Magna International J.P. Morgan Automotive Conference

Sounds great. Well, thank you, Rajat. It is great to be here. Thanks everybody for attending the session. I just wanted to maybe offer a few themes coming off of our second quarter earnings. There were three things I wanted to leave you all with today relative to Magna. One would be, Magna is a company that is expanding margin, growing earnings, despite a flattish industry production environment. So that is really an execution story at Magna. Self-help operational excellence. It is having a big impact, and I know we will talk about it as we get into the session, but we feel like we have got room to run from here. Second point I would say is the free cash flow story. Free cash flow is durable and sustainable. Certainly, 2025 and 2026 has benefited from some large recoveries.

But we do believe the structural free cash flow performance for the company remains strong, which then enables not only investments in the core business, but other capital allocation as well. And the last point would be around capital return. We have stepped up our share buybacks this year, and I do believe not just this year, but looking into the future, capital return will remain a key differentiator, I believe, for Magna in the marketplace. So, three themes. And with that, maybe we can go right into the Q&A.

Sure. I would say, despite all the uncertainty out there around trade and geopolitical, the business performed really well in the second quarter. Again, as I said in my opening remarks, it was the execution, it was the operational excellence. We continue to gain traction in our operational excellence initiatives. As we thought about the full year, given the strong first-half performance, given our expectation for continued momentum in the back half of the year, all of that gave us conviction to take the guide up, and we took our guidance up. We took the sales guidance down to reflect currency and divestiture that was happening earlier than we previously thought.

We took the guide up for margins to close to 6.5% at the midpoint, took our guidance up for earnings per share to $7 at the midpoint, and cash flow to $1.8 billion at the midpoint, really on the confidence of the first half performance and second half momentum, if you will. Really, that earnings per share of $7 at the midpoint represents over 20% growth in EPS, despite really a muted production environment. So, good performance and felt confident to do it. As we sit here today, I feel very confident in the outlook.

Yeah. Certainly the full-year outlook that we put out a couple of weeks ago reflects our best visibility into the back half of the year, obviously, based on production releases and our expectations regarding input costs and the like. Really, as we think of the second half versus the first half, we do expect, as I said, revenue to be down first half to second half, mainly because of foreign exchange and the divestiture. We're divesting our Lighting and rooftop systems businesses, and that's taking place largely in the third quarter, so that's going to be a negative to revenue. But we do expect margins to be up sequentially from the first half to the second half, and we also expect earnings to be up as well.

And again, that's mainly driven by continued momentum on operational excellence as well as the expectations for some commercial recoveries in the back half of the year, which tend to be skewed toward the fourth quarter. That's normal commercial items we have typically every year with our customers. But the nature of the dialogue is that they generally get resolved in the back half and typically the fourth quarter, which is kind of the reason for some of that first half, second half cadence on the margins. But do expect margins to be up year-on-year in the second half. Then third quarter, fourth quarter split will be a little skewed to the fourth quarter as we expect revenue to be a little bit stronger, and then the recovery timing, as I mentioned earlier.

Yeah, no, it's a great question. We had been getting questions heading into the call, so we thought the second quarter earnings call was a good opportunity to really kind of talk more broadly about what we're doing and more importantly, how we're approaching it. We've always said if there's opportunities to utilize our technology or our capability, whether it's engineering, program management, manufacturing, metal forming, et cetera, and use existing capacity, we'd be open to it. I think as we look at non-automotive opportunities, really the point we were trying to make was, number one, we do see opportunities outside of automotive. We're actively pursuing those opportunities. We've actually booked some revenue that will hit in 2027 related to those opportunities.

But probably the more important, and it's still obviously still early days, so we'll probably have more to talk about on those fronts in terms of specifically what we're doing in our investor day on November 11th. But the more important point, I think, was really to communicate that we're approaching it kind of in the Magna way, which is let's be very disciplined. Let's not invest capital for the sake of investing capital. In the early days, we're really focused on areas where we can leverage existing technology, leverage existing capabilities, use existing footprint, so it's minimal incremental capital, and let's kind of test the market in these areas, as you said, Rajat, whether it's robotics, automation, data centers, warehousing, et cetera. Then if we find an area that we like, we certainly wouldn't be opposed to investing further.

But obviously very early days, and at this point, really trying to see what is out there and see what looks attractive to us longer term. I think the opportunities are there. We are pursuing them, but we are pursuing them in a very disciplined way. I would say early indicators are will be good growth opportunities, but very good margin opportunities. But you have to keep in mind, Magna is large, $42 billion in revenue, so it needs to be big to move the needle. So it will be a while before we see a big needle mover, but I do think incrementally accretive to margins, accretive to growth, and accretive to returns.