Auto parts maker Magna trims sales forecast on high costs, supply woes

By Priyamvada C

(Reuters) -Canadian auto parts maker Magna International (NYSE:) Inc lowered its annual sales forecast after missing estimates for third-quarter profit on Friday, as supply chain snags and higher costs keep global vehicle production under pressure.

Europe’s energy crisis has exacerbated power and logistics costs for auto firms, even as they reel from a series of issues over the past two years, including semiconductor chip shortages, that have repeatedly delayed vehicle production.

Magna, whose U.S.-listed shares were up 1.5% at $56.1 in morning trade, said it anticipates “scheduled choppiness” through the end of the year and into the first half of 2023 as it struggles with higher commodity, freight, energy and wage costs in most markets.

Auto suppliers, including Aptiv (NYSE:) Plc, which have implemented price hikes to pass costs onto customers, are set to simmer down on those hikes as record-high inflation curtails consumers’ spending power, according to analysts.

“We think auto parts pricing could come under pressure as auto inventories rise to more normal levels,” CFRA analyst Garrett Nelson said.

Companies with operations outside the United States also face headwinds from a stronger dollar in the wake of steep interest rate hikes and geopolitical turbulences.

“The stronger U.S. dollar relative to other currencies in which we operate, particularly the euro, continues to negatively impact our reported results,” Magna’s Chief Executive Officer Seetarama Kotagiri said on a post earnings call.

Magna, which serves customers such as Ford Motor (NYSE:) Co and Volkswagen (ETR:), now sees its annual sales between $37.4 billion and $38.4 billion, versus prior outlook of $37.6 billion and $39.2 billion, reflecting a drop in vehicle production in North America and Europe.

The Aurora, Canada-based company which flagged lower sales in Russia, reported a revenue of $9.27 billion, above average analysts’ expectation of $9.16 billion, according to Refinitiv data.

Excluding items, Magna’s profits came in at $1.07 per share, below estimates of $1.09 per share.

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