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Auto Giant Magna Crushes Earnings but the Stock's Down. There Aren't Enough Cars.Auto Giant Magna Crushes Earnings but the Stock's Down. There Aren't Enough Cars.Barron's (Online); New York Auto parts giant Magna International reported first quarter numbers that handily beat Wall Street expectations, Friday morning. Shares, however, are down in early premarket trading. The earnings report shows how difficult it's been for automotive investors lately. Beating earnings estimates is usually a good thing for any stock. But forward looking guidance trumps earnings and Magna (ticker: MGA) cut full year guidance when it reported numbers. Guidance cuts, of course, can be a disaster for a stock. But Magna shares aren't doing much. Investors aren't really surprised. They already know what the company, and industry, is facing. Magna reported first quarter earnings per share of $1.28 from $9.6 billion in sales. Wall Street was looking for EPS of $1.07 from $9.1 billion in sales. That's great, but for the full year, Magna now expects to earn roughly $1.4 billion in net income, or about $4.75-a-share, from $37.6 billion in sales. Prior guidance called for about $1.6 billion in net income, or about $6.10-a-share, from $39.1 billion in sales. Coming into the quarter, analysts aren't anywhere near Magna's guidance. They are projecting EPS of $5.54 from $38.1 billion in sales. Still, it looks like a big cut, but shares are down only about 0.4% in premarket trading. S&P 500 and Dow Jones Industrial Average futures are down about 0.6% and 0.3%, respectively. There are a couple of reasons why the share might not be down more. For starters, Magna stock is down about 23% year to date and 40% from its June 52-week high of almost $55-a-share. A lot of bad news is reflected already. The actual bad news is the second reason Magna stock isn't down more. A shortage of semiconductors has hurt the industry for more than a year, constraining global auto production. Magna now expects about 55.5 million light vehicles to be made in China, the U.S. and Europe in 2022, down from prior expectations of 57.9. Before the pandemic and the chip shortage, the U.S., China and Europe were producing about 63 million cars a year. About 54 million units were produced in 2021. Production is running about 7 million or 8 million cars below capacity. It isn't for lack of demand. Auto prices are near records and customers are paying more than the sticker prices to get new vehicles. It's a unique situation. Maybe 15 million cars that could have been sold in 2021 and 2022 won't arrive on dealer lots. Magna shares, and shares of other auto producers, will continue to be impacted by the chip shortage. When the shortage ends, investors will have to assess demand an profit margins. It hasn't been easy for auto investors lately, it won't get easier anytime soon. |
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