Q1 2021 Magna International Inc Earnings Call
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Greetings and welcome to the first quarter 2021 results conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time and if you have a question. Please press the one followed by the four on your telephone.
And anytime during the conference you need to reach and operator, Please press star zero.
As a reminder, this conference is being recorded Thursday may six F. 2021.
I would now like to turn the conference over to Louis Tonelli VP of Investor Relations. Please go ahead.
Thanks, Alina Hello, everyone and welcome to our first quarter of 2020 One results conference call.
Joining me today are swamy quarter, Gary and Vince the lessee.
Yesterday, our board of directors and met and approved our financial results for Q1, 2020 one.
We issued a press release this morning outlining our results.
If on the press release today's conference call webcast. The slide presentations goes on with the call and our updated quarterly financial review all on the Investor Relations section of our web site at Magna Dot com.
Before we get started just as a reminder, the discussion today may contain forward looking information or forward looking statements within the meaning of applicable securities legislation.
Such statements involve certain risks assumptions and uncertainties, which may cause the company's actual or future results and performance to be materially different from those expressed or implied and these statements.
Please refer to today's press release for a complete description of our safe Harbor disclaimer.
As we review financial information today. Please note that all figures discussed are in U S dollars.
We've included in the appendix a reconciliation of certain key financial lines for Q1, 'twenty one between reported results and results excluding unusual items.
Our quarterly earnings discussion today excludes the impact of unusual items into Q1 'twenty one.
Please also note that when we use the term organic and the context of sales movements, we mean, excluding the impact of foreign exchange acquisitions and divestitures.
Lastly, we held a virtual investor event on April 13th for those that were not able to join US for the event is archived on our website and the Investor Relations section and with that I'll pass it over to Swamy.
Thanks, Louis and good morning to everyone.
Hope everyone is staying safe and healthy.
And I'm happy to be reporting the results of the first quarter in my role as the CEO.
Before I start and I would like to thank the management team and the employees of Magna.
For their diligence and staying safe and healthy while continuing to operate successfully I would also like to extend my appreciation to our customers who are working collaboratively and navigating the industry supply chain issues.
With that I'm really pleased with our strong Q1 performance despite ongoing industry supply challenges.
It was another solid quarter per our margins in part as a result of our focus on operational excellence.
Longer term our portfolio positions us to continue driving sales growth over market.
And as well as strong free cash flow generation, and we remain really excited and what magna's future, particularly given our systems and complete vehicle Knowhow and approach.
Before we get into the quarterly results, let me reiterate the key points from our Investor event last month to drive growth in both topline and bottom line, we will accelerate our capital deployment towards the megatrend and high growth areas.
Operational excellence to further improve performance.
And unlock new business models and markets by leveraging the full breadth of our capabilities.
We have recently highlighted some of our activities and the focus areas associated with this strategy.
And the area of electrification, we are developing and bringing to market our largest generation.
And our latest generation of E mobility products and technologies.
This cover a range of powertrain configurations and vehicle segments. We have received significant interest from many Oems on these new products and.
In fact, we recently received a program award for our latest E drive technology for an upcoming battery electric vehicle.
Our opportunities and electrification extend beyond the powertrain.
A strong competitive position and battery enclosures.
And that has significant technology and engineering content that is needed on every high voltage vehicle.
We already have two program awards for this technology and there is a lot more interest and the pipeline.
And the area of autonomy, we have highlighted a program award for a driver monitoring system launching next year.
Here, we are combining our experience in both cameras and mirrors to develop fully integrated systems.
Lastly, we recently entered a strategic collaboration agreement with <unk> and E mobility startup to explore future vehicle development opportunities across a variety of use cases and in the area of mobility as a service and.
The light commercial vehicle market.
So lots of exciting things on the go at Magna.
Let me turn to some of the market dynamics that are affecting our business right now.
Following a challenging 2020 with a negative impact of COVID-19, particularly in the first half we are experiencing a recovery and global vehicle demand and a corresponding increase and global auto production.
<unk> segment mix globally has been shifting towards light trucks over the past few years.
And this continued this past quarter in both North America and Europe.
We have a higher proportion of our sales and truck segments relative to the market in each of these regions.
And compared to 2020, a weaker U S dollar relative to a number of currencies and which we operate is also creating a tailwind in our reported sales for this year.
In terms of headwinds there and.
Entire industry is experiencing supply constraints in particular, a global semiconductor chip shortage.
And we expect the chip shortage to continue to have an impact throughout the year.
Supplier issues, particularly in chemicals, and resins are driving higher commodity costs for us and the remainder of the year.
And the ongoing pandemic continues to impact the industry, including through stay at home orders and other restrictions.
COVID-19 remains a risk to the industry through this year.
Health and safety of our employees remains our top priority.
Overall, we continued our strong performance from Q1, despite some of the operating challenges we faced.
Consolidated sales increased to $10 2 billion, reflecting 3% weighted sales growth over market.
EBIT margin increased to seven 6% on.
Adjusted EPS more than doubled to $1 86.
And mainly as a result of our higher earnings free.
Cash flow increased to over $400 million in this quarter.
We also returned $280 million to shareholders and raised our financial outlook for the year.
All in all another good quarter from Magna with that I will hand, it over to <unk> to take you through the specifics rents.
Thank you Swamy and good morning, everyone I hope, you're all staying safe and healthy I'm going to start with a review of the quarter.
And.
And looking at the global vehicle production, it increased 18% and the first quarter.
Given by and 87% increase and China.
And North America, and Europe, our two largest markets light vehicle production was essentially level and up 5% respectively on.
On a magna weighted basis light vehicle production increased 6% and the first quarter of 2021.
Our consolidated sales were $10 2 billion.
And is up 18% over the first quarter of 2020.
The increase was primarily due to the higher global vehicle production and higher assembly volumes, including an estimated $1 1 billion.
Negative sales impact from the COVID-19 pandemic during the first quarter of last year.
Partially offset by the negative impact of supply disruptions, including the semiconductor chip shortage during the first quarter of 2021.
In addition to higher sales and the quarter reflected the positive impact of currency translation velocity programs and business combinations, partially offset by the end of production on certain programs and net customer price concessions.
On an organic basis, our sales grew 9% and year over year for a 3% weighted growth over market for the first quarter.
Organic sales, excluding currency translation, which was a 465 million tailwind and business combinations, which increased sales by about $240 million.
Adjusted EBIT increased 91% to 770 million and the quarter on.
Our adjusted EBIT margin increased 290 basis points to seven 6%, which was ahead of our internal expectations. This compares to four 7% and the first quarter of last year.
130 basis points of this increase relates to particularly strong improvement in our power and vision segment of 110 basis points is due to an increase and body exteriors <unk> structures and 10 basis points is due to the higher seating margins and 40 basis points is related to our corporate segment.
I'll get into the specifics and our segment review.
Equity income increased $17 million year over year to $47 million and the first quarter of 2021 about two thirds of this increase was related to earnings on higher sales and equity accounted operations and the remainder was largely a result of business combinations.
Our effective income tax rate came in at 23, 3%, which was in line with our expectations.
Net income attributable to Magna was 566 million compared to $261 million and Q1 of 2020, reflecting the higher EBIT, partially offset by higher income taxes interest expense and minority interest.
Diluted EPS increased $1 per 116% to $1 80 success for the quarter.
The increase reflects the higher net income partially offset by a modestly higher number of shares outstanding.
The higher number of shares outstanding primarily reflects the exercise of stock options and an increase and the number of diluted shares related to stock options outstanding as a result of the increase and our share price.
These were partially offset by the impact of share repurchases during or subsequent to the first quarter of 2020.
Net income attributable to Magna was 566 million compared to 261 million and Q1 of 2020, reflecting the higher EBIT, partially offset by higher income taxes interest expense and minority interest.
On the past assets at St page on her place.
Now, let me take a look at our segments.
Body exteriors <unk> structures sales were $4 billion and the first quarter and.
<unk>, 9% increase from a year ago.
The increase reflects higher vehicle production and the launch of new programs and the positive impact from foreign currency translation of $130 million.
These were partially offset by the end of production on certain programs and net customer price concessions body.
<unk> exteriors and structures EBIT increased to $327 million and.
And Q1 of 2021 margins increased by 270 basis points to eight 1% and the quarter.
This increase reflects earnings on the higher sales.
Cost savings and operating efficiencies, including as a result of restructuring actions implemented and lower commodity costs.
These were partially offset by lower transactional FX gains and higher launch costs and net settlements of customer claims and the quarter.
Power and vision segment sales increased 25% to $3 2 billion and the quarter. The Inc. This increase primarily reflects higher vehicle production.
The consolidation of <unk> entities, and the quarter, which added $162 million and sales of $160 million positive impact from foreign currency translation and the launch of new programs.
These were partially offset by net customer price concessions.
Power and vision EBIT increased to $297 million and EBIT margin increased to nine 4% compared to five 4% and the first quarter of 2020.
The increase primarily reflects earnings on higher sales and lower net application engineering costs related to three upcoming Adas program launches.
Net impact of the consolidation of the <unk> entities and cost savings and operating efficiencies, including as a result of restructuring actions implemented.
Seating sales were $1 3 billion, which was up 3% from the first quarter of last year, reflecting the acquisition of <unk>, the launch of new programs and a $30 million positive swing and foreign currency translation.
Were largely offset by lower volumes on certain high content programs and net customer price concessions.
Seating EBIT increased by $15 million to $55 million for the quarter, while EBIT margins increased by 100 basis points to four 2% to.
This increase primarily reflects productivity and efficiency improvements at and underperforming facility.
Equity income and cost savings and operational efficiencies, including as a result of restructuring actions implemented these were offset by lower earnings due to the unfavorable mix of production and the quarter.
And finally complete vehicle sales rose by $529 million from last year to $1 85 billion, representing a 40% increase the.
The increase is primarily due to higher assembly volumes, which were up 30% and foreign currency translation, which increased sales by $155 million.
Complete vehicles, EBIT increased to $80 million per quarter.
80% rose from three 8% to four 3% and Q1 of 'twenty one.
As a result of earnings on higher volumes net of contractual fixed cost recoveries on certain programs higher margins on engineering programs favorable program mix and earnings related to our arrangements with pfister.
Factors were partially offset by a favorable engineering program resolution and the first quarter of last year.
I'm now going to review, our cash flows and investment activities.
During the first quarter of 2021, we generated over $1 billion cash from operations before changes in working capital and investing 372 million and working capital.
Investment activities amounted to $319 million, including $212 million and fixed assets, a $104 million increase and investments other assets and intangibles and the 3 million and.
Investment and private equity investments.
Free cash flow increased 13% to $414 million and the first quarter.
We repurchased $162 million of our shares representing $1 8 million shares and paid $130 million and dividends.
Our adjusted debt to adjusted EBITDA is one seven and four down from $1 98 at the end of 2000 and continuing the sequential quarterly improvement we've experienced since the second quarter of 2020.
Our liquidity remains strong at $7 billion at the end of the first quarter.
After the quarter, we amended our revolving credit facility, including and extension of the maturity dates for $2 6 billion to June of 2026.
We also updated our 2021 outlook compared to February.
Our assumptions for light vehicle production had been lowered for North America, reflecting the ongoing impacts of the semiconductor shortage and increase in China. As a result of continued strong production.
We have also slightly increased our expectations for the Canadian dollar and slightly lowered our expectations for the euro and each case compared to the U S. Dollar.
And these currency changes had a negligible impact on sales and margin and our outlook.
We moved up our range for consolidated sales, reflecting modest increases for our power and vision in complete vehicle segment and a modest reduction for seating.
We increased our adjusted EBIT margin range by 10 basis points and is now seven 2% to seven 6%.
We increased our equity income range by $35 million substantially related to our power envisions segment and.
Interest expense has been lowered to approximately 100 million from approximately $110 million previously.
Net income attributable to Magna has been increased reflecting the higher sales and margin and lower interest expense and our tax rate and capital spending expectations are.
Are unchanged from our last outlook.
Yes.
We also increased our free cash flow expectations to one six to $1 8 billion compared to one four to $1 $6 billion range previously <unk>.
This mainly reflects increases increased expected earnings and a lower expected investment and working capital for the year free.
Recall from our February presentation that we expect free cash flow and the 'twenty one to 'twenty three time period of between five five and $6 billion.
In terms of segment margins, we've increased our margin range for power and vision, reflecting among other things to higher expected sales and equity income.
Increased margins for complete vehicles, largely due to improved program mix relative to our previous expectations.
We've lowered our margin range for body exteriors <unk> structures, mainly as a result of higher anticipated commodity costs and we've lowered our seating margin range, primarily to reflect the impact of lower expected sales.
In summary.
I think we had a good strong start to the year on organic sales once again outpaced weighted global vehicle production adjusted EBIT margin improved 290 basis points to seven 6% despite production disruptions, including as a result of the ongoing chip shortage free.
Free cash flow was strong up 13% to $414 million and we modestly increased our outlook for the year.
Thanks for your attention this morning and we'd.
And we'd be happy to answer your questions at this time.
Thank you if you would like to register a question. Please press the one followed by the four on your telephone you will hear three total prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration. Please press the one followed by the three.
One moment please for the first question.
Our first question comes from the line of John Murphy from.
On the Bank of America Merrill Lynch. Please go ahead with your question.
Good morning, guys. Thanks for all the information.
Just a first question.
And I recognize this might be.
To answer exactly but if we look at the outlook and didn't have the benefit of knowing everything that was going on and the world. It would look pretty good.
So it's impressive.
The first quarter results, but can you gauge or ballpark for us what you think the negative impact of the production disruption and the semi disruption.
And it's having on on your results.
Hey, John and I guess, there's a couple of things one is what's the impact on the quarter and what do we expect the impact is going to be for the balance of the year on.
Yep.
We actually looked at.
What we thought was kind of lost production as a result of some of the.
Customer shutdowns and so we're able to quantify that but what we weren't able to quantify as if our customers shifted production to certain other programs and we had higher volumes how much of that was as a result.
Shortage and our customers' reallocating.
On what vehicles, they wanted to produce and I'm really not comfortable kind of quantifying exactly what we think the chip shortages.
A little different when you have a strike and you can say on loss this production.
It's been really challenging and I can tell you.
It certainly would have an impact in our operations and.
Good luck with seating and some of the impact there in particular.
We had some offsets I think higher volumes on certain programs that we weren't anticipating for all and all.
And would have been a headwind not only to sales, but also to profitability because as we were trying to manage through the semiconductor issue and we never disruptive production for our customers, which is really key and swamy.
Our employees and management FERC that day.
Focus as well as our customers, helping us on that but it did create some inefficiencies in production. So I think that was a little bit of a hit for us from a profit perspective, but john and difficult to really quantify.
Okay and then.
Question on visibility on your production schedules on.
Obviously, that's tough right now you guys are admirably, taking a stab at it and talking about actual numbers, where other folks are.
It was from the automakers are backing away from.
Volume.
Specifics and.
If you think that there potentially be some downside risk to production going forward.
And <unk> seen it made up by mix and a big way. So far do you expect that or are we at a point, where the mix has been so rich and we see production downtime.
Incremental production downtime and it could be more of a hit.
Yes.
John.
And when we put our forecast together we're looking at.
Current production schedule, so that would have impacted or that would've had included in there.
Customer plans for production.
Of course impacted by the the chip situation now.
I think.
There's probably if you look at some of the customers and some of the comments that they've made over the last couple of days I think just from some risk there.
Shorter term debt.
Question on my mind as well.
Can this be made up later on and the year and Thats really an unknown and I think when you look at what we've done to North America production and bringing our estimates down by 300000 units that in part reflects our view of the chip situations. So we expect some of the loss production for us and.
2021 will spill into 2022.
On.
We don't have we don't have a crystal ball exactly and what's going to happen in 'twenty, one, but I think we took a good stab at it.
And we're just going to have to evaluate and John and.
We'll see where that comes out at the end of the second quarter.
Okay and then from you on Slide 10, you talked about the two battery and closure of awards that you have so far theyre. Both on trucks I'm. Just curious what you think the opportunity set is for battery and closures over time for you is it more focused on body on frame trucks or is there an opportunity.
<unk>.
On on unit body structures on cars and <unk> and <unk>.
And who else are you kind of competing with.
And that that arena, it seems like you'd be a leader, but I'm just trying to understand if it's automakers themselves in house or other external suppliers.
Alright, Great question good morning, John.
And I would say their battery and closures.
Oh.
Have to be on any of the high voltage vehicles right.
If you look at it from that context, and I would say day price too.
Segments of vehicles.
Given our position and how redoing the truck.
And there is a.
Great opportunity for us to do more than just the enclosure, but how do you accreted system net.
Helps manage.
Crash, and BH terminal and so on and so forth. So.
David and significant opportunity there.
And from from the perspective of capabilities I think as we go forward you need to have something that is.
And Marty Miller and.
And need to be able to.
Make this product with different processes and different materials.
Given the expertise that we would have in.
And magna on whether it's different types of materials or different processes I would say we would.
Uniquely positioned to deal with it.
Can't comment on who the other who would be but looking at our interaction with Oems and our conversations.
And really good position John.
Okay, and then just lastly events real quick on the working capital 372 million to use and the quarter. I mean, you do you expect some of that to reverse during the course of the year as is typical seasonal stuff.
Yes.
Free cash flow was very strong as it stands but the big big use on working capital.
And we respect how.
And how that will progress through the course of the year.
Yes, Jonathan again, working capital is pretty seasonal sales typically invest and coupon and you get it back in Q3, a bigger part and Q4, my only sort of just color to working capital John that Youll recall, we exited last year with.
Pretty low level.
The working capital.
And I would've expected that our.
<unk> would have been a little higher in Q1 came in better than what I thought.
But having said that it doesn't change sort of the main thesis that as you get to the end of the year, we should see a reversal of some of that working capital.
Okay, great. Thank you. Thank you very much guys.
Thank you. Our next question comes from the line of Peter Sklar on beef.
And all capital markets. Please go ahead with your question.
Okay. Good morning.
And the power and vision segment was particularly strong.
I believe some of it has been.
The engineering support that you had to provide for the three programs that I believe.
Or are all of them are and launch so so those so those costs have dropped off maybe youre getting some contribution from the programs, but could you just review in further detail.
Why the power and vision had such a strong result this quarter.
Yeah, Good morning, Peter I hope you're doing well.
Yeah sure let me, let me talk a little bit of it and what's happened at power and vision.
<unk>.
And you think about kind of where we were last year to this area and I recall that we talked about COVID-19 last year impacting on.
On margins like 200 to 250 basis points.
And so thats kind of reversed.
I would say that there is and my mind.
The three things that were.
And there's a lot on sort of pluses and minuses all the time, but I would say three things stand out.
The biggest site and Peter is the fact that.
Volumes were.
Higher.
Ignoring the impact of COVID-19 and even our estimate of what production could have been on semiconductor.
<unk> and the incremental <unk>.
Margins on the higher volume is typically going to be higher right.
And typically more capital intensive business, so as volumes pick up you start to see some pretty good incrementals on this.
And we talk and.
Prior year is about the investment we're making on these three advanced.
Adas programs for some European customers.
And I'm talking about the engineering, starting to step down as we get closer to launch and we're certainly seeing the benefit of that and Q1.
We're expecting that to continue for the balances of the year.
Just like every other operation and Magna, we took the restructuring charges last year.
And we're seeing the benefits of that and this group and as well as continued operating efficiencies.
And we started to consolidate.
<unk> joint venture some of the operations, we acquire from Ford.
And sales were pretty good and margins came on at a pretty decent levels.
And what we are anticipating I think thats kind of sort of balance out.
And the balance of the year, but certainly at a higher and Q1 that we were anticipating and that <unk>.
Makes up really the improvement.
And our power Fishman and higher equity income helped as well.
But those are the real big pieces of stand out in my mind on those comments.
And the term vision.
Okay. Thanks, and then just wanted to.
Ask if you could give us an update on.
Where you are at on the Electric drive program Awards.
Believe you've been.
Or did I I believe it's.
Three programs.
Perhaps you could talk a little bit about.
Where those programs are and what joint ventures and.
Quoting activity looks like and what you anticipate seeing unfolding.
And say over the next.
12 to 24 months in terms of quoting activity and potential program Awards.
Good morning, Peter maybe a couple of points on the we've talked about in the past the programs were launching that too and.
China.
With our high school joint venture continued to progress well.
One of them, we are launching as we speak.
We talked about.
And two others on one battery electric vehicles and a vehicle.
That has been awarded.
We continue we continue to have discussions on other programs with customers.
Based on the two or three product lines that we talked about on the Investor day, and even today briefly.
<unk>.
Including the current existing product line and not just the three we showed but net.
And you drive that.
We have as a platform.
And from discussions ongoing there.
So I would say on the next 12 to 24 months.
A lot of discussion so obviously, we cannot pay two pi and you'll.
Perfect in terms of a big customer of entry we have the certainty, but it is a good pipeline.
And interest from a product perspective from various customers and.
Recent award that I talked about today.
On the Bam is free.
The wholly owned Magna powertrain side of things.
Okay and Swamy.
Partnership or joint venture that you're developing with <unk> with LG.
That.
And that's where it.
It is quoting on on electric drives as well or is.
Does that joint venture is still in its infancy, and it's not up and running yet.
Peter as we talked about I think we have to finish and the formalities and is progressing well.
<unk> bye.
Be able to talk about it and have this quarter.
As we mentioned they have a business of about 150.002 million 19, and we see.
<unk>.
Good.
Pipeline and we've talked about a 50% CAGR.
For the planned period going forward.
Once we finish this.
The formalities and go through the details of the program.
We can give more granularity on it from now from the component side of things and obviously with.
And.
On the strength of having the E machine and the murder and.
And the discussions we are having on that also opens.
Discussions at the systems level for the entire E drive.
So as we get through the next three to six months and finished the formalities and go through it we'll be able to provide a lot more granularity, but the opportunities are liquidity excited.
Yes, if I had it closed Peter.
Okay.
Thanks very much.
Thank you. Our next question comes from the line of Chris Mcnally Evercore ISI. Please go ahead with your question.
And thanks, so much team.
And I really wanted to maybe dive a little bit further into some of the and the discussion you just had around around power and vision because I think what we're all realizing as maybe over the last two years you've had a lot of these one offs that were.
And sort of suppressed margins and you've done a great job of highlighting those numbers, but.
I'm kind of curious around just actually on the pure.
Our powertrain business, where maybe some of the issues could wheat and can sort of track back for three or four years, and particularly around the drive things like black for strike clutches.
Such a long list.
I'm curious how much you've actually been able to really pull out costs.
And from that business of that.
Could end up being a significant driver even beyond 2023 from margin potential.
Hey, good morning, Chris.
You know and you look back at power and vision.
And we got some from some businesses there that.
And we've had for quite some time they continue to grow that continue to generate.
Decent returns I think are better mirrors business, our mechatronics business and Theres, a lot of interesting and exciting things going on in that space.
And then we have I'd say a couple of businesses that we're making some.
We have made and continue to make some pretty significant investments and electrification.
And as well as aid us and.
And I've talked in the past about investing and based technology platform technology.
And Youre, making those investments today you are expensing all of that the sales are not coming till sometime down the road and what we're seeing as we're looking at even 'twenty.
One and beyond is that the sales are starting to trickle in and.
And so thats, helping and.
Our investments and on the engineering front is starting to stabilize.
That's been a contributor and I expect that to be on a continuing contributor going forward.
We certainly talked about some of that.
The challenges we've had from it and engineering standpoint on some of those advanced Adas programs and that's.
Now on the under control and.
And we're seeing.
And getting closer to approach production. So that's stabilized and all of that sort of is plus plus plus.
And I think that our <unk> entity.
Over the years. Unfortunately, we did take a number of impairments on this business and.
And I've kept on saying I'll still say the same thing and I'll look at that business. There was parts of that business that outperformed our initial expectations. When we bought it and some of those parts of that business.
Underperformed and you kind of put it altogether. It all kind of worked out Europe was a strength.
And in China and in some cases was a negative to us.
So we had been working on certainly operating efficiencies I think that the new structures. We have in place gives us more control and so those operations. We've also been very successful and.
The <unk> business and locking in.
A significant amount of transmission businesses.
And I go out for a very long period of time.
It's a business that we call it continuous to evolve and we're leveraging our capabilities and good track.
Into the electrification sales so.
And there's a lot of moving pieces, Chris, but I kind of put that all together.
I'm excited about some other things I'm seeing and our electrification Adas business and our entire power and vision segment.
Sure.
That's great.
It sounds like maybe even 'twenty clinically that's sort of the 10% to 11% margin may not be that the top and you need to have some margin from guidance. When I look back that included 12% plus so it seems like there's a long runway there just on the on the core business.
Real quick if I could just ask about and act.
Active safety.
Quantitatively how the order book is and also just high level are you seeing strong attach rates, we're seeing a push towards premium vehicles. We've seen major players like GM really start to push on level two.
Level, two plus and product sales.
I know you won't provide a quantitative numbers, but just qualitatively how we think about that at the JV.
Yeah, I think the Chris Good morning, we continue to make progress.
And winning business like <unk> talked about on the three programs as we've stabilized.
Some of the key.
And while labor base technology development actually even helps.
Proliferate into other business activities as we look at it and.
And.
As we looked at the last year.
Booking business and in the near term I think we've talked about a 20% sales CAGR out through 2023.
And even beyond that as we look towards the other.
After years of 23 to 27.
We are looking at 15% to 20% CAGR rate.
And just not.
Looking only at active safety piece of it but there are certain building blocks there.
And that are opening opportunities as we've talked to would be clear view and the integrated systems with meters and so on so.
I think the.
And our path forward looks positive I think we need to continue to focus on the execution on the programs that we're launching and.
Pieces of this.
Our development could become or is.
Becoming foundational.
For other opportunities that are coming along.
Great. Thanks, so much.
Thank you. Our next question comes from the line of Brian Johnson of Barclays. Please go ahead with your question.
Hi, yes, good afternoon.
Yeah.
Yes.
Just wanted to ask a couple questions on some of that product and I'll talk very interesting so for.
With regard to the D M S.
What are you seeing in terms of pipeline activity around that it's certainly a big focus of debate and the Adas and community with certain automaker.
Really not doing a good job with driver monitoring.
Are you seeing increased interest and that as it go on beyond just the <unk>.
Hi, and luxury and then related to that are you involved with are aware of any discussions, particularly around euro and cap that would move to standards that may not mandate gms, but make it needed for or even mandated or somehow consider requirement that would almost required dms.
Good morning, Brian.
Definitely see increased interest and pool.
And various discussions with Oems like you mentioned year end cap is.
And definitely one of the drivers.
And there is a lot of.
Tuck in Europe, but although it starts with the legislative.
And it obviously is going to start becoming a standard going forward and comparative purposes, and I don't think its just limited to premium segments. Like you said that didn't get prove it beyond.
Beyond the premium across and we start.
We're starting to see quite a bit of discussions even outside Europe. So I think it's going to be pretty much a global.
Market, that's going to look at driver monitoring systems, and I think from our perspective.
About the real estate, where we have been trying to mirror the camera technology and fusion capabilities.
And I think we are really excited to see.
And they're all we can play in that market segment.
And I assume youre using infrared on that.
Not necessarily I wouldn't say that there are different types of technologies, but.
No I wouldn't say infrared is a necessity.
And second thing on that page.
The vision of a pickup truck, which what looks like a solid beam axle with and E motor around that we've seen that and the commercial and the <unk>.
Medium duty heavy duty world.
Products from the likes of data and American.
Dana and Meritor is this something you look clearly you're pretty up but what would it mean for the traditional axle makers and OEM goes this route and is it likely when you and pickup trucks that this will be the chosen approach from sort of solid beam E motor as opposed to.
Something without as much structural cash capability.
Brian I think from our perspective, the idea is to not sacrifice any other capabilities.
Okay pickup truck in terms of.
Turing.
And capacity.
The second aspect of reduced to minimize the disruption to the packaging and.
Suspension.
On the full frame vehicles.
So if youre looking at day driving the front by putting this E beam axle with minimum disruption to packaging, we're able to provide all the capabilities so from a normal.
Yes, you read P comp segment.
This provides the opportunity to have a electric variant.
So that's really the key attributes that makes it really attractive.
Okay, and what about the re automotive and how would it fit into that because that's a completely different axle design does that are you looking at things with complete vehicle assembly of creating kind of a new van body is also their platform.
Brian.
I think it's more like Eastgate board.
But it doesn't stop there and it gets into the corner and modules and kind of dealing with.
And how we can have a discussion on this front from us versus on strong and how we can have different variance of the shell on the top of our quality bodies.
And use it for delivery or for other last mile.
Where is that you can come up with there is a lot of interesting possibilities there.
And.
Just just with the capabilities that we have and commercializing and scaling.
And we think it's a good fit.
Okay. Thanks.
Thank you. Our next question comes from the line of Dan Levy of Credit Suisse. Please go ahead with your question.
Okay.
Hi, good morning.
Thank you.
And start with the question.
On the margin outlook, you just did I believe.
Seven six and the quarter.
And.
Looking at our guide of 70 to 76 and you are implying there.
Potentially some downside to what you just did and the first quarter.
Is that sounds like just simply a function of the end market uncertainty or risk from volume that there's something there on commodities and then I would just ask given that there is obviously this end market uncertainty maybe you could provide us with a comment on on cadence here.
But what we should expect over the remaining quarters and the year.
Okay.
Hi, good morning.
Dan.
I don't think he can typically look at.
Q1, and draw conclusion as to what that means for the balance of the year, you've got some seasonality.
Built into a couple of quarters you typically have.
The July shutdowns and or do you have an impact on July of an impact on over the Christmas holidays. So that typically does have a negative impact on margins and a particular quarter.
And I would say that the biggest factor I'd look at our revised margin guidance, which is up 10 basis points.
As weakness.
<unk>.
Sales up.
FX and have much of an impact on our ranges that we need.
Range up on sales couple of hundred million dollars.
Adjusted EBITDA margin up 10 basis points from bringing down volumes in North America, where we do we do generate typically higher margins.
But some other negatives as I look at the.
The next nine months and the areas I would say the biggest negative is commodity costs.
And I look at 221.
And so year over year.
And just a little bit of a help to us and Q1, but when I look at the impact for Q2, Q3, and Q4 and in particular as I look at presence.
And it's been a pretty significant change and overall our outlook from where we were in February.
And so I think you've got to take all that into account.
And looking at margins. So I think the better metric to look at is really on an annual basis and $17 seven and say.
What does that really mean and how does that compare and then how does the chorus fit into all of that but I think the quarter is completely in line and seasonality is going to have an impact on on margins as we get through the balance of the year.
Great.
On that maybe you could just on the commodity point just to remind us because I know you have a few different exposures and there are some things going on with the scrap and the offset.
But let's just say.
Prices remain where they are today, how much of the net headwind would that would carry over into 2022 that wouldn't see and 2021 and given sort of the timing of.
Contract.
Resetting.
Yes.
And I don't have the answer for you there and I think when I look at the commodity side and the impact in 'twenty expected impact on 'twenty one.
Residents and one that's impacting us.
And with the disruptions and.
Texas is really driven off price system.
Yeah.
And that as we get into 'twenty, two that would get into a more normal environment and again I don't think that's going to be a long term sort of impact.
And I expect there will be some recovery on whether that takes place and me on the balance of 'twenty, one or sometime in 2002. So.
Hard to say exactly incrementally 22 versus 21, what that impact could be at this point and time.
Okay and then.
And my second question is just on complete vehicles, and obviously, we continue to see that margin extra remaining pretty solid and I know that mix plays a role and specifically the engineering services and I'm just wondering if.
If you could maybe more broadly give us an update on.
And the tone or tenor of the types of discussions you are engaged and with different automakers on engineering services, because obviously, we've seen and one thing that's changed and the narrative on complete vehicles, it's more than just the vehicle manufacturing side is that there is.
And engineering service capability as well that you're providing so maybe you could give us an update on.
And what type of incremental conversations you're engaged with different automakers be it on the legacy side or the startup from.
I think.
As we've talked about we have mentioned.
Our capability in terms of full vehicle manufacturing and expanding.
And is an enabler.
And in many ways not just with startups, but we continue to have.
Have you had conversations.
With <unk>.
Not just the new entrants but.
The incumbents are the established Oems are looking at.
Possibilities of variants, whether it is electric or otherwise and as they are looking at there.
Current spend and the Megatrends.
No.
We are fortunate to be at the table to have all of those conversations obviously, we cannot talk.
Pacific So rich programs programs and how.
But we are having that conversation pretty much across on regions. So the world.
I think lindsay anything to add from their perspective on the pipeline.
Yes.
And you look at kind of the interest and Magna Sarah and my other challenges. We've had is kind of how that how they allocate resources and.
And.
I think picking the right programs and picking programs that we can leverage some of our production capability to me is really key.
I think the team's done a really good job and focusing on on cost and efficiencies and that's helping to drive some of the margin on the engineering side as well and I expect that to continue.
Okay, great. Thank you.
Thank you. Our next question comes from the line of James Picariello.
Key Bank capital markets. Please go ahead with your question.
Hey, good morning, guys.
Morning.
Just on the upward revision to its equity income for the year I mean, depending on the sustainability of that trajectory I mean can this potentially drive up from.
On a revision to your 2023 target.
For this earnings stream I mean, just in the past the company has made.
Other revisions to its equity income so just curious if you know.
We see another quarter, a better contribution if this is a likely outcome and if not.
And what might be the nonrecurring benefits this year.
Yeah. Good question James.
Haven't really focused on on 2023 after our outlook in February and March.
Dealing with the quarter and our 2021 outlook.
And I expect that.
Threat or joint ventures that we do not consolidate and just like our other businesses are focused on growing sales and looking at.
Operating efficiencies and I hope, there's some upside there but it's.
At this point really too early to job and focused on that.
At this point and in great detail.
Okay, and I might have missed this on commodities, but I mean, I know I believe the Cosmo business.
Does benefit from rising scrap prices, which of course is playing out and the marketplace.
Yes, and again my apologies if I missed it I mean, just context on the Companys net commodity exposure and how we should be thinking about the full year.
So in terms of exposure for the full year.
We were expecting about $40 million as we started the year and our outlook and.
And it's mainly driven by resin and the increase but we're expecting that it could be even double that 40% for the year. So it's and.
We have.
And certainly scrap as a positive as sales rising scrap prices, but net net we're still going to be up.
For the full year, and we were positive and the first quarters and it gives you a sense of what we're expecting for the remainder of the year.
And then just on free cash flow.
Other upward revision there.
Clearly very very strong free cash flow great balance sheet.
How are we approaching and what's the latest and greatest on the capital allocation from.
Yes, I mean free cash flow as our solutions are up.
I talked about and my formal comments on two things really one of those earnings and the other is quite a little bit better on the working capital.
Capital allocation.
Philosophy, and our strategy Hasnt changed.
At all.
And we're going to continue to look at opportunities to.
Grow the business.
Whether that's organically or inorganically things that on.
And on organic basis.
Sales on our strength continuing to focus on and I think as a result, and allocate more capital to some of the Mega trend type areas of our business, we talked about that extensively.
Investor Day.
Inorganically looked at.
Opportunities that could strengthen us.
Pay a dividend that grows over time and to the extent that.
We have excess liquidity.
Moving on the market buying some stock.
Gabe.
We are and our market this quarter I don't know if you take any sort of conclusion from one quarter than other because we have.
One two and three year plan that we kind of look at but that's that's the mix of things that we focus on and strategy Hasnt Hasnt changed.
Thanks.
Yeah.
Thank you. Our next question comes from the line and Michael Glen of Raymond James. Please go ahead with your question.
Hey, Thanks for taking the question and I'll just ask one on the chip shortage so what.
When you look at your supply chain, so that tier two and tier three suppliers that you are communicating with us and and I imagine that you are likely purchasing components from them that would have these chips embedded in them or are any of them communicating to you any any risk.
They see in terms of supplying components over and over the coming quarter.
Hi, good morning.
Yeah.
It's such a fluid situation to answer your question, Yes, we have.
Have work streams with radius.
On our chip companies better.
It's a different level from where we are getting and integrating into components ourselves and some of the chip is part of our systems that we get.
So we have two or three layers into the value chain as we talk.
<unk>.
We are constantly monitoring it.
There are situations, where you have visibility, but some of them as the mix changes.
Either from the customer.
And the time for the vehicle and how theyre changing their planning process. So it every day.
Hum.
Exercise that we look various work streams to manage through.
Globally.
<unk>.
The visibility and Tom's right, we are trying to manage and learn as much as possible collaboratively with the customers.
To see how we look at what's available and how long it's difficult to give a specific answer yes, I think the next quarter is going to be still.
Type work.
As we manage through but hopefully we see a little bit of relaxation beyond the second quarter, but it's still very fluid.
Okay and.
And then just another question. So there's this and we see this evolution taking place in terms of powertrain do you see any opportunity from magna with everything that's happening with electrification and are there opportunities opening up more for you to potentially penetrate the commercial truck market.
Yes, I think the way we look at it.
And we talked about really is.
Looking at the platform strategy and figuring out what is the best way to define the platforms.
And different segments and how they apply so we can optimize the.
The development time and relative to capital base.
We definitely see an increasing opportunity as this transition happens we've talked about it both from a content per vehicle perspective also as an addressable market perspective.
Yeah.
Yes. It is.
<unk> B.
Overall segment up to be.
The light commercial vehicle truck SUV, but.
And whatever we are looking at.
We are trying to figure out how do we look this.
Carly scalable platforms, where you can engineer once and deploy many times. So we have the optimization in terms of capital and development activities.
But overall definitely a bigger addressable market and higher content.
Okay. Thanks for taking my questions.
Thank you if you would like to register for a question. Please press the one four.
At this present time, we do not have any additional questions. Please continue with your presentation or closing remarks.
Thanks, everyone for listening and and I appreciate everybody dialing in and despite the short term challenges we are.
After a really good starting 2021, and we remain focused on executing our plans and delivering solid results.
Everybody stay safe and enjoy the rest of your day. Thank you.
Yeah.
Okay.
Thank you that does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
Yeah.
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