25.6 billion to $27.1 billion.

Magna also forecast production sales for 2012 of between $23.6 billion and $24.7 billion for 2012. That is split between expected North American production sales of $13.2 billion-$13.7 billion, European sales of $8.4 billion-$8.7 billion and the rest of the world sales of between $2.0 billion and $2.3 billion.

Production sales cover Magna’s core business, which is the manufacture of vehicle parts, from seats and mirrors to power trains and chassis, and excludes its smaller vehicle assembly and tooling operations.

Magna said it was basing its outlook on expectations that production of cars and light trucks will total about 13.6 million units in North America in 2012 and about 13 million in Western Europe.

The company also said it expects 2012 operating margins to be about 5 percent, up from its 2011 outlook of 4.75 percent.

Magna’s shares were up C$1.20, or 3.1 percent, at C$39.52 on the Toronto Stock Exchange on Wednesday.

The shares have fallen by more than a third in the past year, hurt by disappointing results as the company grappled with production problems at several European plants and as the economies in its two main markets slowed.

The company appears to be putting some of the European production issues to bed, Canaccord Genuity analyst David Tyerman said. However, he expects only moderate growth for some time.

“Magna is going to be a modest growing company from a sales point of view - possibly 5 percent - in the next few years,” he said.

Magna expects to raise spending on fixed assets to between $1.3 billion and $1.5 billion this year, well up on forecast spending for 2011 of between $900 million and $1.0 billion as it pursues expansion outside its traditional markets.

“Capex is up quite a bit. I was a bit surprised to see that. It does impair their free cash in 2012 but they do have good opportunities in places like the emerging markets,” Tyerman said.

Additional reporting Arnav Das Sharma in Bangalore; Editing by Sriraj Kalluvila and Rob Wilson

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