Magna International Inc Q4 2024 Earnings Call Transcript

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

Question: Tamy Chen - BMO Capital Markets - Analyst : Hi, good morning. Thanks for the question here. I wanted to start with the controllable that, you're doing in the face of all this uncertainty. So I see you've talked about still expecting fairly sizable benefits this year to margins from your cost reduction plans, restructuring. I think also some rolling REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 14, 2025 / 1:00PM, MG.TO - Q4 2024 Magna International Inc Earnings Call on of better contrast that you've negotiated, but I see the lower end of your guidance this year has your margin down. So I just wanted to understand that better. I mean, what are the assumptions for that low end that would essentially fully offset your controllable.

Question: Tamy Chen - BMO Capital Markets - Analyst : Got it. And my follow-up is, well, on '26 you've got some good revenue growth and pretty sizable margin expansion. I'm just wondering, what gives you the confidence to assume that, given just how uncertain involved, how everything is this year, I mean, could things materially improve that much already to next year, and I noticed in particular the power and vision margin is quite an expansion. And I think as we've seen with the power and vision margin, even this year's expectation, if we were to rewind a year or two ago for what could have happened this year, I think your guidance now for P&V margin this year might have been a bit lower than what was expected, a couple of years back. So I think if you can just give a bit more color as to the confidence you feel that now in '26, we're really going to see that P&V margin in particular expand. Thank you.

Question: Tamy Chen - BMO Capital Markets - Analyst : Thanks.

Question: Dan Levy - Barclays - Analyst : Hi, thank you for taking questions. I think you may have just touched on it. But the outlook from '24 to '25 for Power sales that's down, almost a $1 billion. Can you just double click on what's going on there and maybe decompose. Are we seeing any, improvements in sort of the core mega trend areas whether it's ADAS with Veoneer or any of the hybrid opportunities there.

Question: Dan Levy - Barclays - Analyst : Okay, great, thank you. And then as a follow up, wanted to just unpack the free cash flow improvement. Maybe you could just talk about working capital dynamics and, beyond, it seems like the rest of it is coming from EBIT, but maybe you can just talk about, the CapEx as well, just the broader line of sight that you have into free cash flow improving into 2026 and maintaining pretty flattish in '25. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 14, 2025 / 1:00PM, MG.TO - Q4 2024 Magna International Inc Earnings Call

Question: Dan Levy - Barclays - Analyst : Okay, thank you.

Question: Chris McNally - Evercore ISI - Analyst : Thanks so much team. Just wanted to dig into for me to some of the comments you made, over the last two questions, but it seems like of that $1 billion, the majority is your customer mix actually being down, I think you said D3 4%, G3 7%. I mean, the two of them combined are like 75% of your revenue. It seems like your customers are down in that 5% plus, the ADAS, you mentioned on top, these are some of your most profitable programs, particularly the trucks. Is that the best way to phrase the sort of the revenue miss and you get some of that back in '26.

Question: Chris McNally - Evercore ISI - Analyst : Yeah. It's super powerful and I think that leads to the margin question in '26, and we're, trying to see how realistic sort of 120 basis points , 140 basis points year over year. It's like almost 30% incrementals would be some of that is because those topfull programs come back. But one of the ones, the segments I wanted to dive into was for body, you're talking about an 8% to 8.7% margin. I mean, essentially the highest margin you would ever have. Could you walk us through that, that you already gave the power and vision comments. Thanks so much.

Question: Chris McNally - Evercore ISI - Analyst : Excellent. Thanks so much, team.

Question: Joseph Spak - UBS - Analyst : Thank you. Pat, maybe just two quick housekeeping ones and then I have a bigger picture question for Swamy. But on the '25 free cash flow, I just want to make sure I have the pieces here, right? Because the EBIT down about $200 million year-every-year, sort of in line with, I guess what you're guiding free cash flow down at the midpoint. CapEx is down more, so that the delta is some of the cash restructuring you mentioned and working or is that how we should think about it?

Question: Joseph Spak - UBS - Analyst : Others -- all right, the other just quick housekeeping one, I know you mentioned nothing on tariffs, does that include some of the potential tariffs on metals like steel, and can you just remind us your exposure there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 14, 2025 / 1:00PM, MG.TO - Q4 2024 Magna International Inc Earnings Call

Question: Joseph Spak - UBS - Analyst : Okay. And then Swamy, just, as I review the guiding principles you laid out and in particular the pillars of portfolio management and capital allocation, you mentioned targeting these growth markets and but also, you mentioned exiting business that don't align and I guess I'm just curious given all the volatility and the dynamic nature of this industry that we're going through right now. Do you see yourself more as a buyer or a seller of assets? And when you broadly talk about exiting a business that don't align with the portfolio criteria, is that purely from a product perspective, or are you also considering, some of the customer exposure because, the Chris's question earlier. You're pretty overweight, some customers, and I'm wondering whether you'd consider exiting some businesses that might allow you to redeploy capital with other customers that might potentially be, faster growing customers.

Question: Joseph Spak - UBS - Analyst : Thank you. I appreciate it.

Question: Tom Narayan - RBC Capital Markets - Analyst : Hi, thanks for taking the questions, Pat, Swamy. First one is just the one segment that I guess we haven't gone over seeding 2025 outlook does seem to be some detrimentals there. I just love to maybe double click on that and then I have a follow up.

Question: Tom Narayan - RBC Capital Markets - Analyst : Okay. And then, my follow up, it's really a follow up to Joe's question and, in the past, yeah, you have said, all options on the table are not taking divestitures off the table, and it seems like that, you were saying -- you're looking to be in businesses, you have strong market share. One thing maybe that, many folks want to know better is the synergies between your business lines. Is that something you also take into account? And the reason why we're asking all this is, we've had a couple of Tier 1 suppliers announce, sales or spends and if you would look at your guys, some of the parts, it would appear to a lot of us that it's trading a discount to where the some of the parts where your stock is. So just love to hear more maybe on how you think about divestitures and the synergies right now between your business segments. Thanks.

Question: Tom Narayan - RBC Capital Markets - Analyst : Yeah, thank you.

Question: Brian Morrison - TD Cowen - Analyst : Thanks very much. I appreciate all the color and the questions so far. Swamy, I know that it was difficult to answer the question with respect to tariffs on aluminum and steel, but just in terms of broad-based tariffs, I know they're not factoring their guidance, and it's very difficult to answer, but you has talked about potential to move production or flexibility to move production. What flexibility do you have with respect to addressing potential broad-based tariffs and or what contingency plans have you or could you put in place in order to mitigate the potential exposure.

Question: Brian Morrison - TD Cowen - Analyst : Thank you.

Question: James Picariello - BNP Paribas Securities - Analyst : Hi everybody. Just a question on the seating business. If we look at the -- if we exclude complete vehicles, look at the midpoint of your 2026 targets relative to your 2024 results, right, the segment that does stand out is seating. In that revenue and margins are, just slightly lower than where you finished in '24. So, that is a business that stands out, something is structurally less positive than your other two, the power of vision or body exterior. So if you just speak to, what those net headwinds are comparatively and, is there any insourcing? -- Is there insourcing -- are you seeing the insourcing by OEMs, for seeing in Europe in particular? Thanks.

Question: James Picariello - BNP Paribas Securities - Analyst : All right. And then my follow up -- that was helpful. And then my more follow up is just on complete vehicles, what's the future for this business, in terms of quoting, activity, pipeline, potential, Chinese domestic OEMs, wanting a footprint in Europe. Just any color there, and then just any feedback or color on the LG powertrain JV how that's faring and what the trajectory, what the outlook is there. Thanks.

Question: James Picariello - BNP Paribas Securities - Analyst : Thanks.

Question: Colin Langan - Wells Fargo - Analyst : Great, thanks for taking my questions. I hate to ask a basic question, but a little surprised by how large the FX headwind is at $2 billion. That's like 4% to 5% of the sales decline actually it's like majority of your headwind. What is really driving that and any color maybe beyond the sensitivities of the rates change to kind of what we should be tracking.

Question: Colin Langan - Wells Fargo - Analyst : Okay, and then if I just want to go through slide 26 to make sure I understand the broader buckets of the of the walk. FX is about $2 billion. I guess that would convert at, I guess it's embedded in one of those lines about, average margins and then normal decrementals around $20 on the sort of core business that's down roughly a billion dollars outside FX and then that those headwinds are going to be offset by operational and engineering those are like $100 million each, something like that, are those the right sort of buckets that we should be thinking about and trying to size those bars in the long.

Question: Colin Langan - Wells Fargo - Analyst : Okay. Great. Thanks for the clarification.

Question: Mark Delaney - Goldman Sachs - Analyst : Yes, good morning. Thanks very much for taking my questions. Starting with another one on the customer exposure, you spoke about the progress you've seen in China and having 60% of your revenue in that region with the domestics. Maybe you could elaborate on what that might mean for how big China will be for Magna going forward and as you think about the outlook you provided for '25 and '26 and some better growth in China, what percent of revenue would you expect to come from China in the future?

Question: Mark Delaney - Goldman Sachs - Analyst : Okay, yeah, helpful, thanks for that, Pat. And then, I was also hoping you could elaborate on what's contributing to the lower net engineering spend over the next few years, how much of that is adjusting for the timing of when mega trend opportunities may be larger and, reevaluating your spend, to better time with those markets, how much might be from some of these other factors you were speaking about like restructuring, and I guess you're just on this topic of the engineering spend. Does this signal any potential change in how you're trying to run certain product lines or businesses and you've chosen to optimize more for margin than growth going forward? Thanks.

Question: Mark Delaney - Goldman Sachs - Analyst : Thank you.

Question: Michael Glen - Raymond James - Analyst : Thanks. Good morning. Just one for me, Pat, the other item on your cash flow statement, the increase in investments, other assets, and intangible assets, are you able to give us some guidance for that figure in 2025? And can you just remind us what some of the big buckets are in that line item as well?

Question: Michael Glen - Raymond James - Analyst : Okay, so that number is going to be down quite a bit next year as well.

Question: Michael Glen - Raymond James - Analyst : Okay. That was it for me. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 14, 2025 / 1:00PM, MG.TO - Q4 2024 Magna International Inc Earnings Call