Q2 2026 Magna International Inc Earnings Call

July 31, 2026

Speaker #1: Ladies and gentlemen, thank you for standing by. My name is Kriska, and I'll be your conference operator today. At this time, I would like to welcome you to Magna International Q2 2026 results conference call and webcast.

Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to Magna International Q2 2026 results conference call and webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Speaker #1: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a Q&A session. If you would like to ask a question, simply press star, then the number 1 on your telephone keypad.

Operator: If you would like to ask a question, simply press star then the number 1 on your telephone keypad. If you'd like to withdraw your question, again, press star 1. Thank you. I would now like to turn the conference over to Louis Tonelli, Vice President of Investor Relations. You may begin.

Speaker #1: And if you'd like to withdraw your question, again, press star one. Thank you. I would now like to turn the conference over to Louis Tonelli, Vice President of Investor Relations.

Speaker #1: You may begin.

Speaker #2: Thanks, operator. Hello, everyone, and welcome to our conference call covering our Q2 2026 results. Joining me today are Swami Kotagiri and Phil Farkasa. Yesterday, our Board of Directors met and approved our financial results for Q2 2026, as well as our updated outlook.

Louis Tonelli: Thanks, operator. Hello, everyone, and welcome to our conference call covering our Q2 2026 results. Joining me today are Swamy Kotagiri and Phil Fricassa. Yesterday, our board of directors met and approved our financial results for Q2 2026 and our updated outlook. We issued a press release this morning outlining both of these.

Speaker #2: We issued a press release this morning outlining both of these. You will find today's press release, the conference call webcast, the slide presentations that go along with the call, and our updated quarterly financial review all in the Investor Relations section of our website at magna.com.

Louis Tonelli: You will find today's press release, conference call webcast, the slide presentations to go along with the call, and our updated quarterly financial review all in the investor relations section of our website at magna.com.

Speaker #2: 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.

Louis Tonelli: 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 in these statements.

Speaker #2: 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 in these statements.

Speaker #2: Please refer to today's press release for a complete description of our safe harbor disclaimer. Please also refer to the reminder slide included in our presentation that relates to our commentary today.

Louis Tonelli: Please refer to today's press release for a complete description of our safe harbor disclaimer. Please also refer to the reminder slide included in our presentation that relates to our commentary today. With that, I'll pass it over to Swamy.

Speaker #2: With that, I'll pass it over to Swami.

Speaker #3: Thank you, Louis. Good morning, everyone, and thank you for joining us today. We appreciate your time and interest, as always. Let's get started. Overall, I was very pleased with our strong Q2 2026 results, with continued margin expansion momentum driven by disciplined execution.

Swamy Kotagiri: Thank you, Louis. Good morning, everyone, and thank you for joining us today. We appreciate your time and interest as always. Let's get started. Overall, I was very pleased with our strong Q2 2026 results with continued margin expansion momentum driven by disciplined execution. In the quarter, sales increased 3% with weighted organic growth over market of 3%. Adjusted EBIT was up 16%, while adjusted EBIT margin expanded 70 basis points to 6.2%. Adjusted EPS rose 29% to $1.86, a record for the second quarter.

Speaker #3: In the quarter, sales increased 3%, with weighted organic growth over market of 3%. Adjusted EBIT was up 16%, while adjusted EBIT margin expanded 70 basis points to 6.2%.

Speaker #3: And adjusted EPS rose 29% to $1.86, a record for the second quarter. These results demonstrate continued traction on our operational excellence activities and our ability to deliver improved performance in a dynamic environment.

Swamy Kotagiri: These results demonstrate continued traction on our operational excellence activities and ability to deliver improved performance in a dynamic environment. Our strong free cash flow is further evidence of the continued improvement in our operating performance. During the quarter, we generated $954 million in operating cash flow and $617 million in free cash flow.

Speaker #3: Our strong free cash flow is further evidence of the continued improvement in our operating performance. During the quarter, we generated $954 million in operating cash flow and $617 million in free cash flow.

Speaker #3: We were also pleased that S&P recently reaffirmed Magna's A- credit rating and improved the outlook to stable. This comes on the heels of a similar action by Moody's earlier this year.

Swamy Kotagiri: We were also pleased that S&P recently reaffirmed Magna's A-minus credit rating and improved the outlook to stable. This comes on the heels of a similar action by Moody's earlier this year. We ended the quarter with a 1.4 times rating agency leverage ratio ahead of our expectations and $1.4 billion in cash on hand, which further enhances our financial flexibility.

Speaker #3: And we ended the quarter with a 1.4-times rating agency leverage ratio, ahead of our expectations, and $1.4 billion in cash on hand, which further enhances our financial flexibility.

Speaker #3: Supported by our strong first-half performance, we raised our full-year 2026 outlook, reflecting confidence in our margin, earnings, and cash flow trajectory. For the year, we expect weighted sales growth over market of about 1% at the midpoint.

Swamy Kotagiri: Supported by our strong H1 performance, we raised our full year 2026 outlook, reflecting confidence in our margin, earnings, and cash flow trajectory. For the year, we expected weighted sales growth over market of about 1% at the midpoint. We narrowed and raised our outlook ranges for adjusted EBIT margin, adjusted EPS, and free cash flow. Again, reflecting our H1 momentum and expectations for solid execution over the remainder of the year.

Speaker #3: We narrowed and raised our outlook ranges for adjusted EBIT margins, adjusted EPS, and free cash flow—again, reflecting our first-half momentum and expectations for solid execution over the remainder of the year.

Speaker #3: Our business pipeline continues to grow, with over 90% of our 2028 business already booked. While macroeconomic and geopolitical conditions remain somewhat uncertain, including recent developments in the Middle East and with respect to trade policy, our outlook reflects our best estimates and our confidence in our ability to mitigate headwinds and execute on what is within our control.

Swamy Kotagiri: Our business pipeline continues to grow with over 90% of our 2028 business already booked. While macroeconomic and geopolitical conditions remain somewhat uncertain, including recent developments in the Middle East and with respect to trade policy, our outlook reflects our best estimates and confidence in our ability to mitigate headwinds and execute on what is within our control. We remain steadfast in executing our proven capital allocation framework.

Speaker #3: We remain steadfast in executing our proven capital allocation framework. We continue to invest in our business to support further profitable, organic growth while returning significant capital to shareholders.

Swamy Kotagiri: We continue to invest in our business to support further profitable organic growth while returning significant capital to shareholders. During the quarter, we returned $598 million to shareholders, including $465 million through share repurchases. At the end of June, we had about 9 million shares remaining under our NCIB, and we plan to repurchase those shares in the H2.

Speaker #3: During the quarter, we returned $598 million to shareholders, including $465 million through share repurchases. At the end of June, we had about 9 million shares remaining under our NCIB, and we plan to repurchase those shares in the second half.

Speaker #3: We also closed on the sale of our European lighting business at the end of June and expect to complete the remaining lighting and rooftop devastators sooner than originally anticipated.

Swamy Kotagiri: We also closed on the sale of our European lighting business at the end of June and expect to complete the remaining lighting and rooftop divestitures sooner than originally anticipated. As a result of our team's strong execution and focus on innovation, we continue to have success winning new business to drive organic growth into the future.

Speaker #3: As a result of our team's strong execution and focus on innovation, we continue to have success, winning new business to drive organic growth into the future.

Speaker #3: We were recently awarded a Driver and Occupant Monitoring System program with a European OEM, positioning Magna's technology as a foundational, platform-level solution across the customer's vehicle architecture.

Swamy Kotagiri: We were recently awarded a Driver and Occupant Monitoring System program with a European OEM, positioning Magna's technology as a foundational platform-level solution across the customer's vehicle architecture.

Speaker #3: Our mirror-integrated hardware and software support scalable, software-defined vehicle architectures and reinforce our leadership in driver awareness and interior sensing integration. We see additional opportunities to expand this technology across other customers and vehicle programs.

Swamy Kotagiri: Our mirror-integrated hardware and software supports scalable software-defined vehicle architectures and reinforces our leadership in driver awareness and interior sensing integration. We see additional opportunities to expand this technology across other customers and vehicle programs. Our recently awarded 800-volt two-speed eDrive program with Chery Automobile further demonstrates Magna's advanced electrification capabilities.

Speaker #3: Our recently awarded $800-volt, 2-speed eDrive program with Chery Automotive further demonstrates Magna's advanced electrification capabilities. This award builds on our existing momentum with Chery, following the launch of our dedicated hybrid drive system, which is now in series production for the G Tour and G700.

Swamy Kotagiri: This award builds on our existing momentum with Chery following the launch of our Dedicated Hybrid Drive system, which is now in series production for the Jetour G700. This recent award further strengthens Magna's market position in high voltage eDrives. Our commitment to innovation, quality, and execution continues to be recognized by our customers.

Speaker #3: This recent award further strengthens Magna's market position in high-voltage eDrives. Our commitment to innovation, quality, and execution continues to be recognized by our customers.

Speaker #3: Most recently, Magna earned 5 General Motors Supplier of the Year awards, spanning 5 different product categories. These awards bring our total GM Supplier of the Year recognitions over the past decade to more than 40.

Swamy Kotagiri: Most recently, Magna earned 5 General Motors Supplier of the Year awards, spanning 5 different product categories. These awards bring our total GM Supplier of the Year recognitions over the past decade to more than 40, underscoring the strength of our partnership with GM and our consistent ability to deliver for our customers. Lastly, I want to address a topic that has come up in several recent discussions with investors and analysts, whether Magna is looking at opportunities beyond automotive, including areas such as robotics, automation, data centers, and other adjacent markets.

Speaker #3: Underscoring the strength of our partnership with GM and our consistent ability to serve customers. Lastly, I want to address the topic that has come up in several recent discussions with investors and analysts.

Speaker #3: Whether Magna is looking at opportunities beyond automotive, including areas such as robotics, automation, data centers, and other adjacent markets. We are actively evaluating these opportunities and we already have some initial project wins where we can leverage Magna's existing capabilities, manufacturing footprint, technical expertise, and automotive-grade standards for quality and reliability.

Swamy Kotagiri: We are actively evaluating these opportunities, and we have already some initial project wins where we can leverage Magna's existing capabilities, manufacturing footprint, technical expertise, and automotive-grade standards for quality and reliability. The key point is that we are not pursuing diversification for its own sake.

Speaker #3: The key point is that we are not pursuing diversification for its own sake. Any opportunity must meet clear, returns-based criteria, fit with our capabilities, and give Magna a credible right to win.

Swamy Kotagiri: Any opportunity must meet clear returns-based criteria, fit with our capabilities, and give Magna a credible right to win. Where those conditions are met, we believe these adjacent markets can provide attractive opportunities for incremental growth and high return value creation over time. We will provide more detail on how we are thinking about these opportunities, including the criteria, project awards, and potential path forward at our Investor Day in November. With that, I'll turn the call over to Phil.

Speaker #3: Where those conditions are met, we believe these adjacent markets can provide attractive opportunities for incremental growth and high-return value creation over time. We will provide more detail on how we are thinking about these opportunities, including the criteria, project awards, and potential path forward at our Investor Day in November.

Speaker #3: With that, I'll turn the call over to Phil.

Speaker #4: Thanks, Wamy. And good morning, everyone. I'm going to begin on slide 16 with a summary of our strong second quarter results. Those were $11 billion in the quarter, up about 3% from last year.

Phil Fracassa: Thanks, Swami, and good morning, everyone. I'm going to begin on slide 16 with a summary of our strong Q2 results. Sales were $11 billion in the quarter, up about 3% from last year. Adjusted EBIT margin improved 70 basis points to 6.2%. Adjusted earnings were $1.86 per share, up 29% from last year and a Q2 record. Free cash flow was strong at $617 million, more than double last year's level. Each of these metrics came in ahead of our expectations. I'll take you through some of the details.

Speaker #4: Adjusted EBIT margin improved 70 basis points to 6.2%. Adjusted earnings were $1.86 per share, up 29% from last year and a second quarter record.

Speaker #4: And free cash flow was strong at $617 million, more than double last year's level. Each of these metrics came in ahead of our expectations.

Speaker #4: Now I'll take you through some of the details. Let's start with sales on slide 17. As I mentioned, second quarter sales were up about 3% overall compared to last year.

Phil Fracassa: Let's start with sales on slide 17. As I mentioned, Q2 sales were up about 3% overall compared to last year. Excluding foreign currency translation, sales were up about 2% organically. By comparison, global light vehicle production declined 2% in the quarter. On a Magna-weighted basis, we estimate light vehicle production was down about 1%.

Speaker #4: Excluding foreign currency translation, sales were up about 2% organically. By comparison, global light vehicle production declined 2% in the quarter. On a Magna-weighted basis, we estimate light vehicle production was down about 1%.

Speaker #4: This translates to 3% growth over market for Magna consolidated, and 4% growth over market excluding Complete Vehicles. Looking at the sales walk, volume, launches, and other added $273 million to the top line, or about 2%.

Phil Fracassa: This translates to 3% growth over market for Magna consolidated and 4% growth over market excluding Complete Vehicles. Looking at the sales walk, volumes, launches, and other added $273 million to the top line, or about 2%. The increase was driven by new program launches, including the Jeep Recon, Zeekr 9X, and Ram 1500, as well as net favorable sales mix.

Speaker #4: The increase was driven by new program launches, including the Jeep Cherokee Recon, Zeekr 9X, and Ram 1500, as well as a net favorable sales mix.

Speaker #4: This was partially offset by the end of production of certain programs, including the Ford Escape, lower light vehicle production, and normal course customer price concessions.

Phil Fracassa: This was partially offset by the end of production of certain programs, including the Ford Escape, lower light vehicle production, and normal course customer price concessions. Sales in Complete Vehicles declined $96 million organically, despite higher unit volumes. The higher unit volumes were driven mainly by new assembly programs in Graz, including with Xpeng and GAC, where sales are recognized on a value-added basis. Volumes with other customers, where sales are generally recognized on a full cost basis, declined year over year in aggregate.

Speaker #4: Sales in complete vehicles declined by $96 million organically, despite higher unit volumes. The higher unit volumes were driven mainly by new assembly programs and builds.

Speaker #4: Including with Xiaopeng and GAC, where sales are recognized on a value-added basis. Volumes of other customers, where sales are generally recognized on a full-cost basis, declined year-over-year in aggregate.

Speaker #4: This resulted in net lower assembly sales dollars. Engineering revenue was also lower, and in line with our expectations. And lastly, foreign currency translation was positive $172 million.

Phil Fracassa: Lastly, foreign currency translation was +$172 million, driven by a net weaker US dollar compared to last year. Let's move to EBIT on Slide 18. Q2 adjusted EBIT was $677 million, an increase of $94 million or 16% from last year. Adjusted EBIT margin was 6.2%, up 70 basis points. Looking at the margin pluses and minuses, the largest benefit came from operational performance, volume, and other, about 75 basis points.

Speaker #4: Driven by a net weaker US dollar compared to last year. Now let's move to EBIT on slide 18. Second quarter adjusted EBIT was 677 million.

Speaker #4: An increase of $94 million, or 16%, from last year. Adjusted EBIT margin was 6.2%, up 70 basis points. Looking at the margin pluses and minuses.

Speaker #4: The largest benefit came from operational performance, volume, and other—about 75 basis points. This reflects continued momentum from operational excellence and other cost-reduction initiatives.

Phil Fracassa: This reflects continued momentum from operational excellence and other cost reduction initiatives. We also benefited from prior restructuring actions, favorable net foreign exchange transaction gains, and incremental margin on the higher organic sales. These positives more than offset unfavorable mix and higher commodity costs among other items.

Speaker #4: We also benefited from prior restructuring actions, favorable net foreign exchange transaction gains, and incremental margin on the higher organic sales. These positives more than offset unfavorable mix and higher commodity costs, among other items.

Speaker #4: Lower net tariff costs year-over-year added around 25 basis points in the quarter, as costs were slightly lower and we’re getting recoveries quicker than we did last year.

Phil Fracassa: Lower net tariff costs year over year added around 25 basis points in the quarter as costs were slightly lower and were getting recoveries quicker than we did last year. While the tariff situation continues to evolve, we currently expect that our net tariff headwind for full year 2026 will be similar to 2025. Higher equity income year over year contributed around 10 basis points to margin in the quarter. This mainly reflects productivity and efficiency improvements as well as some favorable commercial items at our unconsolidated JVs. Finally, discrete items reduced margins by about 40 basis points. This was driven mainly by the net unfavorable impact of commercial items year over year in the consolidated business.

Speaker #4: While the tariff situation continues to evolve, we currently expect that our net tariff headwind for the full year 2026 will be similar to 2025.

Speaker #4: Higher equity income year over year contributed around 10 basis points to margin in the quarter. This mainly reflects productivity and efficiency improvements, as well as some favorable commercial items, at our unconsolidated JVs.

Phil Fracassa: This mainly reflects productivity and efficiency improvements as well as some favorable commercial items at our unconsolidated JVs. Finally, discrete items reduced margins by about 40 basis points. This was driven mainly by the net unfavorable impact of commercial items year over year in the consolidated business.

Speaker #4: And finally, discrete items reduced margins by about 40 basis points. This was driven mainly by the net unfavorable impact of commercial items year over year in the consolidated business.

Speaker #4: Looking below the EBIT line on slide 19, interest expense was $15 million lower than last year, due mainly to lower debt levels and our strong first-half free cash flow, which resulted in reduced seasonal short-term borrowings.

Phil Fracassa: Looking below the EBIT line on Slide 19, interest expense was $15 million lower than last year, due mainly to lower debt levels and our strong H1 free cash flow, which resulted in reduced seasonal short-term borrowings. Our Q2 adjusted tax rate was 19.1%, an improvement of 140 basis points versus last year and better than our expectations. For the full year, however, we continue to expect an adjusted tax rate of 23%, which implies that our H2 rate will be north of 23% for modeling purposes. Q2 adjusted EPS was $1.86, up 29% from last year, reflecting higher net income as well as a 3% lower share count from our share repurchases over the past 12 months. Now let's take a brief look at our business segment performance, which is summarized on Slide 20.

Speaker #4: Our second quarter adjusted tax rate was 19.1%, an improvement of 140 basis points versus last year and better than our expectations. For the full year, however, we continue to expect an adjusted tax rate of 23%, which implies that our second half rate will be north of 23% for modeling purposes.

Phil Fracassa: For the full year, however, we continue to expect an adjusted tax rate of 23%, which implies that our H2 rate will be north of 23% for modeling purposes. Q2 adjusted EPS was $1.86, up 29% from last year, reflecting higher net income as well as a 3% lower share count from our share repurchases over the past 12 months. Now let's take a brief look at our business segment performance, which is summarized on Slide 20.

Speaker #4: And second quarter adjusted EPS was $1.86, up 29% from last year, reflecting higher net income, as well as a 3% lower share count from our share repurchases over the past 12 months.

Speaker #4: Now let's take a brief look at our business segment performance, which is summarized on slide 20. Three of our four segments posted higher sales year over year, and growth above market, with a notable 6% year-over-year increase in Power and Vision.

Phil Fracassa: Three of our four segments posted higher sales year over year and growth above market, with a notable 6% year over year increase in Power & Vision. In Complete Vehicles, sales declined 5% as expected, despite higher unit volumes as net lower sales on full cost programs and lower engineering revenue were only partially offset by favorable foreign currency translation and the benefit of increased value added sales at higher margins from new programs with Chinese OEMs in Graz. Turning to EBIT, Power & Vision, Seating, and Complete Vehicles all posted notable year over year improvements in adjusted EBIT dollars and margins, reflecting strong operational execution. Body Exteriors & Structures margin at 8.1% was ahead of our expectations, but down 10 basis points from last year on slightly unfavorable mix. Now let's look at cash flow on Slide 21.

Speaker #4: Incomplete vehicles sales declined 5%, as expected, despite higher unit volumes. Net lower sales on full-cost programs and lower engineering revenue were only partially offset by favorable foreign currency translation and the benefit of increased value-added sales at higher margins from new programs with Chinese OEMs and brands.

Speaker #4: During the EBIT, Power and Vision, Seating, and Complete Vehicles all posted notable year-over-year improvements in adjusted EBIT dollars and margins, reflecting strong operational execution.

Phil Fracassa: Turning to EBIT, Power & Vision, Seating, and Complete Vehicles all posted notable year over year improvements in adjusted EBIT dollars and margins, reflecting strong operational execution. Body Exteriors & Structures margin at 8.1% was ahead of our expectations, but down 10 basis points from last year on slightly unfavorable mix. Now let's look at cash flow on Slide 21.

Speaker #4: Body Exteriors and Structures margin at 8.1% was ahead of our expectations, but down 10 basis points from last year on slightly unfavorable mix. Now let's look at cash flow on slide 21.

Speaker #4: In the second quarter, we generated $954 million in cash from operations, an increase of $327 million from last year, driven by higher earnings and strong working capital performance.

Phil Fracassa: In the Q2, we generated $954 million in cash from operations, an increase of $327 million from last year, driven by higher earnings and strong working capital performance. Investment activities in the quarter included $269 million in CapEx, representing 2.4% of sales, and $77 million for investments, other assets, and intangibles, offset partially by proceeds from normal course asset disposals. Netting everything out, we generated free cash flow of $617 million in the quarter, which was above our expectations and more than double last year's level. We continued to return cash to shareholders in the Q2 with $133 million in dividends, along with $465 million in share buybacks. We repurchased 7.4 million shares during the quarter under our NCIB authorization, which left us with just over 9 million shares remaining at quarter end. We are planning to repurchase the remaining shares before the NCIB expires in early November.

Speaker #4: Investment activities in the quarter included $269 million in capex, representing 2.4% of sales, and $77 million for investments, other assets, and intangibles, offset partially by proceeds from normal course asset disposals.

Speaker #4: Netting everything out, we generated free cash flow of $617 million in the quarter, which was above our expectations and more than double last year's level.

Speaker #4: We continued to return cash to shareholders in the second quarter, with $133 million in dividends, along with $465 million in share buybacks. We repurchased 7.4 million shares during the quarter under our NCIB authorization, which left us with just over 9 million shares remaining at quarter end.

Phil Fracassa: We continued to return cash to shareholders in the Q2 with $133 million in dividends, along with $465 million in share buybacks. We repurchased 7.4 million shares during the quarter under our NCIB authorization, which left us with just over 9 million shares remaining at quarter end. We are planning to repurchase the remaining shares before the NCIB expires in early November.

Speaker #4: We are planning to repurchase the remaining shares before the NCIB expires in early November. During the discussion on slide 22, our balance sheet and capital structure remained strong.

Phil Fracassa: Turning to slide 22, our balance sheet and capital structure remain strong. At the end of June, we had close to $5 billion in total liquidity, including $1.4 billion cash on hand. Our rating agency debt to EBITDA leverage ratio was 1.4 times on 30 June. This puts Magna in a great position to continue our share repurchases in 2026 and beyond, and we were pleased that S&P recently affirmed Magna's A-minus investment-grade credit rating with stable outlook. This follows Moody's affirmation of our A3 rating with stable outlook earlier this year. Together, these actions underscore the strength of our balance sheet and resilience of our business. Next, let me cover the macro assumptions underpinning our current outlook on slide 23.

Speaker #4: At the end of June, we had close to 5 billion in total liquidity, including 1.4 billion, cash on hand. Our rating agency debt to EBITDA leverage ratio was 1.4 times on June 30th.

Speaker #4: This puts Magna in a great position to continue our share repurchases, in 2026 and beyond. And we were pleased that S&P recently affirmed Magna's A- investment-grade credit rating with stable outlook.

Speaker #4: This follows Moody's affirmation of our A3 rating with a stable outlook earlier this year. Together, these actions underscore the strength of our balance sheet and the resilience of our business.

Phil Fracassa: This follows Moody's affirmation of our A3 rating with stable outlook earlier this year. Together, these actions underscore the strength of our balance sheet and resilience of our business. Next, let me cover the macro assumptions underpinning our current outlook on slide 23. Compared to our May outlook, we've increased our estimate for North America and Europe production by 100,000 and 200,000 units respectively, while we reduced our China production estimate by 800,000 units. We also updated our foreign currency assumptions to reflect recent exchange rates.

Speaker #4: Next, let me cover the macro assumptions underpinning our current outlook on slide 23. Compared to our May outlook, we've increased our estimate for North America and Europe production by 100,000 and 200,000 units, respectively.

Phil Fracassa: Compared to our May outlook, we've increased our estimate for North America and Europe production by 100,000 and 200,000 units respectively, while we reduced our China production estimate by 800,000 units. We also updated our foreign currency assumptions to reflect recent exchange rates. Our current full-year outlook reflects a weaker euro and Canadian dollar, along with a slightly stronger Chinese yuan, which translates to a net stronger U.S. dollar compared to our May outlook. On the macro front, we continue to monitor the ongoing conflict in the Middle East. As always, we will manage input costs and other volatility through mitigation actions and commercial recoveries. Our outlook reflects our current visibility and best estimates for the balance of the year, including modest incremental cost headwinds across several key commodities and inputs.

Speaker #4: While we reduced our China production estimate by 800,000 units, we also updated our foreign currency assumptions to reflect recent exchange rates. Our current full-year outlook reflects a weaker euro and Canadian dollar, along with a slightly stronger Chinese yuan, which translates to a net stronger U.S. dollar compared to our May outlook.

Phil Fracassa: Our current full-year outlook reflects a weaker euro and Canadian dollar, along with a slightly stronger Chinese yuan, which translates to a net stronger U.S. dollar compared to our May outlook. On the macro front, we continue to monitor the ongoing conflict in the Middle East. As always, we will manage input costs and other volatility through mitigation actions and commercial recoveries. Our outlook reflects our current visibility and best estimates for the balance of the year, including modest incremental cost headwinds across several key commodities and inputs.

Speaker #4: Also on the macro front, we continue to monitor the ongoing conflict in the Middle East. As always, we will manage input costs and other volatility through mitigation actions and commercial recoveries.

Speaker #4: Our outlook reflects our current visibility and best estimates for the balance of the year, including modest incremental cost headwinds across several key commodities and inputs.

Speaker #4: Moving to slide 24, we've revised our full year sales outlook, essentially to reflect our updated foreign currency assumptions for a net stronger US dollar, as well as our expectation that the lighting and rooftop divestitures will close sooner than previously anticipated.

Phil Fracassa: Moving to slide 24, we've revised our full-year sales outlook, essentially to reflect our updated foreign currency assumptions for a net stronger U.S. dollar, as well as our expectation that the lighting and rooftop divestitures will close sooner than previously anticipated. More importantly, we continue to expect positive growth over market for 2026 in the range of 1% to 3%, excluding Complete Vehicles. We are narrowing up and raising our prior outlook ranges for adjusted EBIT margin, adjusted EPS, and free cash flow. This reflects our strong H1 results and confidence in our ability to deliver solid execution in the H2. We expect strong margin expansion in 2026 and have narrowed up our outlook for adjusted EBIT margin to between 6.3% and 6.6%, up 15 basis points at the midpoint from our previous outlook and an increase of 85 basis points versus last year.

Speaker #4: More importantly, we continue to expect positive growth over market for 2026, in the range of 1 to 3%, excluding complete vehicles. We are narrowing and raising our prior outlook ranges for adjusted EBIT margin, adjusted EPS, and free cash flow.

Speaker #4: This reflects our strong first half results, and confidence in our ability to deliver solid execution in the second half. We expect strong margin expansion in 2026, and have narrowed up our outlook for adjusted EBIT margin in between 6.3 and 6.6%.

Phil Fracassa: This reflects our strong H1 results and confidence in our ability to deliver solid execution in the H2. We expect strong margin expansion in 2026 and have narrowed up our outlook for adjusted EBIT margin to between 6.3% and 6.6%, up 15 basis points at the midpoint from our previous outlook and an increase of 85 basis points versus last year.

Speaker #4: A 15 basis point increase at the midpoint from our previous outlook, and an increase of 85 basis points versus last year. We have also narrowed and raised our outlook for adjusted EPS to between $6.70 and $7.30 per share.

Phil Fracassa: Finally, we've increased our free cash flow outlook to $1.8 billion at the midpoint, up $100 million from our May outlook. This represents free cash conversion of around 95% of adjusted net income. We have also narrowed and raised our outlook for adjusted EPS to between $6.70 and $7.30 per share. At the midpoint, this represents a $0.25 improvement versus our prior outlook and an increase of 22% versus last year. With respect to other key assumptions, we now expect higher equity income and slightly lower interest expense as compared to our prior outlook. All our assumptions for capital spending, the tax rate, and dilute shares remain unchanged. Finally, I'd like to give you some color on how we see the Q3 and Q4 shaping up to assist you in modeling the H2. The midpoint of our full-year EPS outlook implies H2 adjusted EPS of $3.76.

Speaker #4: At the midpoint, this represents a $0.25 improvement versus our prior outlook, and an increase of 22% versus last year. And finally, we've increased our free cash flow outlook to $1.8 billion at the midpoint.

Phil Fracassa: At the midpoint, this represents a $0.25 improvement versus our prior outlook and an increase of 22% versus last year. With respect to other key assumptions, we now expect higher equity income and slightly lower interest expense as compared to our prior outlook. All our assumptions for capital spending, the tax rate, and dilute shares remain unchanged.

Speaker #4: Up 100 million from our May outlook. This represents free cash conversion of around 95% of adjusted net income. With respect to other key assumptions, we now expect higher equity income, and slightly lower interest expense, as compared to our prior outlook.

Speaker #4: While our assumptions for capital spending, the tax rate, and diluted shares remain unchanged, finally, I'd like to give you some color on how we see the third and fourth quarters shaping up, to assist you in modeling the second half.

Phil Fracassa: Finally, I'd like to give you some color on how we see the Q3 and Q4 shaping up to assist you in modeling the H2. The midpoint of our full-year EPS outlook implies H2 adjusted EPS of $3.76. We expect roughly a 40/60 split of H2 EPS between Q3 and Q4, as Q4 will benefit from higher sales and margins compared to Q3. We do expect both quarters to post higher margins year-over-year. That is it for the financial review. Now I will turn it back to Swamy to wrap things up. Swamy?

Speaker #4: The midpoint of our full-year EPS outlook implies second-half adjusted EPS of $3.76. We expect roughly a 40/60 split of second-half EPS between the third and the fourth quarters.

Phil Fracassa: We expect roughly a 40/60 split of H2 EPS between Q3 and Q4, as Q4 will benefit from higher sales and margins compared to Q3. We do expect both quarters to post higher margins year-over-year. That is it for the financial review. Now I will turn it back to Swamy to wrap things up. Swamy?

Speaker #4: The fourth quarter will benefit from higher sales and margins compared to the third. But we do expect both quarters to post higher margins year over year.

Speaker #4: That's it for the financial review. Now I'll turn it back to Swami to wrap things up. Swami?

Speaker #2: Thank you, Phil. Before we take your questions, let me recap a couple of key points. We had a strong second quarter of 2026, with weighted sales growth over the market, adjusted EBIT margin expansion, and solid cash flow generation.

Swamy Kotagiri: Thank you, Phil. Before we take your questions, let me recap a couple of key points. We had a strong Q2 of 2026 with weighted sales growth over market, adjusted EBIT margin expansion, and solid cash flow generation. We are positioned for continued margin expansion, EPS growth, and shareholder returns, supported by a 2026 outlook that we raised from May, reflecting our confidence in our operating performance. We are executing a disciplined capital allocation strategy, including significant return of capital. Most importantly, we remain highly confident in Magna's future. We hope to see many of you in November at our investor event in New York City, where we will go into detail on our strategy, key initiatives, and long-term financial outlook. Thanks for your attention. Now, operator, let us open it up for questions.

Speaker #2: We are positioned for continued margin expansion, EPS growth, and shareholder returns, supported by a 2026 outlook that we raised in May, reflecting our confidence in our operating performance.

Speaker #2: We are executing a disciplined capital allocation strategy including significant return of capital. Most importantly, we remain highly confident in Magna's future. We hope to see many of you in November at our investor event in New York City, where we will go into detail on our strategy, key initiatives, and long-term financial outlook.

Swamy Kotagiri: Most importantly, we remain highly confident in Magna's future. We hope to see many of you in November at our investor event in New York City, where we will go into detail on our strategy, key initiatives, and long-term financial outlook. Thanks for your attention. Now, operator, let us open it up for questions.

Speaker #2: Thanks for your attention, now operator, let's open it up for questions.

Speaker #1: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, again, press star one. We do ask that you limit yourself to one question and one follow-up. For any additional questions, please re-queue. Your first question comes from James Picariello with BNP Paribas. Please go ahead.

Speaker #1: And if you would like to withdraw your question, again press star one. We do ask that you limit yourself to one question and one follow-up.

Speaker #1: For any additional questions, please re-queue. And your first question comes from James Piccarello with BNP Paribas. Please go ahead.

James Picariello: Hey, good morning, everybody. Congrats on a great quarter. Can you speak to what drove the quarter's one-time? To what extent was there a pull forward in your recovery? The tariff recovery, how are you thinking about your tariff recoveries in H2 and any other discrete items that's called out in the bridge? Thanks.

Speaker #3: Hey, good morning, everybody. Congrats on a great quarter. Can you speak to what drove the quarter's one-time? To what extent was there a pull-forward in your recovery?

Speaker #3: So, the tariff recovery—how are you thinking about your tariff recoveries in the back half? And then the other discrete items that are called out in the bridge?

Speaker #3: Thanks.

Speaker #2: Good morning, James. I would say this was not really a volume-led quarter. Predominantly, the driver of the performance in this quarter is the operational side, which has been really strong and consistent.

Swamy Kotagiri: Good morning, James. I would say this was not really a volume-led quarter. Predominantly, the driver of the performance in this quarter is the operational side, which has been really strong and consistent according to our execution agenda. That's what gave us the conviction to go raise the full-year outlook. That's one point. As we look at the tariffs and the commercial recoveries, Phil can add a little bit, but I think net compared to the last year, this was actually negative. Those are the key things, and as we sit here this year, I think we are further along than last year in getting recoveries. That helped us de-risk the H2 of the year. Those are the real key drivers for the performance. I don't think there is any one-time performance other than the tax issue that, Phil, you can elaborate a bit.

Speaker #2: According to our execution agenda, and that's what gave us the conviction to go raise the full year outlook so that's one point. As we look at the tariffs and the commercial recoveries, Phil can add a little bit, but I think net-net compared to the last year, this was actually negative.

Swamy Kotagiri: As we look at the tariffs and the commercial recoveries, Phil can add a little bit, but I think net compared to the last year, this was actually negative. Those are the key things, and as we sit here this year, I think we are further along than last year in getting recoveries. That helped us de-risk the H2 of the year. Those are the real key drivers for the performance. I don't think there is any one-time performance other than the tax issue that, Phil, you can elaborate a bit.

Speaker #2: And those are the key things. And as we sit here this year, I think we are further along than last year in getting recoveries.

Speaker #2: So that helped us de-risk the second half of the year. Those are the real key drivers for the performance. I don't think there is any one-time performance, other than the tax issue, that—Phil, you can elaborate on a bit.

Phil Fracassa: Sure. Yeah. No, sure, James. Great question. Yeah, on tariffs, if you remember last year, we ended with a net margin headwind of under 10 basis points, and we're thinking it'll be similar this year, but the timing's going to be a little different because the recoveries are coming a bit quicker. We did have favorability on the margin in Q2 from tariffs. Again, because we had no recoveries last year, we have recoveries this year. For the full year, though, we're expecting a relatively neutral impact on the margin. Maybe we'll do a little better than that. I mean, who knows? On commercial items, though, Swamy's exactly right. They were net unfavorable in the quarter. If anything, commercial was a headwind in the quarter, yet we still posted the 70 basis points year-over-year margin improvement. It was really operational excellence as Swamy mentioned.

Speaker #3: Sure. Yeah. No, sure, James. Great question. So, yeah, on tariffs, if you remember, last year we ended with a net margin headwind of under 10 basis points.

Speaker #3: And we're thinking it'll be similar this year, but the timing is going to be a little different because the recoveries are coming a bit quicker.

Speaker #3: So we did have favorability on the margin in Q2 from tariffs, but again, because we had no recoveries last year, we have recoveries this year.

Speaker #3: For the full year, though, we're expecting a relatively neutral impact on the margin. Maybe we'll do a little better than that. I mean, who knows?

Speaker #3: On commercial items, though, Swami's exactly right. They were net unfavorable in the quarter. So if anything, commercial with a headwind in the quarter, yet we still posted the 70 basis points year-over-year margin improvement.

Phil Fracassa: On commercial items, though, Swamy's exactly right. They were net unfavorable in the quarter. If anything, commercial was a headwind in the quarter, yet we still posted the 70 basis points year-over-year margin improvement. It was really operational excellence as Swamy mentioned.

Speaker #3: So it was really operational excellence, as Swami mentioned. And then we did—I do want to point out on the tax line, we did have a $0.09 benefit in the quarter compared to the 23% guide.

Phil Fracassa: I do want to point out on the tax line, we did have a $0.09 benefit in the quarter compared to the 23% guide. That will reverse in the H2 because we haven't changed the full-year guide, so $0.09 of the performance in the quarter would've been taxed. Beyond that, underlying, it was very structural in nature.

Speaker #3: That will reverse in the second half. Because we haven't changed the full year guide, so 9 cents of the performance in the quarter would have been taxed.

Speaker #3: But beyond that, underlying it was very structural in nature. Got it. Very helpful. And my follow-on is specific to the Power & Vision segment—some really nice core growth inflection, which you guys have been promising in the guide.

James Picariello: Got it. Very helpful. My follow-on is specific to the Power & Vision segment and some really nice core growth inflection, which you guys have been promising in the guide. It's shown clearly in Q2. Can you speak to what's driving that? Are there a few key programs that are launching very nicely regionally wise? Also within that segment, the divestiture. What are you assuming for the divestiture now for the H2, and how does that compare to your prior guidance? Thank you.

Speaker #3: It's showing clearly in the second quarter. Can you speak to what's driving that? Are there a few key programs that are launching very nicely?

Speaker #3: Regionally-wise? And then also within that segment, the divestiture, what do you assuming for the divestiture now for the second half and how did that compare to your prior guidance?

Speaker #3: Thank you.

Speaker #2: Maybe at the high level, James, right? As you've seen, Power and Vision, we delivered about 5% weighted growth over market, and margins about 6%.

Swamy Kotagiri: Maybe at a high level, James, right? As you see in Power & Vision, we delivered about 5% weighted growth over market and margins about 6%. The quarter performance really benefited from the strong incremental margins on higher sales and the flow-through is really the account of the operational excellence initiatives that we've been talking about. It was helped by higher equity income and lower net tariffs, as Phil talked about a little bit. Overall, it still had some mix and commercial items and commodity costs, and despite that, the P&V segment continued to perform. Not only that, I see the same dynamics for the full year and expect a good continuing trajectory in this segment.

Speaker #2: The core performance really benefited from the strong incremental margins on higher sales, and the flow-through is really the result of the operational excellence initiatives that we've been talking about.

Speaker #2: And it was helped by higher equity income and lower net tariffs, as Phil talked about a little bit. But overall, it still had some mix and commercial items and commodity costs.

Swamy Kotagiri: It was helped by higher equity income and lower net tariffs, as Phil talked about a little bit. Overall, it still had some mix and commercial items and commodity costs, and despite that, the P&V segment continued to perform. Not only that, I see the same dynamics for the full year and expect a good continuing trajectory in this segment.

Speaker #2: And despite that, the P&V segment continued to perform. Not only that, I see the same dynamics for the full year and expect a good, continuing trajectory in this segment.

Speaker #3: Yeah. And on the divestitures, James, we did—we are closing on those sooner than we anticipated. And that would be another $50 million of sales that is coming out because of the sooner-than-expected closing.

Phil Fracassa: Yeah, on the divestitures, James, we are closing on those sooner than we anticipated, and that would be another $50 million of sales that kind of is coming out because of sooner than expected closing. About just over $400 million of revenue coming out of P&V in the H2 year-over-year because of the divestitures. In May, we were talking more about kind of $350 million, so it's about $50 million higher than we previously thought.

Speaker #3: So, about just over $400 million of revenue coming out of P&V in the second half, year-over-year, because of the divestitures. Last May, we were talking more about kind of $350 million.

Speaker #3: So, it's about $50 million higher than we previously thought.

Speaker #2: Yeah, that launches us a whole bunch, obviously. There are some program-driven, base OEMs that are launching that are helping us—some business with Subaru, some Chinese OEM launches.

Swamy Kotagiri: Yeah, on launches, there's a whole bunch, obviously, in the support ramps. German-based OEMs that are launching, that are helping us. Some business with Subaru, some Chinese OEM launches that are contributing on the launch side.

Speaker #2: That are contributing on the launch side.

Speaker #3: Thank you.

James Picariello: Thank you.

Speaker #1: Your next question comes from the line of Alex Perry with Bank of America. Please go ahead.

Operator: Your next question comes from the line of Alex Perry with Bank of America. Please go ahead.

Speaker #4: Hi, this is Jack Joyce, on for Alex. Thanks for taking our questions here. Can you maybe talk us through a little bit on the regional outlook?

Jack Joyce: Hi, this is Jack Joyce on for Alex. Thanks for taking our questions here. Can you maybe talk us through a little bit on the regional outlook? Looks like you've raised production assumptions for North America and Europe, but China came down a bit. Maybe talk to us through how you're thinking about the different regions. As a follow-up, looking into 2027 industry forecast currently imply limited global production growth. Based on your backlog and launch cadence, what does Magna's portfolio imply for growth over market next year? Thank you.

Speaker #4: It looks like you raised production assumptions for North America and Europe, but China came down a bit. Maybe talk us through how you're thinking about the different regions.

Speaker #4: And as a follow-up, looking into 2027, industry forecasts currently imply limited global production growth. Based on your backlog and launch cadence, what does Magna's portfolio imply for growth over market next year?

Speaker #4: Thank you.

Speaker #3: Well, it's a little bit too early to talk about next year, Jack, but we definitely appreciate the question. I mean, for the full year, we are expecting solid growth over the market, as we talked about before.

Phil Fracassa: Well, a little bit too early to talk about next year, Jack. We definitely appreciate the question. For the full year, we are expecting solid growth over market for the full year, as we talked about before. Global light vehicle production will be down for the full year, even with the revised estimates that we put in there. On a Magna-weighted basis for the full year, we think global light vehicle production will be down about 2%, about 3% in total. Yet, for the full year, our sales, as you'll see, is roughly flat, down just slightly. If you take out the FX impact, which is positive for the full year, it's going to be negative in the H2, but positive for the full year. Take out the divestitures, we're down about less than 1% organic.

Speaker #3: Global light vehicle production will be down for the full year, even with the revised estimates that we put in there. On a Magna-weighted basis for the full year, we think global light vehicle production will be down about 2%, and about 3% in total.

Phil Fracassa: On a Magna-weighted basis for the full year, we think global light vehicle production will be down about 2%, about 3% in total. Yet, for the full year, our sales, as you'll see, is roughly flat, down just slightly. If you take out the FX impact, which is positive for the full year, it's going to be negative in the H2, but positive for the full year. Take out the divestitures, we're down about less than 1% organic.

Speaker #3: And yet, for the full year, our sales, as you'll see, are roughly flat, down just slightly. If you take out the FX impact—which is positive for the full year—it's going to be negative in the second half, but positive for the full year.

Speaker #3: If you take out the divestitures, we're down about less than 1% organically. So, growth over market—that's our 0 to 2% positive growth over market for the full year.

Phil Fracassa: Growth over market, that's our 0% to 2% positive growth over market for the full year. If you exclude Complete Vehicles, it'll be kind of in that 1% to 3% positive growth over market. Then we did a little bit better than that in the H1, so it'll be a little bit less than that in the H2, but it'll be positive in both H1 and H2. Then regionally, you're right, we did take our estimates up for North America and Europe, which, as you know, we're well exposed in those two regions. We took China down 800,000. A little bit difficult with China, we're a little bit smaller, so mix really matters in China.

Speaker #3: If you exclude complete vehicles, it'll be kind of in that 1% to 3% positive growth over market. And then we did a little bit better than that in the first half.

Speaker #3: So it'll be a little bit less than that in the second half, but it'll be positive in both the first half and the second half. And then regionally, you're right.

Phil Fracassa: Then regionally, you're right, we did take our estimates up for North America and Europe, which, as you know, we're well exposed in those two regions. We took China down 800,000. A little bit difficult with China, we're a little bit smaller, so mix really matters in China. Overall, we rolled in the production estimates and very comfortable with the H2 sales guide and the projection for growth over market for both the H2 and the full year.

Speaker #3: We did take our estimates up for North America and Europe, which, as you know, we're well-exposed in those two regions. We took China down by 800,000.

Speaker #3: A little bit difficult. China, we're a little bit smaller, so mix really matters in China. But overall, we rolled in the production estimates and very comfortable with the second half sales guide and the projection for growth over market for both the second half and the full year.

Phil Fracassa: Overall, we rolled in the production estimates and very comfortable with the H2 sales guide and the projection for growth over market for both the H2 and the full year.

Speaker #2: And I'd point out that some of the volume change in our outlook is behind us. In other words, we experienced some of that. Some of the up in North America and Europe, we experienced in Q2, and some of the down in China, was also in Q2.

Swamy Kotagiri: I'd point out that some of the volume change in our outlook is behind us. In other words, we experienced some of that. Some of the up in North America and Europe we experienced in Q2, and some of the down in China was also in Q2.

Speaker #1: Your next question comes from the line of Rajat Gupta with JPMorgan. Please go ahead.

Operator: Your next question comes from the line of Rajat Gupta with JPMorgan. Please go ahead.

Speaker #3: Great. Thanks for taking the question. Just wanted to follow up on the third quarter, fourth quarter seasonality split. It does seem like a little more steeper seasonal step-down in Q3 and obviously a bit more steeper fourth quarter pickup.

Rajat Gupta: Great. Thanks for taking the question. Just wanted to follow up on the Q3, Q4 seasonality split. It does seem like a little more steeper seasonal step down in Q3 and obviously a bit more steeper Q4 pickup. Could you elaborate on what's driving that? Is it just recovery timing or any specific launch cadence that we should keep in mind? Because it would imply a pretty material step up in the Q4 margin. Just want to clarify that and have a quick follow-up.

Speaker #3: Could you elaborate on what's driving that? Is it just recovery timing, or is there any specific launch cadence that we should keep in mind? Because it would imply a pretty material step-up in the fourth quarter margin.

Speaker #3: So I just want to clarify that and have a quick follow-up.

Speaker #2: Yeah, sure. Sure, Rajat. Thanks for the question. So, you're right. I mean, we are expecting lower revenue in the third quarter, and as we think about third and fourth quarter cadence, we do expect a little bit more coming out in the third quarter.

Phil Fracassa: Yeah, sure. Sure, Rajat. Thanks for the question. You're right. We are expecting lower revenue in Q3, as we think about Q3 and Q4 cadence, we do expect a little bit more coming out in Q3. That's going to be driven mainly by, obviously, foreign currency is a little bit negative in there. The divestitures are in there as well, although that would impact probably Q4 even a little bit more than Q3. Overall, we think Q3, the guidance would imply. If you think about it organically, for H2, the guidance at the midpoint would imply we're down kind of about 1% or so, a little bit over 1% organic. Think about most of that in Q3, driven by model changeovers, normal seasonality, launch cadence into production and the like.

Speaker #2: And that's going to be driven mainly by—obviously, foreign currency is a little bit negative in there. The divestitures are in there as well, although that would probably impact the fourth quarter even a little bit more than the third.

Speaker #2: But overall, we think the third quarter the guidance would imply if you think about it like organically, for the second half, the guidance at the midpoint would imply we're down kind of about 1% or so a little bit over 1% organic.

Phil Fracassa: Overall, we think Q3, the guidance would imply. If you think about it organically, for H2, the guidance at the midpoint would imply we're down kind of about 1% or so, a little bit over 1% organic. Think about most of that in Q3, driven by model changeovers, normal seasonality, launch cadence into production and the like. We've got some programs kind of coming out, Ford Escape, Toyota Supra, BMW Z4. Then kind of more flattish organic in Q4. A little bit of step up from Q3 to Q4, overall netting to positive growth over market for H2.

Speaker #2: Think about most of that in the third quarter, driven by model changeovers, normal seasonality, launch cadence and the production and the like. We've got some programs kind of coming out for Escape, Toyota Supra, BMW Z4.

Phil Fracassa: We've got some programs kind of coming out, Ford Escape, Toyota Supra, BMW Z4. Then kind of more flattish organic in Q4. A little bit of step up from Q3 to Q4, overall netting to positive growth over market for H2.

Speaker #2: And then kind of more flattish, organic in the fourth quarter—a little bit of step up from the third to the fourth—but then overall netting to positive growth over market for the second half.

Speaker #2: And I think it might be worth mentioning that the slope of the curve is actually flatter this year compared to last year, when we looked at the back half versus the first half of the year.

Swamy Kotagiri: I think, Philip, it might be worth mentioning that the slope of the curve is actually flatter this year compared to the last year when we looked at H2 versus H1 of the year.

Speaker #3: Yeah, good point. So, when you think about margins and earnings, a lot of the recovery—similar to last year—while we're doing, I think we're doing a better job getting recoveries earlier. For example, tariffs.

Phil Fracassa: Yeah, good point. When you think about margins and earnings, a lot of the recovery, similar to last year, while we're doing, I think we're doing a better job getting recoveries earlier. For example, tariffs. It will be normal for us to have a little bit more skewed to Q4, which would kind of explain a little bit of that EPS split as well as the margins split. As we said in our scripts, we do expect margins to be up year over year in both Q3 and Q4. Frankly, the year over year improvement should be pretty similar across both those periods.

Speaker #3: It will be normal for us to have a little bit more skew to the fourth quarter, which would kind of explain a little bit of that EPS split as well, as well as the margin split.

Speaker #3: But as we said on the as we said in our scripts, we do expect margins to be up year over year in both the third and the fourth quarters.

Speaker #3: And frankly, the year-over-year improvement will be should be pretty similar, across both those periods. Understood. That's helpful. And just a question on just the latest situation around memory and DRAM.

Rajat Gupta: Understood. That's helpful. Just a question on like just the latest situation around memory and DRAM. How do you feel about your position in terms of locking in supply, obviously the H2, but more for 2027? Just curious how those discussions are going on pricing, recoveries, et cetera. Thanks.

Speaker #3: I mean, how do you feel about your position in terms of locking in supply? Obviously, the second half, but more for '27. Just curious how those discussions are going on pricing, recoveries, etc.

Speaker #3: Thanks.

Speaker #2: Thanks, Rajat. We are monitoring the DRAM, obviously. I think the group that is really impacted for us is Electronics. We have been in discussions with the customers, as well as the suppliers.

Swamy Kotagiri: Thanks, Rajat. We are monitoring the DRAM, obviously. I think the group that is really impacted for us is electronics. We have been in discussions with the customers as well as the suppliers, we have had no issues with disruption. It's something that we're monitoring very closely. In this quarter, we've worked, again, as I said, with OEM and suppliers, we feel our first priority is to mitigate any disruption, we feel pretty good about that. We see a little modest unrecovered cost headwind in the H2, we've included that in our expectations or in the outlook. It's a continuing playbook that we have to go through, nothing as we see today that's going to be disruptive.

Speaker #2: And we have had no issues with disruption. It's something that we're monitoring very closely. In this quarter, we worked again, as I said, with OEM and Sense suppliers.

Swamy Kotagiri: In this quarter, we've worked, again, as I said, with OEM and suppliers, we feel our first priority is to mitigate any disruption, we feel pretty good about that. We see a little modest unrecovered cost headwind in the H2, we've included that in our expectations or in the outlook. It's a continuing playbook that we have to go through, nothing as we see today that's going to be disruptive.

Speaker #2: And we feel our first choice—our first priority—is to mitigate any disruption, and we feel pretty good about that. And if there is, we see a little modest unrecovered cost headwind in the second half, but we've included that in our expectations or in the outlook.

Speaker #2: It's a continuing playbook that we have to go through, but nothing as we see today that's going to be disruptive.

Speaker #3: Understood. Great. Thanks for all the color, and good luck.

Rajat Gupta: Understood. Great. Thanks for all the color and good luck.

Speaker #1: Your next question. Comes from the line of Dan Levy with Barclays. Please go ahead.

Operator: Your next question comes from the line of Dan Levy with Barclays. Please go ahead.

Dan Levy: Hi. Good morning. Thanks for taking the questions. I wanted to go to the sort of H1 to H2 margin bridge, because when we look at especially Power & Vision and BES, there's a significant margin step-up even though revenue is declining, and we know that revenue is going to be declining on some of the key programs you have, GM trucks, et cetera. Maybe you could just talk through that H1 to H2 step-up in margins, and then maybe just a short point on tariffs that you could just say, I know you mentioned tariffs are neutral or slight negative, what the assumption is within tariffs on IEPA refunds.

Speaker #4: Hi. Good morning. Thanks for taking the questions. I wanted to go to the sort of first half to second half. Margin bridge, because when we look at especially power and vision and BDS, there's a significant margin step up even though revenues declining and we know that revenue is going to be declining on some of the key programs you have, GM trucks, etc.

Speaker #4: So maybe you could just talk through that first half to second half step-up in margins. And then maybe just a short point on tariffs; if you could just say, you mentioned tariffs are neutral or a slight negative.

Speaker #4: What is the assumption within tariffs on IEPA refunds?

Speaker #3: Sure, Dan. So, let's start—we'll start first with the first half to second half. So really, it boils down to some of the similar things we saw in the first half itself.

Phil Fracassa: Sure, Dan. We'll start first with the H1 to H2. It really boils down to some of the similar things we saw in the H1 itself. When I look H1 to H2, operational excellence initiatives continuing to accelerate is probably the biggest driver. H1 to H2, that would certainly apply in both BES and P&V. As we said, recoveries H1 to H2 are going to be more H2 weighted. That's an element as well, as we work to secure those in the H2 before the end of the year. P&V does have a little bit more tariff recovery with customers. A little bit of that's back H2 weighted as well, and that's more than offsetting. H1 to H2 in P&V, we had a big equity income item in the Q1.

Speaker #3: So I mean, when I look first half to second half, operational excellence initiatives continuing to accelerate. It's probably the biggest driver. First half to second half, that would certainly apply in both BES and P&V.

Speaker #3: As we said, recoveries first half to second half are going to be more second half weighted. That's an element as well. As we work to secure those in the second half before the end of the year.

Phil Fracassa: As we said, recoveries H1 to H2 are going to be more H2 weighted. That's an element as well, as we work to secure those in the H2 before the end of the year. P&V does have a little bit more tariff recovery with customers. A little bit of that's back H2 weighted as well, and that's more than offsetting. H1 to H2 in P&V, we had a big equity income item in the Q1.

Speaker #3: P&V does have a little bit more tariff recovery with customers; a little bit of that's back halfway as well. And that's more than offsetting.

Speaker #3: From the first half to the second half in P&V, we had a big equity income item in the first quarter, but that would be kind of a positive in the bridge, if you will.

Phil Fracassa: That would be kind of a positive in the bridge, if you will. Overall, it's really been a negative in the bridge on the equity income, as would inflation. The positives of operational excellence in the recoveries and really good pull-through and good mix performance more than outweighing the negatives. On the IEPA, if you looked at last year and into this year while the IEPA were still in place, we probably paid just over $100 million in IEPA tariffs. We've gotten about half of that back with most of those refunds coming in the Q2. As we get the refunds back, we're accruing passbacks to our customers and would expect customers to get 80% to 90% of that since they funded most of that as we paid it.

Speaker #3: But overall, it's really been driven by the—I'm sorry, by a negative in the bridge on the equity income, as would inflation. But the positives of operational excellence, recoveries, and really good pull-through and good mix performance are more than outweighing the negatives.

Speaker #3: And then on the IEPAs, if you looked at last year, and into this year, while the IEPAs were still in place, we probably paid just over $100 million in IEPA tariffs.

Phil Fracassa: On the IEPA, if you looked at last year and into this year while the IEPA were still in place, we probably paid just over $100 million in IEPA tariffs. We've gotten about half of that back with most of those refunds coming in the Q2.

Speaker #3: We've gotten about half of that back with most of those refunds coming in the second quarter. But as we get the refunds back, we're accruing pass backs to our customers and would expect customers to get 80 to 90 percent of that since they funded most of that in as we paid it.

Phil Fracassa: As we get the refunds back, we're accruing passbacks to our customers and would expect customers to get 80% to 90% of that since they funded most of that as we paid it. It's a pretty small impact to the company overall. To the comment on tariffs, we said tariffs would overall be neutral in 2025 to 2026, neutral in dollars, roughly neutral on margins. Probably, and maybe do a little bit better than that. If anything, tariffs may be a slight positive, but would not expect to be a negative year over year.

Speaker #3: So it's a pretty small impact to the company overall. And to the comment on tariffs, so we said tariffs would overall be neutral. 25 to 26, neutral in dollars, roughly neutral on margins.

Phil Fracassa: It's a pretty small impact to the company overall. To the comment on tariffs, we said tariffs would overall be neutral in 2025 to 2026, neutral in dollars, roughly neutral on margins. Probably, and maybe do a little bit better than that. If anything, tariffs may be a slight positive, but would not expect to be a negative year over year.

Speaker #3: Probably, and maybe do a little bit better than that. So, if anything, tariffs may be a slight positive, but I would not expect them to be a negative year-over-year.

Speaker #4: Great, thank you. As a follow-up, Swami, I appreciated the commentary earlier that you're looking at some other end markets outside of automotive. I think one of the things that we've seen with Magna in the past is, because you're such a large company and you have such a dominant share across so many different products, what then happens is it can be hard to move the needle on a $40 billion-plus revenue base.

Dan Levy: Great. Thank you. As a follow-up, Swamy, appreciated the commentary earlier that you're looking at some other end markets outside of automotive. I think one of the things that we've seen with Magna in the past is because you're such a large company and you have such a dominant share across so many different products, what then happens is it can be hard to move the needle on a $40 billion plus revenue base. Given non-auto right now is nothing for you, or I assume very small, is there any confidence that these efforts can add up to sort of a material growth benefit? Is it just that because you're still so large, this will still be smaller on the margin from the growth perspective?

Speaker #4: So given non-auto right now is nothing for you, or I assume very small. Is there any confidence that these efforts can add up to sort of a material growth benefit, or is it just that because you're still so large, this will still be smaller on the margin from a growth perspective?

Dan Levy: Given non-auto right now is nothing for you, or I assume very small, is there any confidence that these efforts can add up to sort of a material growth benefit? Is it just that because you're still so large, this will still be smaller on the margin from the growth perspective?

Speaker #2: Good morning, Dan. Great question. First point, I think we have some proof points in terms of capabilities that can translate beyond traditional light vehicles.

Swamy Kotagiri: Good morning, Dan. Great question. First point, I think we have some proof points in terms of capabilities that can translate beyond traditional light vehicles. We have had examples of that in our Steyr's long-running, non-civil G-Wagen production as an example. Steyr Engineering does work on aerospace-related work. Cosma has done work for body-in-white products for heavy truck. This has all been related to overall capability in terms of integration, in terms of some of the main core processes that live in Magna. All in all, I think we are going to be very selective. We are looking only at areas that we have a clear right to win, and that might include recreational vehicles, other industrial applications. It would help our growth without distracting from the core business.

Speaker #2: We have had examples of that in our Steyr's long-running non-civil G-Wagon production as an example. Steyr Engineering does work on aerospace-related work. Cosma has done work for cabin white products for heavy truck.

Swamy Kotagiri: Cosma has done work for body-in-white products for heavy truck. This has all been related to overall capability in terms of integration, in terms of some of the main core processes that live in Magna. All in all, I think we are going to be very selective. We are looking only at areas that we have a clear right to win, and that might include recreational vehicles, other industrial applications.

Speaker #2: And this is all being related to overall capability in terms of integration, in terms of some of these main core processes that live in Magna.

Speaker #2: So, all in all, I think we are going to be very selective. We are looking only at areas where we have a clear right to win.

Speaker #2: That might include recreational vehicles, other industrial applications, and it'll help our growth without distracting from the core business. The other point that we are very clear about is looking at the returns criteria and also making sure there isn't any big distraction or significant incremental investment.

Swamy Kotagiri: It would help our growth without distracting from the core business. The other point that we are very clear about is looking at the returns criteria and also looking at not having to have any big distraction or a significant incremental investment. That's kind of like the backdrop.

Swamy Kotagiri: The other point that we are very clear about is looking at the returns criteria and also looking at not having to have any big distraction or a significant incremental investment. That's kind of like the backdrop. We have been awarded some projects already. Like you said, we want to come on the Investor Day to be able to talk through what's the roadmap, what is the size. I believe done well, these adjacent markets can add incremental growth and modest diversification without changing Magna's identity or operating model. I think it's going to be meaningful. Now we'll have to decide what material means, but let's talk about it in November.

Speaker #2: So that's kind of like the backdrop. We have been awarded some projects already. Like you said, we want to come on the Investor Day to be able to talk through what's the roadmap, what is the size.

Swamy Kotagiri: We have been awarded some projects already. Like you said, we want to come on the Investor Day to be able to talk through what's the roadmap, what is the size. I believe done well, these adjacent markets can add incremental growth and modest diversification without changing Magna's identity or operating model. I think it's going to be meaningful. Now we'll have to decide what material means, but let's talk about it in November.

Speaker #2: But I believe, done well, these adjacent markets can add incremental growth and modest diversification without changing Magna's identity or operating model. So, I think it's going to be meaningful.

Speaker #2: And now we'll have to decide what "material" means. But let's talk about it in November.

Speaker #4: Great. Thank you.

Dan Levy: Great. Thank you.

Speaker #1: Your next question comes from the line of Joe Spack with UBS. Please go ahead.

Operator: Your next question comes from the line of Joseph Spak with UBS. Please go ahead.

Speaker #4: Good morning, everyone. Phil, maybe just a clarification point on some of your last comments. So it sounds like you got 50 million dollars in IEPA recoveries.

Joseph Spak: Good morning, everyone. Phil, maybe just a clarification point on some of your last comments. It sounds like you got $50 million in IEPA recoveries. Was that included or separate from that 25 basis point benefit in the quarter? Are you really able to, I guess, realize this? Because it also sounded like you're going to then still have to pass it on to your customers. Maybe you could just, sorry, clarify some of your comments there.

Speaker #4: Was that included, or separate from that 25 basis point benefit in the quarter? And then, are you really able to, I guess, realize this?

Speaker #4: Because it also sounded like you're then still going to have to, sort of, pass it on to your customers. So maybe you could just—sorry—clarify some of your comments there.

Speaker #3: Yeah, sure, Joe. Sorry. Yes, absolutely. So, yeah, we had a 25 basis point benefit from tariffs in the quarter. So as you said, call it $25-ish million.

Phil Fracassa: Yeah, sure, Joe. Sorry. Yes, absolutely. Yeah, we had a 25 basis point benefit from tariffs in the quarter. As you said, call it $25-ish million. That would be included in there. As I said, as we recover the $50-ish million, we're accruing a give back to the customer of an amount, call it 80% to 90%, whatever they funded of the tariffs ultimately, last year into the beginning of this year. There'd be a slight benefit in that number. That would be a piece, I would say a small piece. Another piece would be we're getting recovery sooner than we did last year. Last year, we had costs with virtually no recoveries in Q2. This year, we have costs with some recoveries because we're inking deals more real time this year than we did last year.

Speaker #3: That would be included in there. But as I said, as we recover the $50 million-ish, we're accruing a give-back to the customer of an amount—call it 80% to 90%, whatever they funded of the tariffs ultimately—last year into the beginning of this year.

Speaker #3: So there'd be a slight benefit in that number. The bulk of that would be that would be a piece I would say a small piece.

Speaker #3: Another piece would be we're getting recoveries sooner than we did last year. So last year, we had costs with virtually no recoveries in Q2.

Speaker #3: This year, we have costs with some recoveries because we're inking deals more real-time this year than we did last year. And then a little benefit from the IEPA that we're able to keep because it was tariffed at customers didn't ultimately fund.

Phil Fracassa: This year, we have costs with some recoveries because we're inking deals more real time this year than we did last year. A little benefit from the IEPA that we're able to keep because it was a tariff that customers didn't ultimately fund. If you look in H1, we had about, I think it was a 15 basis point headwind in Q1 related to tariffs. 25 basis point tailwind in Q2. H1 were about 10 basis points tailwind.

Phil Fracassa: A little benefit from the IEPA that we're able to keep because it was a tariff that customers didn't ultimately fund. If you look in H1, we had about, I think it was a 15 basis point headwind in Q1 related to tariffs. 25 basis point tailwind in Q2. H1 were about 10 basis points tailwind. As we said, moving to the rest H2 of the year, it'll probably flip a little negative on us because we had more recoveries last year that we got in H1 this year. Net on the margin, as I said, neutral for the full year. Dollar is relatively neutral or potentially maybe a little bit better.

Speaker #3: And if you look in the first half, we had about—I think it was a 15-basis-point headwind in Q1 related to tariffs.

Speaker #3: 25 basis point tailwind in Q2. So, first half, we're about 10 basis points tailwind. And as we said, moving to the rest back half of the year will probably flip a little negative on us, because we had more recoveries last year than we got in the first half this year.

Phil Fracassa: As we said, moving to the rest H2 of the year, it'll probably flip a little negative on us because we had more recoveries last year that we got in H1 this year. Net on the margin, as I said, neutral for the full year. Dollar is relatively neutral or potentially maybe a little bit better.

Speaker #3: And then net on the margin, as I said, neutral for the full year; dollars relatively neutral, or potentially maybe a little bit better than that.

Speaker #4: Got it, got it. Okay, thank you for that. Maybe just some quick clarification and housekeeping on the outlook. The lighting sale—it sounds like it's closing a little bit earlier.

Joseph Spak: Got it. Okay. Thank you for that. Maybe quick clarification housekeeping on the outlook. The lighting sale, it sounds like it's closing a little bit earlier. I know you already took it out last quarter, but was there any sort of change in what you're assuming in your guidance at the revenue line item, at least, for it coming out a little bit earlier?

Speaker #4: So, was there a change in your— I know you already sort of took it out last quarter, but was there any sort of change in what you're assuming in your guidance for the revenue line item, at least for it coming out a little bit earlier?

Phil Fracassa: Yes.

Speaker #4: And then also, if you could just and then also, if you could just sort of the free cash flow guidance was raised, but if you could just remind us, how much of this year's free cash flow is really related to either the EV recoveries or some of the IEPA cash that you're receiving?

Joseph Spak: Also, if you could just, the free cash flow guidance was raised, but if you could just remind us, how much of this year's free cash flow is really related to either the EV recoveries or some of the IEPA cash that you're receiving?

Speaker #3: Yeah, sure. So what was the first? I just, under 500. No, the...

Phil Fracassa: Yeah, sure. What was the first?

Louis Tonelli: Just under $500.

Phil Fracassa: No.

Speaker #2: Well, the lighting.

Louis Tonelli: The lighting.

Speaker #4: As far as the lighting, whether there's any...

Joseph Spak: The first was the lighting, whether there's any change.

Speaker #3: Sorry, I was focused on—yeah, I was focused on your second list. My apologies. So on lighting, it'll be just over $400 million. So when you look at the midpoint of the sales guide, we took it down about $400 million, I think, Louis.

Phil Fracassa: Sorry, I was focused on your second one. My apologies. On lighting, it'll be just over $400 million. When you look at the midpoint of the sales guide, we took it down about $400 million, I think, a scale, Louis. The $400 million was really virtually all FX, and then about $50 million related to increased lost sales because of the divestitures closing earlier than we thought.

Speaker #3: So the 400 million was really all virtually all FX. And then about 50 million related to increased loss sales because of the divestitures closing earlier than we thought.

Speaker #3: So we closed Europe lighting in the second quarter at the very end of the second quarter. And we are seeing the rest of the pieces closing a little bit earlier than we anticipated.

Joseph Spak: Okay.

Phil Fracassa: We closed Europe Lighting in Q2, at the very end of Q2, and we are seeing the rest of the pieces closing a little bit earlier than we anticipated. About another CAD 50 for that. The rest, call it FX, with very little change organically, if you will. Moving to the free cash flow, again, really strong performance. We took the full-year guide at the midpoint up around CAD 100 million, reflecting both the increase in underlying earnings, EPS, if you will, as well as better working capital performance that we saw in Q2 that we think we will be able to sustain for the full year. CapEx, relatively unchanged. Within that number, you will remember in Q1, we had a big recovery we talked about on the balance sheet recovery on the order of around CAD 475 million. That is in there.

Speaker #3: So, about another 50 for that. The rest, call it FX, with very little change organically, if you will. And then, moving to the free cash flow—again, really strong performance.

Phil Fracassa: Moving to the free cash flow, again, really strong performance. We took the full-year guide at the midpoint up around CAD 100 million, reflecting both the increase in underlying earnings, EPS, if you will, as well as better working capital performance that we saw in Q2 that we think we will be able to sustain for the full year. CapEx, relatively unchanged. Within that number, you will remember in Q1, we had a big recovery we talked about on the balance sheet recovery on the order of around CAD 475 million. That is in there.

Speaker #3: We took the full year guide at the midpoint up around 100 million. Reflecting both the increase in underlying earnings EPS, if you will, as well as a better working capital performance that we saw in Q2 that we think we'll be able to sustain for the full year.

Speaker #3: Capex relatively unchanged. But within that number, remember in the first quarter, we had a big recovery. We talked about on the balance sheet recovery on the order of around 475 million.

Speaker #3: That's in there. We are expecting some additional recoveries in the second half of the year, but don't expect them to be anywhere near that number.

Phil Fracassa: We are expecting some additional recoveries in H2 of the year, do not expect them to be anywhere near that number. A little bit more in H2, but not anywhere close to that number. On the IEPA, as I said, we do expect to get all the IEPA back. We are working on it as we speak, timing TBD, do expect to get it back. In the end, as I said, most of that gets passed back.

Speaker #3: So, a little bit more in the second half, but not anywhere close to that number. And then, on the IEPA, as I said, we do expect to get all the IEPA back.

Speaker #3: We're working on it as we speak. Timing TDD, but do expect to get it back. In the end, as I said, most of that gets passed back.

Speaker #3: So at the end of the day, it would be kind of in the round.

Joseph Spak: Round and round.

Phil Fracassa: At the end of the day, it would be kind of in the round.

Speaker #4: Okay. Appreciate it, Phil. Thanks.

Joseph Spak: Okay. Appreciate it. Well, thanks.

Speaker #3: Yeah, thanks, Joe.

Phil Fracassa: Yeah, thanks.

Speaker #1: Yeah. Your next question comes from the line of Ty Collins with CIBC. Please go ahead.

Operator: Your next question comes from the line of Tamy Chen with CIBC. Please go ahead.

Speaker #5: Good morning. Thanks for taking my question. So, I mean, clearly, some of your larger European customers are still struggling with competition from Chinese OEMs, both in China and in Europe.

Tamy Chen: Good morning. Thanks for taking my question. Clearly, some of your larger European customers are still struggling with competition from Chinese OEMs, both in China and in Europe. I appreciate that Magna has a pretty broad reach in terms of the customers that you serve, but have those shifting market share dynamics been negative for Magna, or is it kind of neutral based on your relationships with the Chinese automakers?

Speaker #5: I appreciate that Magna has pretty broad reach in terms of the customers that you serve, but have those shifting market share dynamics been negative for Magna, or is it kind of neutral based on your relationships with the Chinese automakers?

Speaker #2: Yeah, I think it's a good morning, Ty. If you look at China, we have talked about it. Over the last 10, 15 years, we have moved from a predominantly supporting Western OEMs in China to a mix where our revenue today in China is about 65% with the Chinese OEMs.

Swamy Kotagiri: Good morning, Ty. If you look at China, we have talked about it. Over the last 10, 15 years, we have moved from predominantly supporting Western OEMs in China, to a mix where our revenue today in China is about 65% with the Chinese OEMs. As the D3, G3 kind of lose market share in China, it will have an impact on our sales in China for now. The important thing is to see that we have been diversifying and adding business. A proof point is one of the things we talked about in our prepared statements of the Chery win, as an example. In the short term, it is something that could have an impact, but as we continue to increase our presence with the Chinese OEMs in China, yeah, will be part of their ecosystem.

Speaker #2: So as the D3, G3 kind of lose market share in China, it'll have an impact on our sales in China for now. But the important thing is to see that we have been diversifying and adding business.

Swamy Kotagiri: As the D3, G3 kind of lose market share in China, it will have an impact on our sales in China for now. The important thing is to see that we have been diversifying and adding business. A proof point is one of the things we talked about in our prepared statements of the Chery win, as an example. In the short term, it is something that could have an impact, but as we continue to increase our presence with the Chinese OEMs in China, yeah, will be part of their ecosystem.

Speaker #2: The proof point is one of the things we talked about in our prepared statements at the chair event as an example. So in the short term, it's something that could have an impact, but as we continue to increase our presence with the Chinese OEMs in China, yeah, we'll be part of their ecosystem.

Speaker #5: Okay, great. And then, Swami, I'm curious to get your thoughts on the proposed 50% U.S. content rule that was put forward somewhat recently as part of USMCA negotiations.

Tamy Chen: Okay, great. Swamy, I am curious to get your thoughts on the proposed 50% US content rule that was put forward somewhat recently as part of USMCA negotiations. Is that something that you expect to ultimately materialize in one form or another? How would you think about the impact of that sort of rule to your business and the overall industry?

Speaker #5: Is that something you expect to ultimately materialize in one form or another? And how would you think about the impacts of that sort of rule on your business and the overall industry?

Speaker #2: I think Ty usually refrained from making comments on trade policies and national policies. But we are keeping a close watch, obviously. As you can imagine, it'll have an impact on the automotive industry as a whole.

Swamy Kotagiri: I think, Ty, I usually refrain from making comments on trade policies and national policies. We are keeping a close watch. Obviously, as you can imagine, it'll have an impact on the automotive industry as a whole. What it really means is we have to be agile and adaptable. We have a footprint in all three areas here. We've been able to walk through the tariff discussions over the last year and a half. All I can say is that any change is going to have an impact. We'll have to follow the strategy of the OEMs based on their footprint and their programs, and that's what we are focusing on.

Speaker #2: What it really means is we have to be agile and adaptable. We have a footprint in all three areas here. And we've been able to walk through the tariff discussions over the last year and a half, so all I can say is that any change is going to have an impact.

Speaker #2: But we'll have to follow the strategy of the OEMs based on their footprint and their programs, and that's what we are focusing on.

Speaker #5: Okay, thanks. All the best.

Tamy Chen: Okay, thanks. All the best.

Swamy Kotagiri: Thank you.

Speaker #1: Your next question comes from the line of Tom Narayan with RBC. Please go ahead.

Operator: Your next question comes from the line of Tom Narayan with RBC. Please go ahead.

Speaker #4: Yeah, thanks for taking the question. The first one I have is on the slide on the 2028 backlog, with over 90% already booked. I'm just curious if you could comment at all on maybe what the margin profile of this looks like, and also what the Chinese OEM exposure is there. And then I have a follow-up.

Tom Narayan: Yes, thanks for taking the question. The first one I have is on the slide on the 2028 backlog with over 90% already booked. Just curious if you could comment at all on maybe what the margin profile of this looks like and also what the Chinese OEM exposure is there. I have a follow-up.

Speaker #2: So Tom, obviously, we won't talk about the margin profiles by customer or into the future. We'll have to come back and hopefully give you a little bit more color on the long-term profile of Magna as we come to the investor day.

Swamy Kotagiri: Tom, obviously we won't talk about the margin profiles by customer or into the future. We'll have to come back and hopefully give you a little bit more color on the long-term profile of Magna as we come to the Investor Day, and we are going through the business plan process and in normal course, we'll talk about 2027. The point of the 90% being booked is to show that we continue to grow our business despite all the discussions on recoveries and tariffs and so on. It's normal cadence, two years out, that's what we see. That gives us a little bit of certainty in planning, and that is what we intended to convey.

Speaker #2: And we're going through the business plan process, and in the normal course, we'll talk about 2027. The point of the 90% being booked is to show that we continue to grow our business despite all the discussions on recoveries and tariffs and so on.

Speaker #2: And it's normal cadence. Two years out, that's what we see. That gives us a little bit of certainty in planning and that is what we intended to convey.

Speaker #3: Yeah, maybe if I could add, Tom—and not on '28 as much, but maybe on '27, because we've talked about this before—with some of the new contracts we're getting and new programs we're getting with our customers, we have talked about improved economics helping as we continue to price for current economics and setting, for example, labor rates at start of production, as an example.

Phil Fracassa: Yeah. Maybe if I could add, Tom, not on 2028 as much, but maybe on 2027, because we have talked about this before. With some of the new contracts we are getting and new programs we are getting with our customers, we have talked about improved economics, helping as we continue to price for current economics and setting, for example, labor rates at start of production as an example. We see some benefit in 2026. We do have some new programs coming in in 2027. One that is going to help the seating business out quite a bit. It is a German OEM program in North America, as well as new programs with one of the Detroit Three. We do expect better economics on those programs. That will be a 2026, 2027, and then as Swamy said, we will get into 2028 at a later point in time.

Speaker #3: We see some benefit in '26, and then we do have some new programs coming in in 2027—one that's going to help the Seating business out quite a bit.

Phil Fracassa: We see some benefit in 2026. We do have some new programs coming in in 2027. One that is going to help the seating business out quite a bit. It is a German OEM program in North America, as well as new programs with one of the Detroit Three. We do expect better economics on those programs. That will be a 2026, 2027, and then as Swamy said, we will get into 2028 at a later point in time.

Speaker #3: It's a German OEM program in North America, as well as a new programs with one of the Detroit three. We do expect better economics on those programs.

Speaker #3: So that’ll be ’26, ’27, and then, as Swami said, we’ll get into ’28 at a later point in time.

Speaker #4: Yeah, I think maybe one comment: At a very general level, what we are all really excited about is the traction on various initiatives in the company.

Swamy Kotagiri: Yeah. I think maybe one comment at a very general level, what we are all really excited about is the traction on various initiatives in the company. We call it operational excellence, whether material flow optimization or advanced technologies or digital standard work, and we are going to give some color when we come to the Investor Day. We have been talking about this 35, 40 basis points margin expansion. As we finished this year, we would added about 200 basis points from 2023 to 2026. I would like to say we are still, I believe, in the early innings. We are going to scale what we are doing here and as this proliferates, that is what is exciting going into 2027, 2028, and even into 2029 possibly.

Speaker #4: We call it operational excellence, whether material flow optimization or advanced technologies or digital standard work. And we're going to give some color when we come to the investor day.

Speaker #4: We've been talking about this 35 to 40 basis points margin expansion as we finish this year. We would have added about 200 basis points from '23 to '26.

Swamy Kotagiri: We have been talking about this 35, 40 basis points margin expansion. As we finished this year, we would added about 200 basis points from 2023 to 2026. I would like to say we are still, I believe, in the early innings. We are going to scale what we are doing here and as this proliferates, that is what is exciting going into 2027, 2028, and even into 2029 possibly.

Speaker #4: And I would like to say we are still, I believe, in the early innings. We're going to scale what we are doing here and, as this proliferates, that is what is exciting going into '29, possibly.

Speaker #4: Okay, got it. The follow-up one I have is on Chinese OEMs into Europe. I had the pleasure of seeing your hinge-making in China earlier this year.

Tom Narayan: Okay, got it. The follow-up one I have is on Chinese OEMs into Europe. I had the pleasure of seeing your hinge making in China earlier this year. I guess just I underestimated how much infrastructure is involved that goes into what you guys do. I think there were like 100 parts to a hinge, for example. Is the argument that the Chinese OEMs producing in Europe would have to build all of this infrastructure either on their own or Chinese suppliers build capacity very expensively in Europe from scratch? Is that the argument that you guys have for continuing to use your guys' content in Europe? Are there certain segments of your segments that maybe are more protected from either the Chinese OEM insourcing or Chinese suppliers moving to Europe than others, or you feel they are all kind of equally protected today?

Speaker #4: And I guess I just underestimated how much infrastructure is involved in what you guys do. I think there were like 100 parts to a hinge, for example.

Speaker #4: Is the argument that the Chinese OEMs producing in Europe would have to build all of this infrastructure either on their own, or that Chinese suppliers would have to build capacity very expensively in Europe from scratch?

Speaker #4: And is that the argument that you guys have for continuing to use your guys' content in Europe, and are there certain segments of your segments that maybe are more protected from either the Chinese OEM insourcing or Chinese suppliers moving to Europe than others?

Tom Narayan: Is that the argument that you guys have for continuing to use your guys' content in Europe? Are there certain segments of your segments that maybe are more protected from either the Chinese OEM insourcing or Chinese suppliers moving to Europe than others, or you feel they are all kind of equally protected today?

Speaker #4: Or do you feel they're all kind of equally protected today?

Speaker #2: Thank you, Tom. I think there's nothing like visiting a plant. And I understand you've been at our Kunshan plant looking at our latches. It gives you a sense of the magnitude of the complexity.

Swamy Kotagiri: Thank you, Tom. I think there is nothing like visiting a plant. I understand you have been at our Kunshan plant looking at our latches. It gives the magnitude of the complexity. Thank you for explaining that. The key as we even worked in China, we have been very deliberate, as you said, about the type of the product. We need to have a platform strategy where we can deploy at a scale on various programs once we develop something. The technology and the manufacturing DNA and the integration expertise is kind of like the moat once we have that in place. That is the general strategy that we have followed. If you go to our structural business side of things, similar large castings, large stampings, and complex assembly structures with various joining technologies, that is kind of the moat there.

Speaker #2: So, thank you for explaining that. The key is, as we have even worked in China, we have been very deliberate, as you said, about the type of product.

Speaker #2: We need to have a platform strategy, so that we can deploy at scale on various programs once we develop something. And the technology and the manufacturing DNA, and the integration expertise, is kind of like the moat once we have that in place.

Swamy Kotagiri: The technology and the manufacturing DNA and the integration expertise is kind of like the moat once we have that in place. That is the general strategy that we have followed. If you go to our structural business side of things, similar large castings, large stampings, and complex assembly structures with various joining technologies, that is kind of the moat there.

Speaker #2: That is the general strategy that we have followed. If you go to our structural business side of things, similar large castings, large stampings, and complex assembly structures with various joining technologies—that is kind of the moat there.

Speaker #2: Our seating folks have developed some really interesting technology in terms of even structures. Beyond some of the other interesting stuff we intend to show, that helps automation from a product side.

Swamy Kotagiri: Our seating folks have developed some really interesting technology in terms of even structures, beyond some of the other interesting stuff we intend to show that helps automation from a product side. We'll talk about that in our November timeframe. This is how we are able to supply in China for China, we are learning through that process. Obviously, now to your question, as you know, we are working with the Chinese OEMs in our Magna Steyr for complete vehicle assembly. As that continues through localization, we have similar capabilities in Europe, obviously, because we produce in Europe for any OEMs that are manufacturing in Europe. That will be the next step. Our hope is to help through the homologation process with our full vehicle expertise and obviously the supply of the components and systems similar to what you saw in China.

Speaker #2: We'll talk about that in our November timeframe. So this is how we are able to supply in China for China. And we are learning through that process.

Speaker #2: And obviously, not your question as you know, we are working with the Chinese OEMs in our style for complete vehicle assembly. And as that continues to localization, we have similar capabilities in Europe obviously because we produce in Europe for any OEMs that are manufacturing in Europe.

Swamy Kotagiri: Obviously, now to your question, as you know, we are working with the Chinese OEMs in our Magna Steyr for complete vehicle assembly. As that continues through localization, we have similar capabilities in Europe, obviously, because we produce in Europe for any OEMs that are manufacturing in Europe. That will be the next step. Our hope is to help through the homologation process with our full vehicle expertise and obviously the supply of the components and systems similar to what you saw in China.

Speaker #2: So that will be the next step. Our hope is to help through the homologation process with our full vehicle expertise and, obviously, the supply of the components and systems, similar to what you saw in China.

Speaker #3: Yeah, and maybe the other point would really be speed. I think Magna having capabilities everywhere in the world really gives us the ability to meet the speed demands of our customers as they move around the world.

Phil Fracassa: Yeah. Maybe the other point would be really speed. I think Magna having capabilities everywhere in the world really gives us the ability to meet the speed demands of our customers as they move around the world, that's another advantage we have.

Speaker #3: And that's another advantage we have.

Speaker #4: And the existing footprint and capabilities there should mutually help with the returns and profitability.

Swamy Kotagiri: Existing footprint and capabilities there should mutually help for the returns and profitability.

Speaker #1: Got it, understood. Looking forward to Investor Day. Thanks.

Tom Narayan: Got it. Understood. Looking forward to the Investor Day. Thanks.

Speaker #3: Thanks, Tom.

Swamy Kotagiri: Thanks, John.

Speaker #1: Yeah, our next question comes from the line of Jonathan Goldman with Scotiabank. Please go ahead.

Operator: Your next question comes from the line of Jonathan Goldman with Scotiabank. Please go ahead.

Speaker #5: Hey, good morning, team, and thanks for taking my questions. Maybe Phil, just a couple to start off on the margins. Is it possible to tease out the basis point impact of operational excellence and the higher commodity costs in the quarter?

Jonathan Goldman: Hey, good morning, team, thanks for taking my questions. Maybe, Phil, just a couple to start off on the margins. Is it possible to tease out the basis point impact of operational excellence and the higher commodity costs in the quarter?

Speaker #3: Sure. I would say if you look at the 75 basis points in the margin bridge, a majority, I would say a good close to a majority of that would have been operational excellence and the rest would have been pull through on the sales etc.

Phil Fracassa: Sure. I would say, if you look at the 75 basis points in the margin bridge, I would say a good close to a majority of that would've been operational excellence and the rest would've been pull through on the sales, et cetera. I would say inflation in Q2 would've been, on commodities, was relatively modest. I mean, we probably anticipated a little more than we saw. Because of the lags involved, we did see a little bit more in H2, which we've rolled into the guide, to make sure we were covered for the rest of the year. We feel like we've got a good coverage, if you will, based on our visibility as we see it today.

Speaker #3: And I would say inflation in the second quarter would have been on commodities was relatively modest. I mean, we didn't we probably anticipated a little more than we saw.

Speaker #3: But we did see, because of the lags involved, we did see a little bit more in the second half, which we've rolled into the guide to make sure we were covered for the rest of the year.

Phil Fracassa: Because of the lags involved, we did see a little bit more in H2, which we've rolled into the guide, to make sure we were covered for the rest of the year. We feel like we've got a good coverage, if you will, based on our visibility as we see it today. Operational excellence was, I would say, a majority of that 75 basis points, right in line with Swamy's comments around 35 to 40 basis points of improvement. It would've been right along those lines in the quarter.

Speaker #3: So we feel like we've got good coverage, if you will, based on our visibility as we see it today. But operational excellence was, I would say, a majority of that 75 basis points—right in line with Swami's comments—around 35 to 40 basis points of improvement.

Phil Fracassa: Operational excellence was, I would say, a majority of that 75 basis points, right in line with Swamy's comments around 35 to 40 basis points of improvement. It would've been right along those lines in the quarter.

Speaker #3: It would have been right along those lines in the quarter.

Speaker #5: Okay, thanks. And then, I guess, same exercise though for the full-year guide. You raised the margin guidance by 20 bps at the midpoint.

Jonathan Goldman: Okay, thanks. Then I guess same exercise though for the full year guide. You raised the margin guidance by 20 basis points at the midpoint. Could you bucket how much of that incremental upside is from operational excellence recoveries or lower commodity inflation? Anything else there?

Speaker #5: Could you break down how much of that incremental upside is coming from operational excellence, recoveries, lower commodity inflation, or anything else there?

Speaker #3: Yeah, I mean, obviously, a lot of puts and takes. As we said, we adjusted the top line mainly for FX and divestiture.

Phil Fracassa: Yeah. Obviously a lot of puts and takes. As we said, we adjusted the top line mainly for FX and divestiture, not much bottom line impact there on the margin, if you will. Maybe a little bit of a benefit from the divestitures, call it maybe 10 basis points, most of that was already in the guide. In terms of guide to guide, it would've been operational excellence getting better. We layered in a little bit more for inflation. Those would've been the primary puts and takes. I don't know, Louis, if there's anything else you'd call out.

Speaker #3: So, not much bottom line impact there. On the margin, if you will, maybe a little bit of a benefit from the divestiture—call it maybe 10 basis points—but most of that was already in the guide.

Speaker #3: But in terms of guide to guide, it would have been operational excellence getting better. We layered in a little bit more for inflation. Those would have been the primary puts and takes. Louis, if there's anything else you'd call out.

Louis Tonelli: No.

Speaker #3: Yeah, those are big. Those would be the primary puts and takes.

Phil Fracassa: Yeah. Those would be the primary puts and takes.

Speaker #5: Okay, great. And then maybe Swami, I guess one for you. Could you talk a bit more about the award that you recently won with Sherry?

Jonathan Goldman: Okay, great. Maybe, Swamy, I guess one for you. Can you talk a bit more about the award that you recently won with Chery? Maybe the broader implications of how this win positions you within China going forward beyond just a independent program win.

Speaker #5: Maybe discuss the broader implications of how this win positions you in China going forward, beyond just an independent program win?

Speaker #2: Yeah, I think the key is we had an award already with them in terms of a powertrain product, and this is the next win.

Swamy Kotagiri: Yeah. We had a award already with them in terms of a powertrain product, and this is the next win. Broadly, I think this speaks to the platform technology that we've been talking about, Jonathan. If you look at the building blocks that we have talked in the past, the speed at which we could have a strategic conversation with the customer and bring it to production is the example. We have taken some of these things and are now starting to gain traction in other parts of the world from a product perspective. There's learning in terms of the speed. There's learning in terms of our executing to what we've been talking about, is taking building blocks in a platform and being able to deploy in different regions with different customers. That's kind of like the broad message here.

Speaker #2: Broadly, I think this speaks to the platform technology that we've been talking about, Jonathan. If you look at the building blocks that we have talked in the past, the speed at which we could have a strategic conversation with the customer and bring it to production is the example.

Speaker #2: And we have taken some of these things and are now starting to gain traction in other parts of the world from a hybrid-product perspective.

Speaker #2: So, there's learning in terms of the speed. There is learning in terms of our executing to what we've been talking about, which is taking building blocks in a platform and being able to deploy in different regions with different customers.

Swamy Kotagiri: There's learning in terms of the speed. There's learning in terms of our executing to what we've been talking about, is taking building blocks in a platform and being able to deploy in different regions with different customers. That's kind of like the broad message here.

Speaker #2: So that's kind of the broad message here.

Speaker #5: Okay, interesting. Thanks for taking my questions. I'll get back with you.

Jonathan Goldman: Okay, interesting. Thanks for taking my questions. I'll get back with you.

Swamy Kotagiri: Thanks, Jonathan.

Speaker #1: You're next. Your next question comes from the line of Emmanuel Rossner with Wolfe Research. Please go ahead.

Operator: Your next question comes from the line of Emmanuel Rosner with Wolfe Research. Please go ahead.

Speaker #6: Oh, great. Thank you so much. Maybe just one question: you raised the free cash flow outlook to a pretty strong number for this year.

Emmanuel Rosner: Oh, great. Thank you so much. Maybe just one question. You raised the free cash flow outlook to a pretty strong number for this year. I know it's a bit early to look forward, but during the quarter, Phil, I think you expressed some confidence that even though this year's free cash flow includes pretty major OEM recoveries that are more one-time in nature, the overall ballpark of free cash flow is still something that's sustainable in the future. Firstly, is that the right understanding and thinking? If so, what are some of the puts and takes which would enable free cash flow to stay at these levels even without half a billion dollar plus of recoveries.

Speaker #6: I know it's a bit early to sort of look forward, but during the quarter, Phil, I think you expressed some confidence that even though this year's free cash flow includes pretty major sort of OEM recoveries that are more like one-time in nature, the overall ballpark of free cash flow is still something that's sustainable in the future.

Emmanuel Rosner: the overall ballpark of free cash flow is still something that's sustainable in the future. Firstly, is that the right understanding and thinking? If so, what are some of the puts and takes which would enable free cash flow to stay at these levels even without half a billion dollar plus of recoveries.

Speaker #6: So first, is that sort of like the right understanding and thinking? And if so, what are sort of like some of the puts and takes which would sort of like enable free cash flow to stay at these levels even without like half a billion dollar plus of recoveries?

Speaker #3: Yeah, no, thanks for the question, Emmanuel. So, no, you're right. I mean, the current midpoint this year of $1.8 billion does include some recoveries, but strong underlying free cash flow performance.

Phil Fracassa: Yeah, no, thanks for the question, Emmanuel. No, you're right. The current midpoint this year of $1.8 billion does include some recoveries, but strong underlying free cash flow performance. As we look ahead, we do expect to convert a similar amount of earnings to free cash flow. It really does boil down to obviously generating the earnings growth, managing working capital very well, a lot of initiatives across the company. You see, we talk a lot about operational excellence hitting the bottom line, and it does, but a lot of the initiatives are really designed around improving working capital performance, inventory turns, and the like. Then managing CapEx within that historical range of 4%, low fours. We feel the combination of all the above should generate strong free cash flow into the future.

Speaker #3: And as we look ahead, we do expect to convert a similar amount of earnings to free cash flow. And it really does boil down to obviously generating the earnings growth, managing working capital very well, a lot of initiatives across the company, you see we talk a lot about operational excellence, hitting the bottom line, and it does, but a lot of the initiatives are really designed around improving working capital performance, inventory turns, and the like.

Phil Fracassa: You see, we talk a lot about operational excellence hitting the bottom line, and it does, but a lot of the initiatives are really designed around improving working capital performance, inventory turns, and the like. Then managing CapEx within that historical range of 4%, low fours.

Speaker #3: And then managing capex within that historical range of 4%, low fours, and we feel the combination of all the above should generate strong free cash flow into the future.

Phil Fracassa: We feel the combination of all the above should generate strong free cash flow into the future. Again, that will enable things like investment in the business as well as significant capital return. When you think about this year, $1.8 billion of free cash flow, we raised the dividend, then are going to buy back the full NCIB, which would be north of a billion and a half dollars, plus or minus, yet still bring leverage down, yet still have the ability to continue to invest in the business. I think it's a good story. It was a good story last year, it's a good story this year, I think it'll continue to be a good story moving forward.

Speaker #3: And again, that will enable things like investment in the business as well as significant capital return. When you think about this year, 1.8 billion of free cash flow, we raised the dividend, and then we're going to buy back the full NCIB, which would be North of a billion and a half dollars plus or minus.

Phil Fracassa: Again, that will enable things like investment in the business as well as significant capital return. When you think about this year, $1.8 billion of free cash flow, we raised the dividend, then are going to buy back the full NCIB, which would be north of a billion and a half dollars, plus or minus, yet still bring leverage down, yet still have the ability to continue to invest in the business. I think it's a good story. It was a good story last year, it's a good story this year, I think it'll continue to be a good story moving forward.

Speaker #3: Yet still bring leverage down and yet still have the ability to continue to invest in the business. So I think it's a good story.

Speaker #3: It was a good story last year. It's a good story this year. And I think it'll continue to be a good story moving forward.

Speaker #6: Understood. Thank you.

Emmanuel Rosner: Understood. Thank you.

Speaker #1: Your next question comes from the line of Colin Langlin with Wells Fargo. Please go ahead.

Operator: Your next question comes from the line of Colin Langan with Wolfe Research, or I'm sorry, Wells Fargo. Please go ahead.

Speaker #6: Oh, thanks for taking my questions. Just broadly, the last couple of years we've had a quite a big jump in margins first half to second half.

Colin Langan: Oh, thanks for taking my questions. Just broadly, the last couple of years, we've had quite a big jump in margins H1 to H2. Is that largely just because of the large amount of inflation, or is this going to be the new cadence going forward? How should we think about this on a go-forward basis? Is this kind of just the new norm, or does it actually start to sort of be a little bit more stable in the forward years?

Speaker #6: Is that largely just because of the large amount of inflation or is this going to be the new cadence going forward? I mean, how should we think about this on a go-forward basis?

Speaker #6: Is this kind of just the new norm or does it actually start to sort of be a little bit more stable in the forward years?

Speaker #2: So, Colin, I think what Phil explained last year, we were going through the development of the framework for tariff recoveries, and there were significant recoveries that were EV-related.

Swamy Kotagiri: Colin, I think what Phil explained, last year, we were going through the development of the framework for tariff recoveries, and there were significant recoveries that were EV-related. We did talk about the H2 being more indexed than the H1. When we came at the beginning of the year, we talked of a similar cadence. As we went through the year, since we had the frameworks in place, the tariff recoveries and some of the EV-based commercial recoveries got pulled forward, right. The cadence of H1 to H2, the H2 being heavy in recoveries and all that stuff will continues, but the slope has softened this year. I think going forward, who knows how this whole conversation goes, but the cadence of H1 to H2, I think, will continue.

Speaker #2: So, we did talk about the second half being more indexed than the first half. When we came at the beginning of the year, we talked of a similar cadence.

Speaker #2: But as we went through the years since we had the frameworks in place, the tariff recoveries and some of the EV-based commercial recoveries got pulled forward, right?

Swamy Kotagiri: As we went through the year, since we had the frameworks in place, the tariff recoveries and some of the EV-based commercial recoveries got pulled forward, right. The cadence of H1 to H2, the H2 being heavy in recoveries and all that stuff will continues, but the slope has softened this year. I think going forward, who knows how this whole conversation goes, but the cadence of H1 to H2, I think, will continue. Let us work through and we'll give you some color when we come back next year again, right? At the beginning.

Speaker #2: So the cadence of first half to second half, the second half being heavy, in recoveries and all that stuff, we're continuous. But the slope has softened this year.

Speaker #2: But I think going forward, who knows how this whole conversation goes, but the cadence of first half to second half, I think will continue.

Speaker #2: But let us work through and we'll give you some color when we come back next year again, right?

Swamy Kotagiri: Let us work through and we'll give you some color when we come back next year again, right? At the beginning.

Speaker #3: Yeah, absolutely. No, I think it's a great question. So we did think coming into the year, we thought we'd be even more back halfweighted.

Phil Fracassa: Yeah, absolutely. No, I think it's a great question. We did think coming into the year, we thought we'd be even more back-half weighted.

Swamy Kotagiri: Yeah.

Speaker #3: So, to the swarming's point, we were able to accelerate some stuff into the second quarter. So, I mean, obviously we hope for a day where it's a little more even. But, as you pointed out, with inflation and tariffs and commercial, etcetera, anytime you've got a lot of commercial items and recoveries, it's going to be a little more back-half weighted.

Phil Fracassa: To Swamy's point, we were able to accelerate some stuff into Q2. Obviously we hope for a day where it's a little more even, but as you pointed out with inflation, tariffs, and commercial, et cetera, anytime you've got a lot of commercial items and recoveries, it's going to be a little more back-half weighted. It is softening or it is moderating, which was nice to see.

Speaker #3: But it is softening or it is moderating, which was nice to see.

Speaker #6: Got it. And just secondly, the guide has at the midpoint about 85 basis points of margin expansion. I think you've called out, was it roughly 50 million-ish maybe in JV income that's more recovery-driven.

Colin Langan: Got it. Just secondly, the guide has at the midpoint about 85 basis points of margin expansion. I think you've called out, was it roughly CAD 50 million-ish maybe in JV income that's more recovery driven. How should we think about anything else in that increase that might not be repeatable next year? I know in the past you've talked about recoveries being sort of neutral year over year, but recoveries have been high for the last few years. Is recovery a drag into next year as well, or how should we be thinking about that?

Speaker #6: How should we think about anything else in that increase that might not be repeatable next year? I know in the past you've talked about recoveries being sort of neutral year over year, but recoveries have been high for the last few years.

Speaker #6: Is recovery a drag into next year as well or how should we be thinking about that?

Speaker #3: Yeah, I don't know that I would necessarily call it a huge drag into next year. No, I think, but you're right. We did have a recovery at one of our JVs in the first quarter, but for the full year across all of Magna, we do see recoveries as being relatively neutral year over year.

Phil Fracassa: I don't know that I would necessarily call it a huge drag into next year. I think, you're right. We did have a recovery at one of our JVs in the first quarter, but for the full year across all of Magna, we do see recoveries as being relatively neutral year-over-year. Not a big driver in the margin expansion for the full year, if you will. Looking forward, recoveries, they bounce around and they're probably higher the last couple of years, maybe will moderate a bit. With the operational excellence momentum and the other things we're working on, we don't really see a margin drag, if you will, heading into next year.

Speaker #3: So not a big driver in the margin expansion for the full year, if you will. And then looking forward, recoveries, they bounce around and they can they're probably higher the last couple of years, maybe we'll moderate a bit.

Speaker #3: But with the operational excellence momentum and the other things we're working on, we don't really see a margin drag, if you will, heading into next year.

Speaker #5: Yeah, I pointed back out that we do see recoveries in equity income this year. Here's the win in the second in the first quarter of sorry, third quarter of this year.

Swamy Kotagiri: I'd point out, Nick, we do see recoveries in equity income this year because of the win in the third quarter this year. That was a positive. If you look at the consolidated business, relatively neutral this full year. I think the key point that you mentioned before, Phil, as we continue the initiatives that we've been talking about and the new programs coming on with new economic terms, right? All of these things should continue to help the momentum that we're talking about.

Speaker #5: So that was a positive. But if you look at the consolidated business, relatively neutral for the full year.

Speaker #2: And I think the key point that you mentioned before as we continue the initiatives that we've been talking about and the new programs coming on with new economic terms, right?

Swamy Kotagiri: I think the key point that you mentioned before, Phil, as we continue the initiatives that we've been talking about and the new programs coming on with new economic terms, right? All of these things should continue to help the momentum that we're talking about.

Speaker #2: All of these things should continue to help the momentum that we're talking about.

Speaker #3: Yeah, absolutely.

Swamy Kotagiri: Absolutely.

Speaker #6: Got it. All right. Thanks for taking my questions.

Colin Langan: Got it. All right. Thanks for taking my questions.

Speaker #1: You're next question comes from the line of Mark Delaney with Goldman Sachs. Please go ahead.

Operator: Your next question comes from the line of Mark Delaney with Goldman Sachs. Please go ahead.

Speaker #6: Yes, good morning. Thank you very much for taking my questions. First one was on revenue and recognizing the change to the full year guide was driven by FX and the timing of divestitures.

Mark Delaney: Yes, good morning. Thank you very much for taking my questions. First one was on revenue and recognizing that the change to the full-year guide was driven by FX and the timing of divestitures. I'm hoping to better understand on the 1/8 to 2/8 trajectory in terms of growth over market. The H1, good start. I think you said 3 points of growth over market in both Q1 and Q2. I think the full-year growth over market is 0 to 2, so that would imply slow growth over market in H2. Just trying to understand the mechanics of what's happening with the growth over market in H2.

Speaker #6: But I am hoping to better understand the one-eighth to two-eighths trajectory in terms of growth of our market. And the first half, good start.

Speaker #6: I think you said three points of growth of our market in both Q1 and Q2. I think the full-year growth of our market is 0 to 2.

Speaker #6: So that would imply slow growth of our market in Q2. So, just trying to understand the mechanics of what's happening with the growth of our market in Q2.

Speaker #3: Great question. I think you’ve got the numbers directionally right. It is higher in the first half than in the second half, but positive in both periods.

Phil Fracassa: Great question. I think you've got the numbers directionally right. It is higher in the H1 than the H2, positive in both periods. What we are seeing in the H2, we do have a few significant programs in the H2 that are going to drive lower volumes year-over-year for Magna, which is sort of muting that growth over market, if you will. Will contribute solidly in 2027 in terms of, we think, volumes and economics as well. Includes the full size trucks at one of our big customers in North America, as well as a new program with a German OEM in North America as well. We also have some end of life or end of production that's hitting when we think about the Toyota Supra and the Ford Escape, and then lower production at some other key customers.

Speaker #3: What we are seeing in the second half, we do have a few significant programs in the second half that are going to drive lower volumes year over year for Magna, which is sort of muting that growth of our market, if you will, but will contribute solidly in '27 from in terms of we think volumes and economics as well includes the full-size trucks at one of our big customers in North America as well as a new program with a German OEM in North America as well.

Phil Fracassa: Includes the full size trucks at one of our big customers in North America, as well as a new program with a German OEM in North America as well. We also have some end of life or end of production that's hitting when we think about the Toyota Supra and the Ford Escape, and then lower production at some other key customers. Basically all sort of discrete things, if you will, that's sort of muting our growth over market in H2. Still positive for the year, but I think sets us up well for growth over market to re-accelerate in 2027.

Speaker #3: We also have some end-of-life or end-of-production that's hitting when you think about the Toyota Supra and the Ford Escape, and then lower production at some other key customers.

Speaker #3: But basically all sort of discrete things, if you will, that sort of muting our growth of our market in the second half, still positive, still positive for the year, but I think sets us up well for growth of our market to re-accelerate in '27.

Phil Fracassa: Basically all sort of discrete things, if you will, that's sort of muting our growth over market in H2. Still positive for the year, but I think sets us up well for growth over market to re-accelerate in 2027.

Speaker #5: And just to clarify, you'll see it on what we call the financial review, or the analyst report, the quarterly report that's on our website—that there's always some restatements of volumes.

Louis Tonelli: Just to clarify, you'll see it on our, what we call financial review or the analyst report, the quarterly report that's on our website, that there's always some restatements of volumes. If you look back at the growth over market that we had in Q1, there would have been some changes there. I'd say on a year-to-date basis, I think you were pointing to about 3%.

Speaker #5: So if you look back at the growth of our market that we had in the first quarter, there would have been some changes there.

Speaker #5: So I'd say on a year-to-date basis, I think you were pointing to about 3%. It's more like about one and a half to 2% kind of year-to-date.

Phil Fracassa: Okay.

Louis Tonelli: More like about one and a half to 2% kind of year to date. We still see a bit of a dip down, but not from, let's say, 3%.

Speaker #5: So we still see a bit of a dip down, but not from, let's say, 3%.

Speaker #6: Very helpful clarifications. Thank you. And the other was on the non-automotive opportunities and recognizing you guys will give a fuller update and outlook at the investor day in November.

Mark Delaney: Very helpful clarifications. Thank you. The other was on the non-automotive opportunities and recognizing you guys will give a fuller update and outlook at the Investor Day in November. Looking forward to that and appreciate some of the comments you shared on a preliminary basis so far. Just one question for today may be, Swamy, I think you said you'd won some business already there. Just with what's already been won, I don't know if you can give a little bit more detail on sort of the degree of bookings you've already achieved. Thank you.

Speaker #6: So, looking forward to that. And I appreciate some of the comments you shared on a preliminary basis so far. Just one question for today, maybe.

Speaker #6: I think you said you'd want some business already there. So, just with what's already been won, I don't know if you can give a little bit more detail on the degree of bookings you've already achieved.

Speaker #6: Thank

Speaker #2: Good morning, Mark. I would rather not talk about legal programs at a time or programs piecemeal; at this time, we just want to walk you through the entire strategy.

Swamy Kotagiri: Good morning, Mark. I would rather not talk about little programs at a time or programs piecemeal at a time. We just want to walk you through the entire strategy. As I said, material or not could be decided, but they're meaningful wins and we want to talk about the strategy rather than just talk about single programs.

Speaker #2: And as I said, material or not, could be decided, but they're meaningful wins, and we want to talk about the strategy rather than just talk about single programs.

Speaker #6: Okay. Understood. We'll look forward to hearing more about that at the investor day in November. And thanks for taking my questions.

Mark Delaney: Okay, understood. Well, look forward to hearing more about that at the Investor Day in November. Thanks for taking my questions.

Speaker #2: Thank you.

Swamy Kotagiri: Thank you.

Speaker #3: Thank you.

Phil Fracassa: Thank you.

Speaker #1: Your next question comes from the line of Michael Glenn with Raymond James. Please go ahead.

Operator: Your next question comes from the line of Michael Glen with Raymond James. Please go ahead.

Speaker #7: Hey, good morning. Just on capacity utilization in North America and the US, are you able to give some indication where your capacity utilization is right now and where you might have some excess capacity?

Michael Glen: Hey, good morning. Just on capacity utilization in North America, in the US, are you able to give some indication where your capacity utilization is right now and where you might have some excess capacity?

Speaker #2: Yeah. Good morning, Michael. I think we usually manage that very closely there's going to be some ups and downs and in the past I've talked about managing or flexing through capacity by insourcing some of the things that we have we would have put out.

Swamy Kotagiri: Yeah. Good morning, Michael. I think we usually manage that very closely. There's going to be some ups and downs, and in the past, I've talked about managing or flexing through capacity by insourcing some of the things that we would have put out. I don't think we'll be having capacity built and wait in the long term. As the programs get delayed or canceled, obviously, there will be some capacity at some point in time. We'd rather look at it from a long-term perspective to manage how that works. I don't think there'll be excess capacity sitting there. To the extent that we have good visibility, we look at it from a restructuring perspective on the long term. You've heard me talk about 40 plus plants, either restructure, closed, resized, whatever you want to say. Those activities continue. That's how we optimize capacity overall.

Speaker #2: So, I don't think we'll be having capacity built and waiting. In the long term, as the programs get delayed or canceled, obviously there will be some capacity at some point in time.

Swamy Kotagiri: As the programs get delayed or canceled, obviously, there will be some capacity at some point in time. We'd rather look at it from a long-term perspective to manage how that works. I don't think there'll be excess capacity sitting there. To the extent that we have good visibility, we look at it from a restructuring perspective on the long term. You've heard me talk about 40 plus plants, either restructure, closed, resized, whatever you want to say. Those activities continue. That's how we optimize capacity overall.

Speaker #2: So we'd rather look at it from a long-term perspective to manage how that works. So I don't think there'll be excess capacity sitting there, but to the extent that we have good visibility, we'll look at it from a restructuring perspective in the long term.

Speaker #2: And you've heard me talk about 40-plus plants—either restructured, closed, resized, whatever you want to say. Those activities continue; that's how we optimize capacity overall.

Speaker #7: Okay. And just one on working capital. The seasonal cadence this year, it's quite a bit different than other years. Are you still expecting typically you would get a kind of this big Q4 inflow on working capital?

Michael Glen: Okay. Just one on working capital. The seasonal cadence this year, it's quite a bit different than other years. Typically, you would get kind of this big Q4 inflow on working capital. Is that something we should expect to see this year or is the cadence different?

Speaker #7: Is that something we should expect to see this year or is the cadence different?

Speaker #3: Well, certainly with the recovery we had in the first quarter with kind of skewed it a bit the normal seasonality and then obviously we had really good performance in the second quarter.

Phil Fracassa: Well, certainly with the recovery we had in Q1, kind of skewed it a bit with the normal seasonality. Obviously we had really good performance in Q2, again, on working capital. It's more H1 weighted this year than you normally expect to see. If you take the full year guide less the year to date, what we're going to generate in H2, it will be more Q4 weighted than Q3. Just as things slow down in December, you tend to release some working capital at the end of the year. It would be more Q4 weighted than Q3. You're right. The H1 performance at Magna this year was quite good, aided by the recovery in Q1, but really driven mainly by just strong balance sheet working capital performance.

Speaker #3: Again, on working capital. So in more first half weighted this year than you normally expect to see. But if you take the full year guide, less the year to date, what we're going to generate in the second half, it will be more for quarter weighted than third.

Speaker #3: Just as things slow down in December, you tend to release some working capital at the end of the year. So, it would be more fourth quarter-weighted than third, but you're right.

Phil Fracassa: Just as things slow down in December, you tend to release some working capital at the end of the year. It would be more Q4 weighted than Q3. You're right. The H1 performance at Magna this year was quite good, aided by the recovery in Q1, but really driven mainly by just strong balance sheet working capital performance.

Speaker #3: The first half performance at Magna this year was quite good. Aided by the recovery in Q1, but really driven mainly by just strong balance sheet working capital performance.

Speaker #7: Okay. Thank you.

Michael Glen: Okay. Thank you.

Speaker #1: And that concludes our question and answer session. I will now turn the conference back over to Swami for closing comments.

Operator: That concludes our question and answer session. I will now turn the conference back over to Swamy for closing comments.

Speaker #5: Let's lose here, actually. Thanks, everyone, for listening in today. If you have any follow-up questions, please don't hesitate to reach out to me. Thanks for your interest in Magna and have a great day.

Louis Tonelli: It's Lewis here, actually. Thanks everyone for listening in today. If you have any follow-up questions, please don't hesitate to reach out to me. Thanks for your interest in Magna and have a great day.

Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Q2 2026 Magna International Inc Earnings Call

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