Magna International Inc. (MGA) Earnings

Management highlights

### Overall Financial Performance - Q2 2026 total sales were $11 billion, up 3% year-over-year; organic sales (excluding currency) were up 2%, 3% weighted growth over the 1% industry production decline - Adjusted EBIT was $677 million, up 16% year-over-year; adjusted EBIT margin expanded 70 basis points to 6.2% - Adjusted EPS rose 29% year-over-year to $1.86, a Q2 record - Free cash flow was $617 million, more than double the year-ago level and above expectations - Operating cash flow was $954 million, up $327 million year-over-year driven by higher earnings and strong working capital performance; CapEx was $269 million (2.4% of sales) - The company ended the quarter with $1.4 billion in cash and $5 billion in total liquidity, with a 1.4x leverage ratio that beat expectations; S&P reaffirmed the A- credit rating and upgraded the outlook to stable, following a similar action from Moody's earlier in the year ### Capital Allocation & Portfolio Actions - Returned $598 million to shareholders in Q2: $133 million in dividends and $465 million in share repurchases; 7.4 million shares were repurchased, leaving ~9 million shares remaining under the NCIB authorization, to be repurchased before the November expiration - Closed the sale of the European lighting business at the end of Q2, and remaining lighting and rooftop divestitures are expected to close sooner than originally anticipated ### New Business Wins & Strategic Positioning - Won a Driver and Occupant Monitoring System program with a European OEM, positioning the company's mirror-integrated hardware/software as a platform-level solution for the customer's software-defined vehicle architecture and reinforcing Magna's leadership in interior sensing - Won an 800-volt two-speed eDrive program with Cherry Automotive, building on the already launched dedicated hybrid drive system (now in production for the G Tour G700) and strengthening Magna's position in high-voltage e-drives - Earned five General Motors Supplier of the Year awards across five product categories, bringing Magna's total GM Supplier of the Year awards to over 40 in the past decade - Over 90% of 2028 business is already booked, providing strong planning certainty ### Non-Automotive Adjacent Market Evaluation - Management is actively evaluating opportunities in adjacent non-automotive markets (including robotics, automation, data centers, recreational vehicles, and industrial applications) to leverage Magna's existing manufacturing footprint, technical expertise, and quality standards - The company will only pursue opportunities that meet clear return-based criteria, fit existing capabilities, and give Magna a credible competitive advantage; no diversification for its own sake will be pursued, and no major incremental distraction or investment is planned - Initial project wins have already been secured, and a full strategy update will be provided at the November investor day

Guidance

- Full-year 2026 weighted sales growth over market is expected to remain 0% to 2% (1% to 3% excluding complete vehicles), matching the prior range; the full-year sales outlook was adjusted only to reflect updated foreign currency assumptions and earlier divestiture closures, with no material organic change - The adjusted EBIT margin outlook range was narrowed and raised to 6.3% to 6.6%, 15 basis points higher at the midpoint than the prior outlook and 85 basis points higher than 2025 - The adjusted EPS outlook range was narrowed and raised to $6.70 to $7.30 per share, 25 cents higher at the midpoint than the prior outlook and 22% higher than 2025 - The full-year free cash flow outlook was raised to $1.8 billion at the midpoint, $100 million higher than the May outlook, representing ~95% free cash conversion of adjusted net income - Full-year adjusted tax rate remains guided at 23%, implying a rate above 23% in the second half - Higher equity income and slightly lower interest expense are expected versus prior outlooks, while assumptions for capital spending, the tax rate, and diluted share count are unchanged - The midpoint of full-year EPS implies second half adjusted EPS of $3.76, with a 40-60 split between Q3 and Q4 (Q4 will benefit from higher sales and margins); both quarters are expected to post higher year-over-year margins - 2026 full-year net tariff headwind is expected to be similar to 2025, roughly neutral for full-year margins - Macro production assumptions: +100,000 units for North America, +200,000 units for Europe, -800,000 units for China versus the May outlook

Segment performance

1. Power and Vision: 6% year-over-year sales increase, delivered 5% weighted growth over market with 6% adjusted EBIT margin. Strong performance was driven by incremental margins on higher sales, operational excellence initiatives, higher equity income, and lower net tariffs, offset partially by unfavorable mix, commodity costs, and commercial items. Approximately 400 million USD of revenue will be removed from the segment in the second half of 2026 due to earlier-than-planned divestitures, 50 million USD more than previously expected. 2. Seating: Posted higher year-over-year sales, growth above market, and improvements in both adjusted EBIT dollars and margin from strong operational execution. 3. Complete Vehicles: Sales declined 5% year-over-year as expected, even with higher unit volumes. The decline stemmed from net lower sales on full-cost programs and lower engineering revenue, which was only partially offset by favorable foreign currency translation and higher-margin value-added sales from new programs with Chinese OEMs. The segment posted year-over-year improvements in adjusted EBIT dollars and margin from strong operational execution. 4. Body Exteriors and Structures: Posted higher year-over-year sales and growth above market. Adjusted EBIT margin came in at 8.1% (ahead of internal expectations) but was down 10 basis points year-over-year due to slightly unfavorable mix.

Risks & headwinds

- Macroeconomic and geopolitical conditions remain uncertain, including ongoing conflict in the Middle East and evolving trade policy, such as the proposed 50% U.S. content rule under USMCA negotiations - Modest incremental cost headwinds are expected across several key commodities and inputs in the second half of 2026, which have been incorporated into the current outlook - DRAM memory pricing and supply volatility is being closely monitored; there is expected to be a modest unrecovered cost headwind in the second half of 2026, though no material supply disruptions are anticipated as of now - Shifting market share dynamics: Western OEMs are losing share in China to local Chinese OEMs, which creates near-term sales pressure for Magna's China business, though Magna is growing its exposure to Chinese OEMs to offset this trend - Lower light vehicle production volumes and end-of-life vehicle programs create headwinds to top-line growth in the second half of 2026

Analyst Q&A

• Q: What drove Q2's strong performance, what is the tariff outlook for the second half, and what is driving growth in Power and Vision with the earlier divestitures? /

  A: Q2's outperformance was driven primarily by structural operational excellence, not one-time factors or pull-forward demand. Tariff recoveries are coming in faster this year than last, creating a Q2 benefit, but full-year tariffs are expected to be roughly neutral. Power and Vision growth is driven by incremental margins on higher sales, operational initiatives, higher equity income, and lower net tariffs, offset partially by mix and cost headwinds. Divestitures will remove ~$400 million of Power and Vision revenue in the second half, $50 million more than previously expected due to earlier closing.

• Q: What is the regional outlook, and what does Magna's backlog imply for 2027 growth over market? /

  A: While the full 2027 outlook is not ready to share, Magna still expects positive full-year 2026 growth over market even after production revisions, with positive growth over market in both the first and second half. The downward China production revision is already mostly reflected in Q2 results, and the upward North America/Europe revisions were also partially seen in Q2. Magna remains comfortable with its current growth over market projections for the second half and full year.

• Q: Why is the Q3/Q4 EPS split more skewed to Q4, and what is the outlook for DRAM supply and pricing? /

  A: The skewed split is driven by normal seasonality, model changeovers, end of production for several legacy programs, and the typical trend of commercial recoveries being weighted more to the fourth quarter. The slope of Q1/Q2 to H2 is flatter this year than last, and both Q3 and Q4 are expected to see higher year-over-year margins. For DRAM, Magna has not experienced supply disruptions, has mitigated most risks through discussions with suppliers and OEM customers, and only expects a modest unrecovered cost headwind in H2 that is already incorporated into guidance.

• Q: Will non-automotive opportunities move the needle for a large company like Magna? /

  A: Magna already has existing proof points of non-automotive work, including aerospace projects at Steyr, heavy truck cabin work at Cosma, and it will only pursue selective opportunities that leverage existing capabilities, meet strict return criteria, and do not require major incremental investment or distract from the core automotive business. Initial projects have already been won, and management believes these can add incremental growth and modest diversification without changing Magna's core identity, with a full update to be provided at the November investor day.

• Q: What is driving the first half to second half margin step up, and what is the impact of IEPA tariff refunds? /

  A: The step-up is driven by continuing acceleration of operational excellence initiatives across all segments and the typical trend of commercial recoveries being more weighted to the second half. For IEPA refunds, Magna has recovered roughly half of the $100+ million in IEPA tariffs paid, but 80-90% of these refunds will be passed back to customers, resulting in only a very small net benefit to Magna, consistent with the full-year neutral tariff outlook.