Magna International Inc Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: John Murphy - Bank of America - Analyst : Good good morning guys. I'm very sorry to hear about Vince. It's tough news for all of us. I think we all learned a lot from him, and he was a great friend. So -- that's a rough way to start the call. Thoughts around to all of you guys. I guess, first here, maybe kind of thinking sort of mid to the long term, Swamy, on the Seating business, it just seems like even adjusting for tariffs, the business remained kind of tough. I'm just curious, as you think about that business mid- to long term, there's something you need to do on a micro basis organically? Or do you need to get larger scale because there are a lot of other folks out there that are kind of tripping over that business as well. And it seems like it should be an okay business, but it seems like you just can't get it to turn the corner. What are your thoughts there on Seating?

Question: John Murphy - Bank of America - Analyst : Okay. And then just a second question, as you think about tariffs, and I hate to harp on this. Yesterday, the customers border patrol, they put out a sort of a notice that seems to be an indication that USMCA compliant parts are going to remain on tariff beyond sort of the 90-day review, it's certainly beyond May 3, and it seems like that may be in perpetuity. I'm just curious what your hearing there? And if that's a correct interpretation because that would create some pretty extreme relief for you guys here, at least in North America.

Question: John Murphy - Bank of America - Analyst : And maybe just to follow on that. I mean, as far as schedule changes and program launch changes, what have you heard from automakers so far? It seems like everybody is kind of trying to plow ahead without making significant changes yet. Have you seen big changes in short-term schedules or potential program launches for the second half of this year or maybe even into next year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 02, 2025 / 12:00PM, MG.TO - Q1 2025 Magna International Inc Earnings Call

Question: John Murphy - Bank of America - Analyst : And then just lastly, China seems like it's showing some relative strength and absolute strength relative to expectations. Can you just remind us of your footprint or your mix of customers there, domestic Chinese OEMs versus international?

Question: John Murphy - Bank of America - Analyst : Swamy, I thought just about a year ago, that was 50-50. I mean, did it move that quickly? Or is my number kind of -- it did with equity?

Question: Tamy Chen - BMO Capital Markets - Analyst : Hi, good morning. Thanks for the question. First, I just wanted to clarify. So Swamy and Pat, the annualized tariff exposure this year, you said $250 million. So (inaudible) interpret that is essentially the COGS exposure from you importing into your US plant parts from Canada and Mexico. And are you saying this number, you believe, you would get 100% recovery from your customers? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 02, 2025 / 12:00PM, MG.TO - Q1 2025 Magna International Inc Earnings Call

Question: Tamy Chen - BMO Capital Markets - Analyst : (inaudible) Canada. FX (inaudible) China.

Question: Tamy Chen - BMO Capital Markets - Analyst : Okay. Understood. And yeah, on that, with respect to increase in USMCA compliance. And also I'm curious, if at this point -- well, I think, first of all, you said a lot of discussions around that, increasing USMCA compliance with your customers. I'm also wondering, most recently, after we've got a little bit of relief and clarity earlier this week, do you also believe your customers may be thinking more about increasing US. content, not just USMCA compliance? And can you talk a little bit more about -- between the two of them, what that means for you, incremental capital investment. What do you need to do? How does that impact you if both of those things continue from here?

Question: Tamy Chen - BMO Capital Markets - Analyst : Okay. Got it. And my last question is on your share buyback. Could you confirm at this point, I think you'd said earlier that a month or so ago, you've paused it. I just want to understand at this point, how are you thinking about the buyback? Is that still on pause given the macro uncertainty? Is it also related to the -- where your leverage currently is at and where you expect that going forward? Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 02, 2025 / 12:00PM, MG.TO - Q1 2025 Magna International Inc Earnings Call

Question: Dan Levy - Barclays - Analyst : Hi, good morning, thanks for for taking the question. Wanted to first just ask on advanced programs launch activity. What have you seen there? Has there been any change in the activity behavior of automakers on this front? And maybe you can just conclude in that. And what's the [tone and tenor] of commercial discussions with the automakers right now?

Question: Dan Levy - Barclays - Analyst : Okay, thank you. And then as far as the Complete Vehicle segment, if you could just give any color on the outperformance in the quarter? But also, how should we assess the risk for complete vehicle given [G-Wagon] is essential program. There's some questions on the demand in the tariff environment as those are all exported.

Question: Dan Levy - Barclays - Analyst : The only thing I'd add, Dan, is it comes back to the contracts Swamy talking about. There are the biggest recoveries in it. So even if the volumes fall, we do have that fixed recovery for (inaudible).

Question: Dan Levy - Barclays - Analyst : Okay. If I could just squeeze one in, just to clarify, the pieces of the business that are not USMCA compliant, those are which products or in which segments?

Question: Joseph Spak - UBS - Analyst : Thank you, everyone, and thanks for the tariff impact color. Sorry to go back to this, I just want to understand some of the math here. The $2 billion of goods that crossed the border, I get 25% of that is the [$500 million]. Then you're saying 25% of the parts are non-USMCA compliant. So how do you get to a $250 million impact? Is that because the compliance, that percentage you gave is parts space, not dollar-weighted, so you really mean only half the dollars are exempt? And then just to be very clear, I know you're not assuming the -- any volume impact. But in the guidance, are you assuming in the revenue guidance that you recover that $250 million? I'm sorry, the half of that on an annualized basis.

Question: Joseph Spak - UBS - Analyst : Well, yes. The remissions would further, right? I guess what I'm saying is just very simple math. If you're saying no, [500 across] REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 02, 2025 / 12:00PM, MG.TO - Q1 2025 Magna International Inc Earnings Call

Question: Joseph Spak - UBS - Analyst : Maybe we can take it offline. But because, again, if 25% is not compliant, I would have thought the impact would have been [125%] before remissions and remission to bring it down further.

Question: Joseph Spak - UBS - Analyst : Fair enough. Okay. All right -- yes. sorry, go ahead.

Question: Joseph Spak - UBS - Analyst : I know the volume impact from tariffs is not included, but is the recovery of that, let's say, three-fourth of that $250 million included in the revenue outlook?

Question: Joseph Spak - UBS - Analyst : Okay. So it's not in the revenue, but then you assume -- but in reality, it would be, but then it's zero impact (inaudible)?

Question: Joseph Spak - UBS - Analyst : Okay. And then I guess just on the -- when you look at some of the margin revisions by segment, it was mostly in BS and Seating. And I know, Swamy just said the tariff impact is mostly or across sort of all segments. So is that really just a result of some of the softer 1Q results? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 02, 2025 / 12:00PM, MG.TO - Q1 2025 Magna International Inc Earnings Call

Question: Adam Jonas - Morgan Stanley - Analyst : Thanks, Swamy and Pat and everybody, I wanted to offer my condolences for the loss of Vince. He was a really talented, kind, humorous and gentle soul who left the world a better place than he found it. And those lucky enough to know him, his memory is a real blessing. And I hope if he were here -- as you listen to this call, where up above he'd be saying just -- right, back to work. Keep your head down and get through the challenges and the opportunities in the day, and I think you would have great confidence in the team. And I just wanted to offer my condolences to the Magna family and his own family and children as well. And that's all I want to say. I don't have any questions. Thank you.

Question: James Picariello - BNP Paribas Securities - Analyst : Hi, good morning everybody. My question is on Swamy, you mentioned in your prepared remarks that the 1Q exceeded internal expectations, and the 2025 EBIT range is unchanged. Just curious, do you still expect the first half to represent about 40% of the full year, right? This would imply something modestly above $500 million for the second quarter. I know tariffs the timing of recoveries could swing the answer. But if you were to get full recovery in the second quarter, which I don't think it's -- I don't -- I imagine it's pretty reasonable given that the parts rebate mechanism is now in place for OEMs and given Magna's critical role as a supplier to your customers. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 02, 2025 / 12:00PM, MG.TO - Q1 2025 Magna International Inc Earnings Call Just how are you thinking about that 40-60 split?

Question: James Picariello - BNP Paribas Securities - Analyst : Got it. And then my follow-up is just on buybacks. I think it was mentioned at -- Magna mentioned at a recent conference that typically for the -- when you get the authorization for a buyback, you want to -- a company would typically want to buy back at least half of the authorization. That was something, again, mentioned at a conference, not necessarily my words. Just wondering, if volumes overall for the industry hang in, you get you get full recovery or most recoveries for the tariff exposure that you have. Is that kind of the target, at least half of this authorization gets done this year?

Question: Shreyas Patil - Wolfe Research - Analyst : Hey, thanks so much for taking my questions and my condolences to Vince and his family. I wanted to maybe just come back to the guidance for this year. I understand it does not reflect tariffs, but -- just to confirm, you have revised it for the latest FX assumptions. I guess just looking at the euro, for example, that alone would be maybe a [$650 million] benefit to revenue for this year of [$35 million] or so the EBIT, Canadian dollars and other benefit. And so is that correct? And if so, can you maybe just expand on the offset that you mentioned, I think there were some headwinds on key programs that you noted?

Question: Shreyas Patil - Wolfe Research - Analyst : Okay. YeAH. So just -- so basically, revenue is up $1.5 billion on FX and then it's offset by lower volume, that's the primary headwind?

Question: Shreyas Patil - Wolfe Research - Analyst : Okay. Okay. Understood. And then just maybe if you could help us just understand, mechanically, the process by which you would get recovery from the OEM? Because I understand your expectation is to get 100%. I guess what we've seen in the past -- I think about the semiconductor shortage from '21 and '22 is there is a bit of a lag in recovery. Would you expect this time around if you're looking at tariff costs, to incur a lag through negotiation? Or do you feel like because this is an industry-wide problem, that the pace at which you could get recoveries is much quicker?

Question: Mark Delaney - Goldman Sachs - Analyst : Yes, good morning. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 02, 2025 / 12:00PM, MG.TO - Q1 2025 Magna International Inc Earnings Call Thank you very much for taking my questions. Please allow me to pass my sympathies on to Magna and Vince's family on his passing. He's very detail-oriented and always quite generous with his time. So he will be missed for sure.

Question: Mark Delaney - Goldman Sachs - Analyst : I did want to speak a bit on schedules. And I understand your comments that customer production schedules have been stable. When you speak to your broader set of customers along their plans, can you help us better understand what they're indicating they'll do with vehicles being exported and now seeing tariffs? And I just want to understand why there wouldn't be a change to those exported vehicles given the tariff dynamic? And then just overall, as you think about the second half, what's the confidence you have in production schedule is tracking in line with your prior view for 2H?

Question: Mark Delaney - Goldman Sachs - Analyst : Thanks for that color Swamy. My second question was about EBIT margins. The company have been expecting to achieve 75 bps of EBIT margin tailwind over the next 2 years in total. I'm hoping to better understand if there's been any change in the magnitude of savings or the timing of which it may flow through given the current industry backdrop?

Question: Jonathan Goldman - Scotiabank - Analyst : Hi, good morning, guys. And thanks for taking my questions. Most of them have been asked already, but just one for me then. We see light vehicle inventories come down in the past 2 months in North America, and maybe that's related to the pull forward in demand. But in your production outlook for North America, does that assume any rebuild of inventories at all this year?

Question: Michael Glen - Raymond James - Analyst : Hey, good morning. Swamy, thank you for the answer with regard to the European export for assembled vehicles, but could you provide some context to Magna's exposure to Mexico -- Mexican and Canadian assembled vehicles? What the outlook is there and maybe what customers are communicating to you in terms of what might happen with those production schedules and any movement we might see?

Question: Michael Glen - Raymond James - Analyst : And not to put you on the spot with this question or anything like that. But like when you -- do you believe that the 25% on assembled vehicles from Canada or Mexico into the US will remain in place?

Question: Michael Glen - Raymond James - Analyst : Okay. And just some of the reshoring efforts that you might look for to pursue to increase USMCA compliant -- how do you think about the Tier 2, Tier 3, or Tier 4 supplier base? Do you see this as feasible? Like I'm just trying to assess your opportunity to reshore some of those components.