August 7, 2009 / 5:05 PM / 8 years ago

UPDATE 3-Magna swings to loss on slowing auto production

* Quarterly loss bigger than estimates

* Magna says sees signs of improvement

* Shares rally after hitting 3-week low (Recasts with analyst and company comments; in U.S. dollars unless noted)

By Frank Pingue

TORONTO, Aug 7 (Reuters) - Magna International Inc MGa.TO, one of the bidders vying to buy carmaker Opel from General Motors [GM.UL], reported a quarterly loss on Friday given a decline in global auto production.

The results were weaker than expected and knocked the shares of the Canadian auto parts company to their lowest level in nearly a month. The stock eventually recovered the losses and moved higher as some analysts predicted Magna would rebound in the third quarter.

“While the Q2 results are disappointing, our initial sense is that Q3 profits should show a notable bounceback given the normalized production at Chrysler FIA.MI and GM,” Himanshu Patel, an analyst at J.P. Morgan, wrote in a note.

“We would not extrapolate the Q2 miss into further quarters, and would view any major pullback on the stock as an opportunity to add.”

Magna’s shares were up nearly 3 percent at C$52.85 on the Toronto Stock Exchange shortly after midday, after falling 5 percent to C$48.81 earlier in the session, their lowest level since July 14.

The selloff followed news that Magna had a net loss of $205 million, or $1.83 a share, in the quarter ended June 30, compared with a net profit of $227 million, or $1.98 a share, a year earlier.

Sales fell 45 percent to $3.5 billion.

Analysts, on average, had expected a loss of $1.07 a share, according to Reuters Estimates.

During the second quarter Magna said vehicle production plunged 49 percent in North America and 28 percent in Europe from a year earlier, putting a big dent in its sales.

But during a conference call with analysts, Magna Co-Chief Executive Don Walker said there appeared to be “signs of improvements in certain of our key automotive markets.”

Magna said its average dollar content per vehicle fell 10 percent in North America and 7 percent in Europe from the second quarter of 2008.

Complete vehicle assembly sales decreased 60 percent to $423 million, while complete vehicle assembly volumes declined 65 percent to about 14,100 units, Magna said.

Its operating loss in the quarter was $237 million, compared with an operating profit of $319 million last year.

MUM ON OPEL BID

On the conference call, Magna said it would put “firewalls in place” so that it operates independently of German-based Opel so its other European customers would be comfortable dealing with a supplier that also builds it own vehicles.

“I think it’s a wait-and-see attitude at this point in time, but we recognize it could become an issue, specifically with some customers more than others, and we’re going to have to make sure the firewall is put in place,” Walker said.

The German government, which is putting up loan guarantees for the purchase of European carmaker Opel, is pushing GM to accept Magna’s bid, but GM said on Thursday it still had problems with Magna’s offer. [ID:nL6275568]

Germany has already loaned Opel $2.16 billion to stay afloat after GM signed a non-binding agreement to sell Opel to Magna in May. The U.S. carmaker needs Berlin to fund a costly restructuring program at Opel over the next two years while the European carmaker continues to burn through cash.

$1=$1.08 Canadian Additional reporting by Andrea Hopkins in Toronto and Ajay Kamalakaran in Bangalore; editing by Rob Wilson

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