Canadian auto parts investors will be looking for a reprieve from the U.S. tariffs threat as the spotlight shifts to the industry’s earnings results on Wednesday.
Magna International Inc., the largest of the group, is expected to post an 18-per-cent increase in second-quarter profits over last year, largely on the strength of European auto production growth. Magna is scheduled to report its financial performance on Wednesday before the opening bell.
Magna’s smaller rival, Linamar Corp., set a positive tone for the industry by easily beating consensus forecasts for both sales and profits after the close of trading on Tuesday. Linamar’s profits for the second quarter grew by 24 per cent over last year, with earnings-per-share coming in at $3.03 on sales of $2.2-billion.
“Our future has never looked brighter, despite political uncertainty,” Linda Hasenfratz, Linamar’s chief executive officer, said in a release.
U.S. President Donald Trump has threatened to impose tariffs of up to 25 per cent on vehicles and parts exported to the U.S., which could have dire consequences for the sector and tens of thousands of Canadian workers.
The Trump administration’s protectionist approach to trade has dragged down Canada’s auto parts stocks, with both Linamar and Magna shares declining by more than 10 per cent over the last couple of months.
“In the face of mounting trade concerns, specific operating factors at each of the Canadian suppliers should support higher earnings,” Steve Arthur, an analyst at RBC Dominion Securities, said in a note.
Ms. Hasenfratz gave credit to the company’s diversification beyond the auto sector for the strong quarter. Linamar’s industrial segment, which includes SkyJack construction lifts as well as agricultural equipment, now generates nearly as much in sales as the automotive business.
For Magna, the challenge of declining North American vehicles sales is mitigated by strong sales growth in Europe. Analysts are expecting to see earnings of US$1.74 per share and revenues of US$10.4-billion.
Rounding out the group is Martinrea International Inc., which is expected to post 14-per-cent earnings growth when it reports on Wednesday after the closing bell.
And while the questions surrounding a potential trade war are “unanswerable,” analysts will be looking for management comments on tariffs, Mr. Arthur said.
“Arguably no industry will be more impacted than the auto sector,” he said. “Meaningful trade barriers will add friction to the system, serving to add costs, increase price, reduce margins, reduce auto volumes and therefore weigh on auto sector jobs and macroeconomic metrics.”
Other Canadian companies scheduled to report earnings between Tuesday’s close and Wednesday’s open include: Thomson Reuters Corp., B2Gold Corp., Stantec Inc., Dream Industrial Real Estate Investment Trust, Semafo Inc., Altus Group Ltd., Real Matters Inc., Rocky Mountain Dealerships Inc., and SunOpta Inc.
At about the halfway point of earnings season, companies in the S&P/TSX Composite Index are on track to post second-quarter earnings growth of 9 per cent, according to data provided by Thomson Reuters.
Tim Shufelt