Auto parts maker Magna hit by trade dispute; cuts outlook

(Reuters) - Canadian auto parts maker Magna International Inc MG.TO on Wednesday lowered its full-year production outlook for North America, and revised downward its global sales, hurt in part by U.S. tariffs and other "headwinds" during the quarter, sending its stock down more than 8 percent in U.S. trading.

FILE PHOTO: A Magna company logo is pictured at their factory site in Graz, Austria October 14, 2010. REUTERS/Herwig Prammer/File Photo

Magna expects an annualized impact of $60 million from tariffs introduced by the United States on metals and other imported items, with $30 million to come in the back half of 2018, Chief Executive Don Walker told analysts.

U.S. President Donald Trump’s administration imposed a 25 percent tariff on steel imports from Canada, Europe and others at the end of May, sparking retaliation. The United States and China also implemented tariffs on $34 billion worth of each other’s goods in July.

Magna Chief Financial Officer Vince Galifi said most of the tariff-related costs will hit the company’s U.S. plants, primarily because of steel and other imports from China.

“As far as what’s going on with all of the tariff activity, it’s certainly in flux,” Walker said.

The Trump administration also faces criticism as it considers tariffs of up to 25 percent on U.S. imports of autos and car parts.

Edward Jones analyst Jeff Windau said in a note that “recent trade discussions by the U.S. government and the associated tariffs appear to be leading to higher costs” which could “pressure profitability.”

Magna, North America’s largest auto parts maker, also expects lower production volumes for the balance of the year in certain transmission programs and lower equity income than previously anticipated from joint ventures, particularly in China.

“We certainly had some headwinds this quarter,” Walker said.

Magna missed analysts’ profit estimates partly because of lackluster demand in North America.

Magna expects light vehicle production in North America to be 17.2 million, down from its previous forecast of 17.3 million and cut 2018 total sales forecasts to between $40.3 billion and $42.5 billion, down from $40.9 billion to $43.1 billion.

Net income attributable to Magna rose to $626 million or $1.77 per share, in the quarter ended June 30, from $548 million, or $1.44 per share, a year earlier.

Excluding items, the company earned $1.67 per share.

Analysts, on an average, had expected the company to report a profit of $1.72 on a revenue of $10.51 billion, according to Thomson Reuters I/B/E/S.

Magna shares were down 7.6 percent at C$71.02 on the Toronto Stock Exchange while the U.S. listed shares were down 8.1 percent at $54.42.

Reporting by Laharee Chatterjee in Bengaluru and Allison Lampert in Montreal; Editing by Shailesh Kuber and Matthew Lewis