COVID-19 caused revenue to fall 21.5% in the most recent quarter, but the company’s cost-cutting measures should help it weather the storm until demand returns.
All in all, the company looks resilient in the face of recent and now-receding challenges.
LINAMAR CORP. (Toronto symbol LNR) makes a variety of automotive parts, including cylinder heads and cylinder blocks. It also makes self-propelled, scissor-type work platforms under the Skyjack brand as well as agricultural harvesting equipment.
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To cut its overall dependence on automakers, Linamar acquired the MacDon Group of Companies for $1.2 billion in February 2018. Based in Winnipeg, that firm makes agricultural harvesting equipment. Linamar merged those operations with its agricultural business in Hungary.
The company has now re-opened all its operations following COVID-19 shutdowns.
Linamar expects global production of light vehicles will total 68.6 million units in 2020. That’s down 680,000 units, or 1.0%, from its earlier forecast of 69.3 million. The revised forecast reflects lower output in India and Thailand as those countries continue to cope with new COVID-19 outbreaks. Linamar also sees auto production rising 15% in 2021.
Demand for the company’s construction equipment remains weak in North America, but it should recover in the second half of 2020. However, sales in China continue to improve after that country eased its lockdowns. Sales of agricultural equipment are also starting to rebound following a big drop in the first quarter.
Value Stocks: Ugly revenue and earnings numbers should reverse course shortly
For now, revenue in the quarter ended March 31, 2020, fell 21.5%, to $1.55 billion from $1.97 billion a year earlier. Earnings before unusual items also dropped 51.3%, to $67.9 million from $139.4 million. Due to fewer shares outstanding, per-share earnings declined 50.7%, to $1.04 from $2.11.
In response to the pandemic, the company is cutting costs and capital spending. It has also reduced its quarterly dividend by 50.0%, to $0.06 a share from $0.12. The new annual rate of $0.24 yields 0.6%.
Those moves will help the company recover, particularly now that many automakers have reopened their plants.
Linamar’s sound balance sheet is also helping it cope with the pandemic. As of March 31, 2020, it held cash of $413.2 million. Its total debt of $1.9 billion is a high 69% of its market cap.
However, the company’s cost cuts should help it service those loans. Moreover, it can still access $739.3 million under its existing credit facilities.
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