When global automotive supplier Magna (TSX:MG)(NYSE: MGA) put out its earnings forecast in mid-January, it reported an expected profit of $33.8 -$35.5 billion, along with plans to improve operating results in Europe through re-structuring.

What else is ahead for Magna? At the Deutsche Bank 2014 Global Auto Industry Conference on January 15, executives presented the outlook for 2014 and beyond. Here are two things worth watching this coming year.

Expanding horizons

Geographically, North America and Europe bring in the largest sales for Magna. In fact, in 2013, only 13% of total sales were outside these two regions. North America brought in 51% of sales, while Western Europe brought in 36%.

Magna’s 2016 forecast would have the total sales in North America increase slightly by 2% while total sales in Western Europe are projected to decrease to 30%. This move would increase the total sales in other regions to 17%. So which areas will Magna focus on to gain this growth?

China is currently the largest region in the ‘rest of the world’ category. Magna currently has manufacturing in China and possession of six greenfields that it is looking to develop into facilities before the end of 2016. This would allow for projected sales to nearly double, from $1.2 billion in sales in 2013 to $2.3 billion by 2016.

Between 2013 and 2018, Magna is projecting a vehicle production increase from 20.3 million units in 2013 to 28.8 million units in 2018.

Magna also has big plans for its growth in India. It projects turning the region’s less than $50 million of sales in 2013 into an approximate $300 million in 2016. This would mean a vehicle production increase from 3.7 million units in 2013 to 5.7 million units in 2018.

Between 2010 and 2012, Magna experienced growth in South America. However, that has come now to a halt. After experiencing some losses due to inflation and a failure to achieve profitable margins, Magna is just looking to maintain its position in the region. Magna is expecting the $800 million of sales in that region in 2013 to remain around the same level in 2016.

In a recent press release, Magna further confirmed its decision to significantly increase production sales in other regions by 2016: “We expect the increase in total production sales to be split approximately as follows by segment: 45% in North America, 25% in Europe and 30% in the Rest of the World”. With these goals, where will the capital to develop its presence in these markets come from?

Deep pockets fuel growth

Magna has no shortage of cash on hand, and it plans to spend it. At the end of 2013, cash was approximately $1 billion  and available lines of credit accounted for an additional $2.2 billion.

According to CFO Vince Galifi, in the period from 2011 to 2016, 26% of capital spending will go toward market growth in regions other than Western Europe and North America.

As part of the plan, Magna will focus on growth of existing products/markets as well as pursuing acquisitions if favorable opportunities arise. Once those goals are met, funds will go toward share buybacks.

From November 2010 to December 2013, the company has already bought back $1.5 billion in stock. Between dividends and share buybacks, that’s over $2.3 billion going back into investors’ pockets over the last four years. There have also been dividend increases in the fourth quarter, and Galifi says that investors can expect this to continue.

Foolish bottom line

As wonderful as these plans may sound, we must keep in mind that they are the company’s forecasts. Only time will tell if Magna will achieve its desired expansion and whether market conditions will allow it to be as successful as anticipated. While we know there is capital to be spent, the details around the capital expenditures are also yet to be seen.

The post What to Expect From Magna in 2014 and Beyond appeared first on The Motley Fool Canada.

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It only took one press release on Jan 13, 2014 saying that fourth quarter results would be lower than expected for Lululemon’s (NASDAQ:LULU) share price to drop 15%.  Projected revenue for Q4 is expected to now check-in between $513M-$518M.  With negative sentiment swirling, unfortunate and lingering comments by founder Chip Wilson, and these lowered sales expectations, Lululemon has its work cut out for 2014.

At the 16th Annual ICR XChange Conference on Jan 14, 2014 Lululemon executives reflected on the past year, and gave some insight into what’s been working, what hasn’t and what we’ll see more of in 2014.  Here are some tidbits from the talk:

In-store sales bad, online sales good

The see-through/luon debacle from last year has led to a much more thorough testing process that involves individuals at the factory level becoming involved in quality control.  Even though quality related issues are seemingly contained, Lulu’s sales continue to be under pressure.  CFO John Currie stated that in-store, comparable sales would be in the negative “low to mid single digit” range.

However, the growth in the e-commerce division was strong enough to make the overall sales growth positive.  Segments that showed growth included men’s and teens apparel.   Both the e-commerce and men’s department had been areas of focus in the second quarter, and I’d looked at the out-of-the-gate success of their online community here.

New initiatives

In an attempt to win back the in-store shoppers, Lululemon tested several new initiatives. For instance, during the busy holiday season, 56 stores tested out an in-store mobile point-of-sale (POS) ecommerce system.

Remember the days of finding a shirt that you loved that wasn’t in your size?  One of the assistants in the store would call other locations to see if they had it. If you were feeling really ambitious, you’d drive halfway across town to pick it up.  With this in-store POS mobile capability, employees can place the order for you then and there and have it shipped directly to your house in a few days. This functionality will make sure that the sale is not lost when the customer walks out the door.

Personnel

And this post wouldn’t be complete without mention of the departure of Christine Day. As CEO she had good success, and Lululemon enjoyed a strong brand fuelled tailwind.  However, the new CEO, Laurent Potdevin, is clearly stepping into a company that’s taken on some water, so to speak.  Mr. Potdevin was previously the president of TOMS shoes, and before that president and CEO of Burton Snowboards.  Further changes on the personal front include a new product Senior VP Product Operations, Senior VP Distribution and Logistics, and Chief Product Officer.

In addition, Chip Wilson, the founder is stepping out of the role of chair of the board.  While he will maintain a seat as a director, he will be replaced by Michael Casey who had been on the board since 2007. Michael Casey’s background was as Senior VP and CFO of Starbucks Corp.  While this has been announced and is in progress, it should take place by June 2014.

Bottom Line

Given the turmoil that was 2013, we’re going to find out in 2014 just how iconic Lululemon’s brand has become.  Powerful brands can bounce back from temporary hiccups and come out relatively unscathed in the long run.  Time will tell!

The post Has Lululemon Gone Sour? appeared first on The Motley Fool Canada.

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Saputo (TSX:SAP) has given its newest acquisition target, Australia-based Warrnambool Cheese & Butter, until Jan. 22 to accept the company’s “last and final offer” of nearly half a billion dollars.

In the meantime, The Canada Press reported yesterday that Saputo had increased its existing ownership stake in Warnnambool by 2.8 million shares. It was already the largest shareholder; its total stake now stands at 26.4%.

This acquisition fight has been one of the “hottest bid battles in Australia of recent times,” wrote The Wall Street Journal. Which begs the question: Is Saputo right to be chasing Warrnambool?

Growth by acquisition
In an industry that requires volume for profitability, growth-through-acquisition is a quick way to obtain the scale required. And Saputo is no stranger to acquisition.

In January of last year, it purchased Morningstar Farms for $1.45 billion, giving it greater access to the U.S. markets. Revenue in its 2014 fiscal year first quarter increased 28% from the prior-year period, based largely on the Morningstar acquisition (although a higher price for cheese helped as well). In the six-month period that ended Sept. 30, revenue was up 28%, to the tune of $ $960.2 million.

We can already begin to see the effects of the Morningstar acquisition on revenue, which perhaps has helped investors stomach its large purchase price. Saputo has since turned its eyes to Australian dairy producer Warrnambool, and has found itself in the middle of a very publicized bidding war.

The most recent bid by Saputo has valued Warrnambool at up to $9.60 per share. With 55.97 million shares outstanding, this cash deal could potentially cost Saputo up to $537 million.

Though Warrnambool has much to offer — notably, access to Asia — Saputo was clever in structuring a tiered offer that only outbid the competition if 90% shareholder approval was met.

In August, Warrnambool reported a net operating profit after tax of only $7.5 million for the year ended June 30. According to the 2013 annual report, that was a 50.7% decrease from the previous year. In fact, when you look back over the last few years, the results are somewhat disappointing.

Amounts in Australian dollars. Source: Company Reports.

Is the access to Australasia so valuable that Saputo would pay a premium for a company that will not generate the kind of sales that Morningstar Farms has delivered?

Saputo said in the outlook portion of its first-quarter 2014 report that it expects dairy to be challenging. Throw in currency exchange on top of a commodity-based business and you have one added layer of risk — although these are challenges that are no stranger to this company.

Warrnambool does have existing distribution networks that Saputo would potentially acquire, but they are already factored into the net profits. Any capitalization would need to come from Saputo’s ability to expand market share in these regions.

It’s less than 10 days now until Saputo’s bid expires. We’ll find out soon whether the company will capture its target.

The post Is Warrnambool Cheese & Butter Worth Saputo’s Investment? appeared first on The Motley Fool Canada.

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Disclosure: Christine Conway does not own shares in any of the above mentioned companies.

Canadian Pacific Railway (TSX:CP) (NYSE:CP) recently announced its intention to sell the western portion of its Dakota, Minnesota & Eastern (DME) rail line, which was acquired in 2008 for $1.48 billion. The portion that is being sold will bring in $210 million.

The buyer, Genesee & Wyoming (NYSE:GWR), is a short line and regional freight rail operation in the U.S., Canada, and abroad. It owns and leases 15,000 miles of track across 11 regions. With this length of rail, it can interchange with other railways, including CP, Union Pacific, BNSF, and NNW. An interchange occurs when two railways meet and can pass goods from one rail to another by transferring rail cars.

The portion of rail being sold accounts for 660 miles and ships 52,000 carloads annually of grain, ethanol, fertilizer and other products. The use of the line is projected to generate approximately $65 million in annual revenue for Genesee & Wyoming.

This transaction still needs to undergo review by the U.S. Surface Transportation Board. CP is expecting the final word to be given about halfway through the year.

Even the best laid plans can run off the tracks

Back in December 2012, CP put the breaks on the Wyoming Powder River expansion — at a cost of $180 million. The original draw of the project had been that part of rail that leads to Wyoming to access the distribution for thermal coal. But with softened coal demand and now, the sale of some of the assets, CP has made a clear change of direction.

At the same time, in 2012, as part of a strategic review process, CP committed $1.1 billion to capital spending in 2013. By May 2013, cash flow was better than expected, and the company announced that it would add another $75-$100 million to fund upgrades between Winnipeg and Edmonton and signaling systems between Moosejaw and Chicago, with the overall goal of expense savings and strengthening the balanced sheet through acquisition of rail that had previously been leased.

2014

With CP’s fourth-quarter results set to be released on January 29, it will be interesting to see how far it has come in achieving its targets. The management discussion and strategic vision for the year should also lend insight to how CP will be furthering its plans to become a more profitable railway in 2014.

 

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