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European challenges loom over Magna despite growing dividend

Employees at Magna Closures Dortec Industries in Markham Feb 19, 2013.

Moe Doiron/The Globe and Mail

Magna International Inc. has already signalled that investors can expect a dividend increase when the company reports its fourth-quarter and 2013 financial results on Monday. The question is how much the dividend will rise and whether Magna will take other actions with its cash.

Bank of Nova Scotia analyst Mark Neville forecasts a 12.5-per-cent rise in the dividend, which would take the annual payout to $1.44 a share.

Steve Arthur, who follows the company for RBC Dominion Securities, anticipates a 10-per-cent boost in the dividend, although he acknowledges that figure may be conservative.

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But the key issue for Magna is one that has hung over the company for several quarters: the status of the turnaround in its European operations amid a vehicle market that is still stagnant.

Magna, based in Aurora, Ont., is attempting to improve operations at several of its European plants and reduce its losses in the region.

But a major improvement will depend on a substantial reversal in vehicle sales and thus production in Europe, where vehicle sales in EU countries fell 2 per cent last year to 11.85 million. That was the sixth straight year of declining sales and the worst performance in EU countries since 1995.

Mr. Arthur is heartened, however, by sales gains in many EU countries during the fourth quarter. "While Europe appears to be getting better, the market is still quite depressed relative to historical levels," he wrote in a note to clients. "We expect gradual improvement next year that should represent an opportunity with suppliers leveraged to European auto production."

He said he will look to the results issued Monday and the company's conference call to provide more details on $100-million (U.S.) in European restructuring charges mentioned during third-quarter results. At that point, there had been only $54-million in charges taken, which indicated that Europe would still affect fourth-quarter results.

The consensus estimate for fourth-quarter profit per share is $1.55.

BMO Nesbitt Burns analyst Peter Sklar raised his profit estimate to $1.61 from $1.55 recently, after examining the revenue mix from fourth-quarter production in North America, which is Magna's other key market.

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Vehicle assembly plants in North America are working almost flat out as the market continues its robust recovery from the depths of the 2008-09 recession.

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About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More


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