Q2 2026 Magna International Inc Earnings Call
Speaker #1: Ladies and gentlemen, thank you for standing by. My name is Krista, 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.
Speaker #1: All lines have been placed on mute to prevent any background noise. After the speakers' 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.
Speaker #1: And 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.
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 and our updated outlook.
Speaker #2: We issued a press release this morning outlining both of these. You will find today's press release, 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.
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.
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.
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.
Speaker #3: With continued margin expansion momentum, driven by discipline and 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%.
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.
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.
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.
Speaker #3: We narrowed and raised our outlook ranges for adjusted EBIT margin 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 confidence in our ability to mitigate headwinds and execute on what is within our control.
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.
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 divestitures sooner than originally planned. With 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.
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.
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, G700.
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 five General Motors Supplier of the Year awards, spanning five different product categories. These awards bring our total GM Supplier of the Year recognitions over the past decade to more than 40.
Speaker #3: 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.
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.
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.
Speaker #3: Where those conditions are met, we believe this 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 this opportunities including the criteria project awards and potential path forward that our investor day in November.
Speaker #3: With that, I'll turn the call over to Phil.
Speaker #1: Thanks, Swamy. And good morning, everyone. I'm going to begin on slide 16 with a summary of our strong second quarter results. Sales were $11 billion in the quarter, up about 3% from last year.
Speaker #1: 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 #1: 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 #1: 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.
Speaker #1: 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 #1: 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%.
Speaker #1: 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. This was partially offset by the end of production of certain programs, including the Ford Escape.
Speaker #1: 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 and grants.
Speaker #1: 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 #1: 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.
Speaker #1: 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 #1: 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 #1: The largest benefit came from operational performance, volume, and other, at about 75 basis points. This reflects continued momentum from operational excellence and other cost reduction initiatives.
Speaker #1: 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 #1: 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.
Speaker #1: 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 #1: 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.
Speaker #1: 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 #1: 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.
Speaker #1: 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.
Speaker #1: 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 #1: 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 the market, with a notable 6% year-over-year increase in Power and Vision.
Speaker #1: In complete 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 grants.
Speaker #1: 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.
Speaker #1: 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 #1: 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.
Speaker #1: 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 #1: 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 #1: 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.
Speaker #1: We are planning to repurchase the remaining shares before the NCIB expires in early November. Turning to slide 22, our balance sheet and capital structure remained strong.
Speaker #1: At the end of June, we had close to $5 billion in total liquidity, including $1.4 billion in cash on hand. Our rating agency debt-to-EBITDA leverage ratio was 1.4 times as of June 30th.
Speaker #1: 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 #1: 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.
Speaker #1: 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.
Speaker #1: 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.
Speaker #1: 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 #1: 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 #1: Moving to slide 24, we've revised our full-year sales outlook 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.
Speaker #1: 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.
Speaker #1: 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 our outlook for adjusted EBIT margin to between 6.3% and 6.6%.
Speaker #1: A 15 basis point change 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.
Speaker #1: 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.
Speaker #1: 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 #1: 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.
Speaker #1: 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.
Speaker #1: As 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 #1: 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 market, adjusted EBIT margin expansion, and solid cash flow generation.
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.
Speaker #2: Thanks for your attention. Now, operator, let's open it up for questions.
Speaker #3: 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.
Speaker #3: And if you would like to withdraw your question, again press star 1. We do ask that you limit yourself to one question in one follow-up.
Speaker #3: For any additional questions, please re-queue. And your first question comes from James Piccarello with BMP Paribas. Please go ahead.
Speaker #4: Hey, good morning, everybody. Congrats on a great quarter. Can you speak to what drove the quarter's one-time, and to what extent was there a pull-forward in your recovery?
Speaker #4: So, the tariff recovery—how are you thinking about your tariff recoveries in the back half? And then, the other discrete items that you called out in the bridge.
Speaker #4: 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.
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 last year, this was actually negative.
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. So 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 #4: 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 #4: 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 #4: 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 #4: 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 #4: On commercial items though, Swami's exactly right. They were net unfavorable in the quarter. So, if anything, commercial was a headwind in the quarter, yet we still posted the 70 basis points year-over-year margin improvement.
Speaker #4: So it was really operational excellence as Swami mentioned. And then we did I do want to point out on that tax. On the tax line, we did have a 9 cent benefit in the quarter compared to the 23% guide.
Speaker #4: 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 #4: But beyond that, underlying it was very structural in nature. Got it. Very helpful. And my follow-on is specific to the power and vision segment.
Speaker #4: There's some really nice core growth inflection, which you guys have been promising in the guide. It's showing clearly in the second quarter. Can you speak to what's driving that?
Speaker #4: Are there a few key programs that are launching very nicely, regionally-wise? And then also, within that segment, the divestiture—what are you assuming for the divestiture now for the second half, and how does that compare to your prior guidance?
Speaker #4: Thank you.
Speaker #2: Maybe at a high level, James—right? As you've seen, Power and Vision delivered about 5% weighted growth over market, and margins of about 6%.
Speaker #2: The quarter performance really benefited from the strong incremental margin some higher sales and the flow-through is really the account 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, as well as commodity costs.
Speaker #2: And despite that, the P&B 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 #4: Yeah. And on the divestitures, James, so we did 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 the sooner than expected closing.
Speaker #4: So, about just over $400 million of revenue coming out of P&B in the second half, year over year, because of the divestitures. Last May, we were talking more about kind of $350 million.
Speaker #4: So it's about $50 million higher than we previously thought.
Speaker #5: Yeah, on launches, it's a whole bunch. Obviously, there are some programs with German-based OEMs that are launching that are helping us. Some business with Subaru, some Chinese OEM launches.
Speaker #5: That are contributing on the launch side.
Speaker #4: Okay.
Speaker #3: Your next question comes from the line of Alex Perry with Bank of America. Please go ahead.
Speaker #6: 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?
Speaker #6: It looks like you've 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 #6: 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 #6: Thank you.
Speaker #4: Well, a little bit too early to talk about next year, Jack, but definitely appreciate the question. I mean, but for the full year, we are expecting solid growth over market for the full year as we talked about before.
Speaker #4: 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.
Speaker #4: 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 #4: If you take out the divestitures, we're down less than 1% organically. So, growth over market—that's our 0% to 2% positive growth over market for the full year.
Speaker #4: 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 #4: 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 second half. And 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.
Speaker #4: We took China down by 800,000. It's 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 are very comfortable with the second half sales guide and the projection for growth over market for both the second half and the full year.
Speaker #5: 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.
Speaker #3: Your next question comes from the line of Rajat Gupta with JP Morgan. Please go ahead.
Speaker #4: Great, thanks for taking the question. I just wanted to follow up on the third quarter and fourth quarter seasonality split. It does seem like there's a somewhat steeper seasonal step-down in Q3, and obviously a bit more of a steeper Q4 pickup.
Speaker #4: 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 to imply a pretty material step up in the fourth quarter margin.
Speaker #4: So, I just want to clarify that and have a quick follow-up.
Speaker #5: 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.
Speaker #5: That's going to be driven mainly by, obviously, foreign currency, which 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 #5: 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.
Speaker #5: Think about most of that in the third quarter, driven by model changeovers, normal seasonality, launch cadence, end of production, and the like. We've got some programs kind of coming out forward escape, Toyota Supra, BMW Z4, and then kind of more flattish organic in the fourth quarter.
Speaker #5: 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 Philip might be worth mentioning that the slope of the curve is actually flatter this year compared to the last year when we looked at the back half versus the first half of the year.
Speaker #4: Yeah, good point. So, when you think about margins and earnings, a lot of the recoveries are similar to last year, but I think we're doing a better job getting recoveries earlier.
Speaker #4: For example, tariffs—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 the margin split.
Speaker #4: But as we set in our scripts, we do expect margins to be up year over year in both the third and the fourth quarters.
Speaker #4: 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.
Speaker #4: I mean, how do you feel about your position in terms of locking in supply? Obviously, for the second half, but more so for '27. Just curious how those discussions are going on pricing, recoveries, etc.
Speaker #4: 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, and we have had no issues with disruption.
Speaker #2: It's something that we're monitoring very closely. In this quarter, we worked again, as I said, with OEMs and suppliers and we feel our first choice or first priority is to mitigate any disruption and we feel pretty good about that.
Speaker #2: 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 #4: Understood. Great. Thanks for all the color, and good luck.
Speaker #3: Your next question comes from the line of Dan Levy with Barclays. Please go ahead.
Speaker #6: 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 revenue is declining. And we know that revenue is going to be declining on some of the key programs you have—GM trucks, etc.
Speaker #6: 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 I know you mentioned tariffs are neutral or slight negative.
Speaker #6: What is the assumption within tariffs on IEPA refunds?
Speaker #4: Sure, Dan. So let's 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.
Speaker #4: So, I mean, when I look from first half to second half, operational excellence initiatives continuing to accelerate is probably the biggest driver. First half to second half, that would certainly apply in both BES and P&V.
Speaker #4: As we said, recoveries from the first half to the 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.
Speaker #4: P&V does have a little bit more tariff recovery with customers. A little bit of that's back-half weighted as well, and that's more than offsetting.
Speaker #4: From the first half to the second half in P&V, we had a big equity income item in the first quarter. So that would be kind of a positive in the bridge, if you will.
Speaker #4: But overall, it's really been driven by the, I'm sorry, the negative in the bridge on the equity income, as would inflation. But the positives of operational excellence in the recoveries and really good pull-through and good mix performance are more than outweighing the negatives.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: Since they funded most of that in as we paid it, it's a pretty small impact to the company overall. And to the comment on tariffs, we've said tariffs would overall be neutral for '25 to '26—neutral in dollars, and roughly neutral on margins.
Speaker #4: Probably, and maybe do a little bit better than that. So, if anything, tariffs may be a slight positive, but I would not expect it to be a negative year over year.
Speaker #6: 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.
Speaker #6: 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 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.
Speaker #2: We have had examples of that in our styres long-running non-civil GWAG in production as an example. Styre engineering does work on aerospace-related work. Cosma has done work for cabin white products for heavy truck.
Speaker #2: And this has all been related to overall capability in terms of integration, and 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 looking at not having to have any big distraction or a significant incremental investment.
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 Investor Day to be able to talk through what's the roadmap, what is the size.
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 #6: Great. Thank you.
Speaker #7: Your next question. Comes from the line of Joe Spack with UBS. Please go ahead.
Speaker #8: Good morning, everyone. Phil, maybe just a clarification point on some of your last comments. So, it sounds like you got $50 million in IEPA recoveries.
Speaker #8: Was that included, or was it separate from that 25 basis point benefit in the quarter? And then, are you really able to, I guess, realize this?
Speaker #8: 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 #4: 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.
Speaker #4: That would be included in there. But as I said, as we recover the $50-ish million, we're accruing a giveback to the customer of an amount—call it 80 to 90 percent—whatever they funded of the tariffs.
Speaker #4: Ultimately, last year into the beginning of this year. 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 #4: Another point is that we're getting recoveries sooner than we did last year. Last year, we had costs with virtually no recoveries in Q2.
Speaker #4: This year, we have costs with some recoveries because we're inking deals more in 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 a tariff that customers didn't ultimately fund.
Speaker #4: 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 #4: 25 basis point tailwind in Q2. So, first half, we're about a 10 basis point tailwind. And as we said, moving into the rest of the year, it will probably flip a little negative on us, because we had more recoveries last year than we got in the first half this year.
Speaker #4: 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 #8: 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.
Speaker #8: 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 at the revenue line item at least for it coming out a little bit earlier?
Speaker #8: 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?
Speaker #4: Yeah, sure. So what was the first— No, the...
Speaker #2: For the lighting.
Speaker #8: The first was the lighting—whether there’s any change.
Speaker #4: Sorry, I was focused on yeah, I was focused on your second one. 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.
Speaker #4: So, the $400 million was really all, virtually all, FX. And then about $50 million related to increased lost sales because of the divestitures closing earlier than we thought.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: We took the full-year guide at the midpoint up around $100 million, reflecting both the increase in underlying earnings per share, if you will, as well as better working capital performance that we saw in Q2, which we think we'll be able to sustain for the full year.
Speaker #4: Capex is relatively unchanged. But within that number, remember in the first quarter, we had a big recovery. We talked about, on the balance sheet, a recovery on the order of around $475 million.
Speaker #4: That's in there. We do expect some additional recoveries in the second half of the year, but don't expect them to be anywhere near that number.
Speaker #4: 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 #4: We're working on it as we speak. Timing TBD, but do expect to get it back. In the end, as I said, most of that gets passed back.
Speaker #4: So, at the end of the day, it would be kind of in the round.
Speaker #8: Okay. Appreciate it. No, thanks.
Speaker #4: Yeah, thanks, Joe.
Speaker #7: Your next question comes from the line of Ty Collins 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.
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 Chinese automakers?
Speaker #2: Yeah, I think it’s a good morning, Ty. If you look at China, as we have talked about, over the last 10 to 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 Chinese OEMs.
Speaker #2: So, as the D3, G3 kind of lose market share in China, it will 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. A proof point is one of the things we talked about in our prepared statements at the Chair event, as an example.
Speaker #2: 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, it will be part of their ecosystem.
Speaker #5: Okay, great. And then, Swami, I'm curious to get your thoughts on the proposed 50% US content rule that was put forward somewhat recently as part of the USMCA negotiations.
Speaker #5: Is that something that 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, I usually refrain 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.
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.
Speaker #2: So all I can say is that any change is going to have an impact, but we'll have to follow the strategy of the OEMs based on their footprint and their programs.
Speaker #2: And that's what we are focusing on.
Speaker #5: Okay, thanks. All the best.
Speaker #7: Your next question comes from the line of Tom Narayan with RBC. Please go ahead.
Speaker #8: 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 and then 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.
Speaker #2: And we're 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.
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 #4: Yeah, and maybe if I could add, Tom, not so much on 28, 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.
Speaker #4: 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 seeding business out quite a bit.
Speaker #4: It's a German OEM program in North America, as well as a new program with one of the Detroit Three. We do expect better economics on those programs.
Speaker #4: So that'll be a 26, 27, and then as Swami said, we'll get into 28 at a later point in time.
Speaker #8: 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.
Speaker #8: We call it operational excellence—whether it's material flow optimization, advanced technologies, or digital standard work. And we're going to give some color when we come to the Investor Day.
Speaker #8: 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.
Speaker #8: And I would like to say we are still, I believe, in the early innings. And we're going to scale what we are doing here and have this proliferate.
Speaker #8: That is what is exciting going into ’27, ’28, and even into ’29, possibly. Okay, got it. The follow-up one I have is on Chinese OEMs into Europe.
Speaker #8: I had the pleasure of seeing your hingemaking in China earlier this year, and I guess I just underestimated how much infrastructure is involved that goes into what you guys do.
Speaker #8: I think there were like a hundred 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?
Speaker #8: 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?
Speaker #8: Or do you feel they're all kind of equally protected?
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 the magnitude of the complexity.
Speaker #2: So, thank you for explaining that. The key is, even as we 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, the manufacturing DNA, and the integration expertise are kind of like the moat once we have that in place.
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.
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 Steyr facility for complete vehicle assembly. And as that continues to localize, we have similar capabilities in Europe, obviously, because we produce in Europe for any OEMs that are manufacturing in Europe.
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 #4: Yeah, and 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.
Speaker #4: And that's another advantage we have.
Speaker #8: And the existing footprint and capabilities there should mutually help with the returns and profitability. Got it, understood. Looking forward to the Investor Day. Thanks.
Speaker #4: Thanks, Tom.
Speaker #1: Your next question comes from the line of Jonathan Goldman with Scotiabank. Please go ahead.
Speaker #7: 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?
Speaker #4: 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.
Speaker #4: And the rest would have been pull-through on the sales, etc. And I would say inflation in the second quarter on commodities was relatively modest.
Speaker #4: I mean, we didn't we probably anticipated a little more than we saw. But we did see because of the lags involved, we did see a little bit more in the second half, which we've rolled in to the guide, to make sure we were covered for the rest of the year.
Speaker #4: 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 bps of improvement. It would have been right along those lines in the quarter.
Speaker #7: Okay, thanks. And then, I guess, same exercise though for the full-year guide. You raised the margin guidance by 20 bps. At the midpoints, could you bucket how much of that incremental upside is from operational excellence, recoveries, or lower commodity inflation? Anything else there?
Speaker #4: Yeah, I mean, obviously a lot of puts and takes. As we said, we adjusted the top line mainly for FX and investors here.
Speaker #4: So, 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 bps—but most of that was already in the guide.
Speaker #4: 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.
Speaker #4: I don't know, Louis, if there's anything else you'd call out. Yeah, those would be the primary puts and takes.
Speaker #7: Okay, great. And then maybe, Swami, I guess one for you. Can you talk a bit more about the award that you recently won with Cherry?
Speaker #7: 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.
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 about 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—that is, taking building blocks in a platform and being able to deploy in different regions with different customers.
Speaker #2: So that's kind of like the broad message here.
Speaker #7: Okay, interesting. Thanks for taking my questions. I'll get back with you.
Speaker #4: Thanks, Tom.
Speaker #1: Your next question comes from the line of Emmanuel Rossner with Wolf Research. Please go ahead.
Speaker #5: Oh, great. Thank you so much. Maybe just one question. So you raised the free cash flow outlook to a pretty strong number for this year.
Speaker #5: 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 a 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.
Speaker #5: 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 #4: 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 it's strong underlying free cash flow performance.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: 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 length EIB, which would be north of a billion and a half dollars plus or minus.
Speaker #4: 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 #4: 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 #5: Understood. Thank you.
Speaker #1: Your next question comes from the line of Colin Langlin with Wolf Research. I'm sorry, Wells Fargo. Please go ahead.
Speaker #5: 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.
Speaker #5: 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 #5: 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 related.
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 year, since we had the frameworks in place, the tariff recoveries and some of the EV-based commercial recoveries got pulled forward, right?
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 it, and we'll give you some color when we come back next year again, right? At the beginning.
Speaker #4: 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 halfway.
Speaker #4: So the swami'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 when as you pointed out with inflation and 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.
Speaker #4: But it is softening, or it is moderating, which was nice to see.
Speaker #5: 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?
Speaker #5: 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 #5: Is recovery a drag into next year as well or how should we be thinking about that?
Speaker #4: 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.
Speaker #4: 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're probably higher the last couple of years, maybe we'll moderate a bit, 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 #3: Yeah, I pointed to make, we do see recoveries, inequity income this year. Here's the win in the first quarter of, sorry, third quarter of this year.
Speaker #3: So that was a positive. But if you look at the consolidated business, relatively neutral for the full year.
Speaker #2: Yeah, and 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?
Speaker #2: All of these things should continue to help the momentum that we're talking about.
Speaker #3: Yeah, absolutely.
Speaker #5: Got it. All right. Thanks for taking my questions.
Speaker #1: Your next question comes from the line of Mark Delaney with Goldman Sachs. Please go ahead.
Speaker #5: 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 divestiture.
Speaker #5: But I'm hoping to better understand the 1/8 to 2/8 trajectory in terms of growth of our market. And the first half, good start. I think you said three points of growth of our market in both Q1 and Q2.
Speaker #5: I think the full year growth of our market is 0 to 2. So that would imply slow growth of our market in 2/8. So just trying to understand the mechanics of what's happening with the growth of our market in 2/8.
Speaker #4: Great question. I think you've got the numbers directionally right. It is higher in the first half than the second half, but positive in both periods.
Speaker #4: For 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 terms of, we think, volumes and economics as well.
Speaker #4: 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.
Speaker #4: 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 #4: 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.
Speaker #3: And just to clarify, you'll see it on our what we call financial review where the analyst support, the quarterly report that's on our website, that there's always some restatements of volumes.
Speaker #3: 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 #3: 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.
Speaker #3: So we still see a bit of a dip down, but not from, let's say, 3%.
Speaker #5: Very helpful clarifications, thank you. And the other was on the non-automotive opportunities. Recognizing you guys will give a fuller update and outlook at the Investor Day in November.
Speaker #5: 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 #5: 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 sort of the degree of bookings you've already achieved.
Speaker #5: Thank you.
Speaker #2: 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.
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 #5: Okay, understood. We'll look forward to hearing more about that at the Investor Day in November. And thanks for taking my questions.
Speaker #2: Thank you.
Speaker #4: Thank you.
Speaker #1: Your next question comes from the line of Michael Glenn with Raymond James. Please go ahead.
Speaker #6: Hey, good morning. Just on capacity utilization in North America and the U.S., 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.
Speaker #2: So I don't think we'll. Having capacity built and weight in the long term. As the programs get delayed or canceled, obviously there will be some capacity at some point in time.
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 #6: 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?
Speaker #6: Is that something we should expect to see this year or is the cadence different?
Speaker #4: 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.
Speaker #4: Again, on working capital. So is 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 forth quarter weighted than third, just as things slow down in December, you tend to release some working capital at the end of the year.
Speaker #4: So it would be more fourth-quarter weighted than third, but you're right. The first-half performance at Magna this year was quite good—helped by the recovery in Q1, but really driven mainly by strong balance sheet and working capital performance.
Speaker #6: 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.
Speaker #3: 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.
