Magna (MGA) Q4 2025 Earnings Call Transcript

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DATE

Friday, February 13, 2026 at 8:00 a.m. ET

Call participants

• Chief Executive Officer — Swamy Kotagiri
• Chief Financial Officer — Philip Fracassa
• Vice President, Investor Relations — Louis Tonelli

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Takeaways

• Q4 Sales -- $10.8 billion, up 2%, despite a 1% decline in global light vehicle production.
• Q4 Adjusted EBIT Margin -- Expanded 100 basis points to 7.5%.
• Q4 Adjusted EBIT -- $814 million, an 18% increase or $125 million higher.
• Q4 Adjusted EPS -- $2.18, up 29% from the prior year.
• Q4 Free Cash Flow -- $1.3 billion, exceeding the prior year by $316 million, driven by over $400 million in customer recoveries related to canceled or delayed EV programs.
• Full-Year Sales -- $42 billion, down slightly, with softness in North America and Europe offset by new program launches and customer recoveries.
• Full-Year Adjusted EBIT Margin -- Rose 20 basis points to 5.6%.
• Full-Year Adjusted EBIT -- $2.4 billion, a 2% increase despite tariff pressures.
• Full-Year Adjusted EPS -- $5.73, up 6%.
• Full-Year Free Cash Flow -- $1.9 billion, a year-over-year increase of $849 million and representing almost 120% of adjusted net income.
• Operational Excellence Contribution -- Drove margin gains, contributing about 130 basis points in the quarter and 35-40 basis points expected for 2026, with nearly 200 basis points cumulative over 2023-2026.
• Leverage Ratio -- Ended at 1.58 times, ahead of expectations, with $1.6 billion cash on hand and $5.1 billion total liquidity.
• Capital Expenditure -- Improved to 3.1% of sales for the year, with 2026 CapEx expected below 4% of sales.
• Dividend Track Record -- Sixteenth consecutive annual increase, with a $0.01 quarterly increase just approved.
• Share Buyback Authorization -- Approximately 22 million shares available under the NCIB, with intent to complete all repurchases in 2026.
• 2026 Sales Outlook -- Anticipated to be flat to up 3.5%, with underlying market production guidance for a 1% decline on a Magna-weighted basis.
• 2026 Adjusted EBIT Margin Guidance -- Forecasted at 6%-6.6%, representing an expansion of 40-100 basis points over 2025.
• 2026 Adjusted EPS Guidance -- Expected in the range of $6.25 to $7.25 per share, assuming a 23% adjusted tax rate and $180 million interest expense.
• 2026 Free Cash Flow Guidance -- Targeted between $1.6 billion and $1.8 billion, above 90% of adjusted net income.
• 2026 Outgrowth ex-Complete Vehicles -- Targeted organic sales growth of 1%-4% over the market, driven by Body Exteriors & Structures and Power & Vision segments.
• Segment Performance -- Seating grew sales 8% in the quarter, Complete Vehicles fell 10% as expected; strong margin gains in Seating and BES, with margin pressures in Power & Vision attributable to discrete customer settlements.
• Operational Digitalization -- 80% of divisions now under a unified digital architecture, supporting real-time monitoring and operational standardization.
• Customer Quality Recognition -- Received an all-time record of 151 customer awards for quality and operating performance in the year.
• Tariff Management -- Effects almost fully offset by mitigation and customer recoveries; net tariff headwind less than 10 basis points to margin for the year.
• Normal Course Issuer Bid (NCIB) Details -- Authorization permits repurchasing up to 10% of the public float in 12 months; 24 million shares were authorized at 2025-end, with 22 million outstanding as of the call date.

Summary

Magna International (NYSE:MGA) presented a clear path to continued margin and cash flow growth, underpinned by disciplined capital management and operational excellence initiatives that management explicitly expects to be durable and scalable. Management provided transparent detail on segment dynamics, highlighting specific program wins and roll-offs, and confirmed full-year guidance for margin, EPS, and free cash flow, alongside a firm commitment to complete the repurchase of all shares remaining under the NCIB in 2026. Executives cited robust digitalization and automation across divisions, along with a recently achieved 90% securement rate for 2028 sales, as evidence of Magna’s operational progress and forward visibility.

• Management clarified that customer recoveries for EV program cancellations provided a notable fourth-quarter and full-year free cash flow boost, with 2026 cash guidance including some incremental recoveries but not at prior-year levels.
• Dividend growth remains a priority, with a recently approved $0.01 per share quarterly increase, marking sixteen consecutive years of increases.
• Operational cost reductions from restructuring, digitalization, and process controls are now materializing in reported margins, with an additional 35-40 basis points expected to contribute in the upcoming year.
• Magna’s exposure to DRAM and raw material cost volatility has been budgeted with only a “modest amount of unrecovered cost headwinds” for 2026, and most steel and aluminum is tied to customer pass-through arrangements.
• CEO Kotagiri stated, “operational excellence is a continuing journey,” with clear visibility for ongoing improvements and early evidence of repeatable success.

Industry glossary

• NCIB (Normal Course Issuer Bid): A Canadian share repurchase program allowing a company to buy back up to 10% of its public float within a 12-month period.
• BES (Body Exteriors & Structures): Magna reporting segment providing body, chassis, exterior, and related systems.
• P&V (Power & Vision): Magna reporting segment focused on powertrain, e-mobility, electronics, and vision/sensing systems.
• Complete Vehicles: Business segment providing contract vehicle engineering and assembly for OEMs.
• EV (Electric Vehicle): Battery-powered vehicles representing a major OEM capital investment area and a key focus for Magna’s product strategy.
• OEM (Original Equipment Manufacturer): Companies that produce vehicles and purchase Magna’s systems and modules.
• CapEx: Capital expenditures.
• DRAM: Dynamic Random Access Memory, a critical semiconductor technology impacting automotive electronics cost and supply.
• ADAS (Advanced Driver Assistance Systems): Technologies that provide safety and automation features, referenced in context of Power & Vision segment growth and sensor portfolios.

Full Conference Call Transcript

Louis Tonelli: And our 2026 outlook. Joining me today are Swamy Kotagiri and Philip Fracassa. Yesterday, our Board of Directors met and approved our financial results for 2025 as well as our 2026 financial outlook. We issued a press release this morning outlining both of these. You will find today’s press release, conference call webcast, the slide presentation to go along with the call, and our updated quarterly financial review, all in the Investor Relations section of our website at magna.com. 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.

Such statements involve certain risks, assumptions, and uncertainties, which may cause the company’s actual future results and performance to be materially different from those expressed or implied in these statements. 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. With that, I will pass it over to Swamy. Thank you, Louis. Good morning, everyone. I appreciate you joining our call today. Let us get started. Overall, I was very pleased with our strong fourth quarter and full year 2025 operating performance.

These results reflect the resilience of our business model and the continued traction of our operational excellence initiatives. Throughout 2025, we delivered meaningful margin benefits from operational excellence, we secured important commercial recoveries, and across Magna we executed our tariff mitigation plans, offsetting the vast majority of direct impacts. Together, these efforts contributed to our third consecutive year of adjusted EBIT margin expansion. Our relentless focus on cash generation delivered strong results. We generated $3,600,000,000 in operating cash flow and $1,900,000,000 in free cash flow for the full year.

Operator: This reflects

Louis Tonelli: a disciplined approach to capital spending, improving to 3.1% of sales last year, and continued improvements in our fixed cost structure and engineering optimization. As a result, we ended the year with a 1.58 times leverage ratio, ahead of our expectations, and $1,600,000,000 cash on hand. Now looking ahead to 2026, our outlook reflects continued improvements in our operating performance. We expect weighted sales growth over market of 1.5% at the midpoint, adjusted EBIT margin expansion of 40 to 100 basis points, and free cash flow of $1.6 to $1,800,000,000. We remain confident in executing our deliberate and proven capital allocation strategy and driving EPS growth together with strong free cash flow.

As of today, we have approximately 22,000,000 shares available for repurchase under our NCIB, and we plan to repurchase all remaining shares during 2026, all while maintaining our strong balance sheet and financial flexibility. Now turning to our financial highlights. As you can see from the slide, we delivered solid performance in both the fourth quarter and the full year. In Q4, sales increased 2% to $10,800,000,000 despite a 1% decline in global production. Adjusted EBIT margin expanded 100 basis points to 7.5%. Adjusted EBIT increased 18%. Adjusted EPS rose 29%, coming in at $2.18. And we generated more than $1,300,000,000 in free cash flow, well ahead of a strong 2024.

For the full year, sales were $42,000,000,000, down slightly due to softer volumes in North America and Europe. Adjusted EBIT margin rose 20 basis points to 5.6%. Adjusted EBIT grew 2%, reaching $2,400,000,000 despite lower sales and tariff headwinds. Adjusted EPS rose 6% to $5.73. Free cash flow increased $849,000,000, reaching $1,900,000,000. Phil will take you through the quarterly details shortly. Our 2025 results were strong relative to both our initial and most recent outlooks. Sales, adjusted EBIT margin, adjusted net income, free cash flow, and capital spending all landed within or better than our stated ranges. Our teams also achieved several important milestones in 2025. We hit our annual bookings target across multiple product areas.

Our 2028 business is already about 90% secured. We strengthened our collaboration with NVIDIA, advancing AI-powered active safety solutions. And we were recognized with an automotive new space pilot award for our thermal sensing technology. Let me take a moment to expand on the operational excellence work underway across the company. This contributed meaningfully to margin in 2025 and is expected to add an additional 35 to 40 basis points of margin benefit in 2026, bringing our cumulative contribution to almost 200 basis points over the 2023 to 2026 period. We have built a unified digital architecture that now covers about 80% of our divisions, giving us clean, consistent data and real-time visibility into performance.

Our material flow optimization program continues to expand, supported by our internal fleet management platform, and is delivering safer, more reliable material flow while reducing operating costs. We continue to launch and scale AI solutions to provide valuable insights into scheduling, process quality control, and condition-based monitoring. The common thread across all these initiatives is standardization, scalability, and measurable outcomes. We expect them to support durable margin expansion going forward. And we received an all-time record 151 customer awards for quality and operating performance, another clear sign of our execution. Our performance is driven by our people. Our operational management accelerated program earned a best manager development award in just its second year.

And Magna was recognized again as one of the world’s most ethical companies and one of the world’s most admired companies. Our team has a lot to be proud of. With that, I will turn the call over to Phil. Thank you, Swamy. Good morning, everyone. Let me start on Slide 19 with a detailed review of our strong fourth quarter results. Sales were $10,800,000,000 in the fourth quarter, up 2% from last year. Adjusted EBIT margin improved 100 basis points to 7.5%. And adjusted EPS came in at $2.18 per share, up 29% from a year ago. Each of these metrics came in ahead of our expectations for the quarter.

Now I will take you through some of the details. Let me start with sales on Slide 20. Fourth quarter sales were up 2% overall compared to last year. We benefited from foreign currency translation, the launch of new programs, including the Ford Expedition/Navigator and Xiaomi YU7, higher sales from other ongoing programs, and customer recoveries for tariffs. These benefits were offset partially by lower engineering revenue in Complete Vehicles, the end of production of certain programs including Jaguar E- and I-PACE assembly in 2024, less favorable commercial items compared to last year, and normal-course customer price concessions. Global light vehicle production was down 1% overall in the quarter, with North America and China down, but Europe up.

On a Magna-weighted basis, light vehicle production was also down about 1%. Our fourth quarter sales were up 2%, as I covered earlier.

Operator: Excluding currency,

Philip Fracassa: our sales declined 1%, roughly in line with the market. And if you take out Complete Vehicles, our sales outgrew the market by 2%. Now let us move to EBIT on Slide 21. Fourth quarter adjusted EBIT was $814,000,000, an increase of $125,000,000 or 18% from last year. Adjusted EBIT margin was 7.5%, up 100 basis points. Looking at the pluses and minuses, we benefited significantly from operational performance improvements, about 130 basis points. This includes continued progress on operational excellence and other cost savings initiatives, our ongoing efforts to optimize engineering spend, and the benefits of prior restructuring actions, which more than offset the impact of higher labor and other input costs.

Operator: We also saw a benefit of around 50 basis

Philip Fracassa: points from tariffs in the quarter. This reflects recoveries from customers for costs we incurred earlier in the year. With customer recoveries and other mitigation, our net tariff costs were less than a 10 basis point margin headwind for the full year, right in line with what we expected. Discrete items in the quarter reduced margins by around 50 basis points. This is comprised mainly of the unfavorable year-over-year impact of commercial items in the quarter, offset partially by the non-recurrence of expense incurred last year related to two Chinese OEM insolvencies.

Operator: And finally,

Philip Fracassa: volume and other items reduced margins by about 30 basis points. This includes higher profit sharing and incentive compensation expense, lower engineering income on a tough comp last year, and unfavorable mix, which was offset partially by earnings on higher production sales in the quarter. Next, let us take a brief look at our business segment performance, which is summarized on Slide 22. Here, you can see that three of our four segments posted higher sales year over year, with a notable 8% increase in Seating. The exception on the sales line was Complete Vehicles, which was down 10%.

This was largely expected and reflects lower engineering revenue and the end of production of the Jaguar E- and I-PACE at the end of 2024. However, we did benefit from recent new launches with Chinese OEMs, namely Xiaopeng,

Operator: and GAC.

Philip Fracassa: Looking ahead, this should continue to represent a growth opportunity for our Complete Vehicles business. Moving to EBIT.

Operator: Both Body Exteriors and Structures

Philip Fracassa: and Seating posted strong increases in adjusted EBIT margin year over year. Note that Seating margins benefited from the reversal of a warranty accrual in the current period, but margins would still have been up more than 200 basis points without this reversal. Complete Vehicles margin was in line with last year’s solid fourth quarter, despite lower sales. And in Power and Vision, margins were negatively impacted by a few discrete items in the quarter. The largest of which was a customer settlement for a product-related matter. Mix was also unfavorable in the period. These headwinds were partially offset by continued productivity and efficiency improvements,

Operator: and net tariff recoveries from customers.

Philip Fracassa: Excluding the discrete items,

Operator: Power and Vision margins would have been up year on year

Philip Fracassa: and in line with our expectations. As you will see in our outlook, we are expecting considerable margin expansion in this segment in 2026. Now let us look at the cash flow on Slide 23. In the fourth quarter, we generated $2,000,000,000 in cash from operations, an increase of almost $100,000,000 from last year. Operating cash flow in the current period includes over $400,000,000 in customer recoveries related to investments for certain EV programs that have been canceled or pushed out. Investment activities in the quarter included $532,000,000 in CapEx, plus $157,000,000 for investments in other assets and intangibles.

When you net everything out, we generated free cash flow of $1,300,000,000 in the quarter, well above our expectations and $316,000,000 higher than last year. The increase reflects the customer recoveries I highlighted earlier as well as lower CapEx, offset partially by a smaller seasonal working capital reduction than we saw last year. And for the full year, free cash flow rose $849,000,000 to $1,900,000,000, or almost 120% of adjusted net income. And we continue to return capital to shareholders, paying $135,000,000 in dividends, along with $86,000,000 in share buybacks in the fourth quarter. And just yesterday, our Board approved a $0.01 increase in Magna’s quarterly dividend, which marks the sixteenth straight year of dividend increases.

For the full year, we returned close to $700,000,000 of cash to shareholders through dividends and share repurchase. Turning to Slide 24. Our balance sheet and capital structure remain strong. At December, we had $5,100,000,000 in total liquidity, including $1,600,000,000 of cash on hand. We reduced leverage throughout 2025, including the repayment of a $300,000,000 term loan in the fourth quarter. Our rating agency adjusted debt-to-EBITDA ratio was just under 1.6 times at year end, better than we anticipated three months ago. And we expect to be below 1.5 times in 2026. This puts Magna in a great position to increase share repurchases significantly in the current year. Let me now turn to our outlook for 2026.

Starting on Slide 26.

Operator: In terms of key macro assumptions,

Philip Fracassa: our outlook assumes a relatively flattish light vehicle production environment overall, with slightly lower output in North America and China, offset by a slight increase in Europe.

Operator: On a Magna-weighted basis,

Philip Fracassa: this would imply about a 1% decline in vehicle production. And with respect to foreign currency, you can see that we are planning for a weaker U.S. dollar against key currencies like the euro, Canadian dollar, and Chinese yuan. Turning to Slide 27. Our outlook range for sales in 2026 implies that sales will be near flat to up 3.5% versus last year. Our sales should benefit from the launch of several new and replacement programs, including new assembly business for Xiaopeng and GAC in Graz, higher light vehicle production in Europe, and foreign currency translation from a weaker U.S. dollar.

This should be offset partially by expected lower light vehicle production in North America and China, and the end of production of certain programs, including the BMW Z4 and Toyota Supra that we assemble in Graz, and the Ford Escape in Louisville in 2027, as Ford is changing over that plant for new programs to launch. If you remove currency translation and take out Complete Vehicles, that would imply growth over market for Magna in the range of positive 1% to 4%, a nice step up from 2025. Let us move to EBIT margin on Slide 28.

Our outlook is for adjusted EBIT margins to be in the range of 6% to 6.6%, which implies margin expansion of between 40 and 100 basis points from 2025. We anticipate positive contributions from operational excellence initiatives, earnings on higher sales, lower costs in areas like warranty and new facilities, and higher equity income, which should more than offset the unfavorable impact of normal price concessions, higher launch costs, and less contribution from tooling. And while we do not provide a quarterly outlook, I do want to provide a framework on how to think about first quarter margins.

Similar to last year, we expect 2026 adjusted EBIT to be more back-half weighted, with first-half EBIT just over 40% of full-year EBIT. We also expect the first quarter EBIT to be lower than the second. And looking at margins, our full-year outlook implies that adjusted EBIT margins will be up 70 basis points at the midpoint. In the first quarter, expect margins to be up year over year but not as much as the full-year guidance would imply. Slide 29 shows a summary of our full-year 2026 outlook. I covered sales and EBIT already, so I will focus on some of the other items. Most notably, we are now providing an outlook for adjusted earnings per share.

For 2026, we are planning for adjusted EPS in the range of $6.25 to $7.25 per share. Below the EBIT line, EPS reflects approximately $180,000,000 of interest expense and a 23% adjusted tax rate. With CapEx below 4% of sales, we expect 2026 to be another year of strong free cash flow, in the range of $1,600,000,000 to $1,800,000,000, or over 90% of adjusted net income. After dividends, we expect to have significant cash available to repurchase shares, while still reducing leverage and maintaining financial flexibility to support the business. Last November, we renewed our normal course issuer bid, or NCIB, share buyback authorization. This permits Magna to repurchase up to 10% of its public float over a twelve-month period.

There were about 24,000,000 shares authorized for repurchase under the NCIB at the end of 2025. We have been in the market since the start of the year, and our outlook assumes we will complete the NCIB and repurchase the remaining available shares, about 22,000,000 shares,

Operator: as of today.

Philip Fracassa: For purposes of the EPS outlook, we have assumed about 270,000,000 shares as our full-year average diluted share count, which reflects our planned share repurchases. Slide 30 gives you a view of 2026 sales and adjusted EBIT margins for our business segments.

Operator: Let me point out just a few things.

Philip Fracassa: First, you can see the expected positive sales growth and meaningful margin expansion in our two largest, Body Exteriors and Structures and Power and Vision, which together represent roughly three quarters of our sales. In Seating, we are planning for strong margin resilience despite lower expected sales. And in Complete Vehicles, we expect lower margins on lower anticipated sales. That is it for the financial review. Now I will turn it back to Swamy to wrap things up. Swamy? Thank you, Phil, for walking through the details. Before we take questions, let me recap some of the key points.

We ended 2025 with very strong fourth quarter and full-year results, including adjusted EBIT margin expansion, adjusted EPS growth, and strong free cash flow despite incremental tariff costs. Operational excellence remained a key driver of margin performance in 2025 and is expected to continue delivering benefits in 2026 and beyond. We have a solid outlook for 2026, with a fourth consecutive year of expected margin expansion, further EPS growth, and strong free cash flow. We remain highly focused on shareholder value creation. We increased our dividend for the sixteenth consecutive year, and we expect to repurchase all of the approximately 22,000,000 shares available under our current buyback authorization.

We remain confident in executing our proven strategy and in continuing to drive EPS growth and strong free cash flow. Thank you for your attention. Now, operator, let us open it up for questions.

Operator: Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number 1 on your telephone keypad. And if you would like to withdraw your questions, you can press star 1 again. Our first question comes from the line of Dan Levy with Barclays. Please go ahead.

Dan Meir Levy: Hi, good morning. Thank you for taking the questions.

Operator: Wanted to start first with a question on your guidance for outgrowth ex Complete Vehicles of 1% to 4%. This is

Swamy Kotagiri: better than what you have done

Operator: the last three years now, a bit of a positive surprise in light of, I would say,

Swamy Kotagiri: your key customers generally being down. If we look at the D3, with the exception of Flanders, Ford and GM are both down year over year. So maybe you could just talk about underlying assumptions for the outgrowth of 1% to 4%? Thank you. Good morning, Dan. I think as I said in my prepared comments, the most important thing was the operational excellence activities that we have been working through over the last three years. I would say we are still in the early innings. We continue to get traction. We have been working at the cost structure, the fixed cost structure, again over years, and we are starting to see benefits in the statements now.

We also talked about the new programs rolling in with new economic terms that we also talked about, which is in some cases, labor being reset at the start of production. We are talking about capital in some cases. And underlining that is our continued self-help activities. So that is the real reason for the margin improvements. And I would still say if you look at some of the activities that I mentioned in our self-help again, we will continue to see that. This is still in the early innings. And as we proliferate these activities even further, we will see more benefits going forward.

Maybe, Dan, I would just add one point relative to the 1% to 4% growth over market excluding Complete Vehicles. So our organic guide was for roughly minus 1% to plus 2% at the midpoint. So you take Complete Vehicles out, you get to plus 1% to plus 4%. And that is really driven as you look at the segments: expected good growth in Body Exteriors and Structures, and Power and Vision. We do expect revenue declines in Complete Vehicles, which we excluded in that plus 1% to plus 4%, and also expected some declines in Seating just given model changeovers and end of production.

But with good growth coming from BES and P&V and with launches and in the mix that we have, we feel really good about the ability to outgrow the market in 2026.

Dan Meir Levy: Okay. Great.

Swamy Kotagiri: Thank you.

Operator: The second point is to go back to the comment on the operational excellence. Maybe you could just give us a sense of

Swamy Kotagiri: the 40 or so basis points you are going to do this year on top of

Operator: another 30 or 40 basis points last year. How much more runway is there? And maybe you could just talk about also the

Swamy Kotagiri: extent to which commercial recoveries are being factored in here. We know that they seemed to help you out in 2025. What is the assumption on commercial recoveries in 2026 for programs where the volumes maybe did not materialize as planned? Thank you. As I said, Dan, I think the operational excellence is a continuing journey. For sure, we see this continuing going forward. We have very clear visibility of the 35 to 40 basis points this year. But as I said, this is still an early play. This is based on some of the facts that I talked about, like 80% of our divisions now are on a unified architecture that gives us better visibility.

About 140 divisions have real-time dashboards showing uptime, quality, and throughput. We are looking a lot in terms of material optimization, which is showing the operating cost benefits. We are looking at about 120 divisions that are using vision-enabled robotics. There are applications of cobots which are helping boost repeatability and reduce some ergonomic strain. We are having some automated work instruction pilots that are helping cycle times. So all in all, I will say the standardized playbooks make this improvement repeatable across the footprint, and we can scale. So I would say this is a multiyear margin tailwind.

And relative to commercial, I think the second part of your question, Dan, I think 2025 versus 2026, we are sort of expecting relatively neutral year over year. You are correct. We did see a net benefit in the full year. It was slightly negative year over year in the fourth quarter, but a net benefit for the full year 2025. And we would expect relatively neutral 2025 to 2026. And that is what is embedded in the guide. There are some pluses and minuses by segment, but on a consolidated basis, it is neutral.

Operator: Great. Thank you. Your next question comes from the line of Joe Spak with UBS. Please go ahead.

Joseph Spak: Maybe just to quickly follow up on that last point. But when you are saying commercial benefits neutral year over year, so if we relate that back to the organic growth, that is really program win and content win driven. There is no sort of pricing benefit baked into that organic growth assumption?

Philip Fracassa: Right. I think that is right, Joe. It would be primarily volume. Launching new programs. Higher content.

Joseph Spak: Okay. I guess I just wanted to focus on Seating here for a second. In the outlook, it seems like you are able to manage the margins decently here with a 6% decline. I know you mentioned some program roll-offs. You could talk about some of the cost actions taken to sort of help manage that margin. And then just bigger picture and longer term, there have been some reports of there being business conquested away from, I think, facilities that you have historically supported. So in those cases, what do you do with those facilities? Do you start selling assets? And just how you are sort of thinking about Seating to the Magna business case going forward?

Swamy Kotagiri: Good morning, Joe. Maybe I will answer a few questions, save one at a time. Seating by Magna has not lost any incumbent Seating programs to competitors. Our customer relationships remain strong. Our launches are on track. And the Seating pipeline continues to perform the way we expect. A little bit of clarity on Orion, which has been talked about in public: GM pivoted from all BEV trucks and SUVs to all ICE due to market dynamics. And most of the ICE vehicle production moving from Canada and Mexico and some SUV from Arlington, Texas, these were all competitor incumbent seats. Magna still remains incumbent for BEV seats. So Magna did not lose the BEV business.

This was a customer change in direction. I would say Magna Seating has been core and continues to remain a core and a really good returns business for us and profitable. I have to give kudos to the Seating team for working through all the dynamics that have been happening. And I think you also mentioned the reason why we see a little bit of dip now is due to program-specific end of production for Edge, cancellation of EV Explorer, and Chevy Equinox moved from Ontario, as I mentioned.

And in the past, I also talked a little bit about a high-volume North American program with a European-based OEM that is rolling off or starting to roll off end of this year and then next generation launches starting end of this year, finishing into next year. So that drag we had on the program gets back to, I would say, the normal metrics

Operator: for this segment.

Swamy Kotagiri: So that should be accretive. So all in all, I can reinforce how you would have seen the fourth quarter performance showing up really good. Kudos to the team. 2026 looks good if we look at the revenue and the corresponding continuing traction in profitability. So all in all, I would say, no, we have not lost any incumbent programs. Yes, Seating is a core. And yes, we remain focused on executing, building, and delivering product for our customers. The only thing I will add in 2026: we continue to launch new programs. But the Ford Escape is a program that we have seats on, a high-volume program.

As you probably know, Ford is taking that down to retool for another program that starts in 2027. So that is what is impacting the 2026 number pretty significantly given the size of the program.

Joseph Spak: Okay. Thank you. Maybe just one quick one. I know you are not giving the forward outlook anymore. But just in terms of free cash flow, which is guided pretty strong this year, sort of high $1,000,000,000 approaching sort of $2,000,000,000, do you think that is fairly sustainable, or does CapEx tick back up to support some of the wins that you have been able to book?

Philip Fracassa: Thanks for the question. So yes, on free cash flow, obviously very strong performance in 2025. I did mention the fourth quarter did benefit from some customer recoveries from past EV programs. But when you look at the 2026 guidance of the $1.6 to $1.8, CapEx last year was around 3.1% of sales. We are guiding to sort of the mid-3s, so stepping up a little bit, but still below 4%. We believe that level of free cash flow is sustainable. And we are targeting conversion of 100% on net income. So we do expect that level to be sustainable and should support a capital allocation strategy for us not just in 2026, but moving ahead as well. Our next

Operator: comes from the line of James Picariello with BNP Paribas. Please go ahead. Hi. Good morning, everybody. I just wanted to first ask about the Ford recall that Magna called out as of last quarter.

James Albert Picariello: Covering the 3,600,000 vehicles tied to your cameras. Is that now behind Magna? Because in the fourth quarter, there was a warranty hit. Just curious what is the latest update on that? Thank you.

Philip Fracassa: Yes. Thanks for the question, Jim. The way we would break it down is into really two separate matters. There was one matter that relates to a recall that was initiated in 2023 that we have been in discussions with the customer for a while on. We actually resolved that matter in the fourth quarter and made a payment to the customer. That matter is completely behind us. And we did take expense in P&V in the quarter for that settlement. That was settled as a commercial resolution, if you will. And then we also had the recalls that were announced in the third quarter, and that is an ongoing process with the customer.

We are working collaboratively with them, developing the facts, getting to the root cause analysis. And that will continue in 2026. Whether that could be more or less than what we have estimated, we will see. But we feel like we are pretty well covered.

James Albert Picariello: Because I imagine with that OEM customer, Magna also has some commercial recoveries tied to EV program cancellations as well. Right?

Philip Fracassa: Right.

James Albert Picariello: And then circling back on P&V, that was the main driver of the margin decline in P&V in the quarter. If you take the, you know, we had warranty charges even outside of the camera, but the camera settlements and accruals that we booked really more than explained the decline in margins. And if you take those discrete items out, margins would have actually been up year over year in P&V in the fourth quarter and would have been well in line with our expectations. And as we have talked about, we do expect with those matters behind us a real nice step up in margins in 2026.

James Albert Picariello: Right. That is very helpful. And then just on the Power and Vision segment, specifically within this guidance, it looks like you are pointing to up 5% to 7%. Can you just provide some color as to what is driving that strong growth? Thanks.

Swamy Kotagiri: I think Phil mentioned some of the things. If you take away the discrete items that we had in Q4, it performed the way we expected in 2025. And excluding this, the P&V margins were good. All the structural improvements and the cost actions that we have talked about continue to add to the margin expansion in 2026. In 2025, we had some highlights that we have been mentioning on different calls. We have some significant wins, award of eDrive programs on China-based OEMs. Some of the programs we are launching that we had won in the past.

So all in all, if you put these things together, including the operational excellence activities, that is what is driving the margin in P&V.

Philip Fracassa: And really the growth being driven a lot by those new launches, James, etcetera, coming out this year.

James Albert Picariello: Thanks, guys.

Operator: Thanks. Your next question comes from the line of Emmanuel Rosner with Wolfe Research.

Emmanuel Rosner: Thank you very much. Just two quick follow-ups on the earlier questions. The first one is on the commercial recoveries and items. I think you said that at the EBIT line it is about neutral on a year-over-year basis. Just curious from a timing of impact to free cash flow, it seems like some of these big EV-related payments that the OEMs are making, they are more 2026-weighted rather than 2025. So is the free cash flow benefiting on a year-over-year basis from the favorable timing of some of these recoveries this year?

Philip Fracassa: I think it is a great question. If you take a step back, we did see in the fourth quarter on the free cash flow line significant recoveries. I said over $400,000,000 in my remarks. Most of that was balance sheet recovery, if you will, and did not affect EBIT. There was a small amount that affected EBIT, but actually in the quarter, commercial settlements or commercial recoveries year over year was actually a slight

Operator: unfavorable on the EBIT line, but positive

Philip Fracassa: to free cash flow in 2025. We do expect some additional in 2026. When I talked about neutral, I was really speaking more on the EBIT line. And oftentimes, the recoveries can be a lump sum in the period like we saw in the fourth quarter. They can be spread out over the remaining life of the program, through piece price adjustments or other things. But we do expect an incremental benefit in 2026 on the cash line, but not to the same level of what we saw in 2025.

Swamy Kotagiri: I would say, Phil, the strong operating performance, the disciplined CapEx, and our continued effort on engineering optimization and efficiency, really the structural part, that is driving the cash flow.

Operator: Understood. Your next

Operator: question comes from the line of Colin Langan with Wells Fargo. Please go ahead.

Colin M. Langan: Just trying to follow up on the walk to sales and margin. Talking about $700,000,000 in sales increase. You have, sounds like, $500,000,000 is FX based on your organic growth comments of $200,000,000 organic growth. If 30 basis points at the midpoint of adjusted EBITDA improvement, you have highlighted the 35 to 40 of help from cost. But if I adjust out for FX, I am still getting, like, a 70% conversion on higher sales, on organic sales. I sort of convert the FX at average margins. So what is driving that extremely high conversion that I am missing? Is there additional restructuring actions in there? I assume there is a little bit of positive mix.

Philip Fracassa: No. I think you have got the FX piece about right. It would be in the order of, call it, 1% to 1.5% somewhere in that range. So the net organic kind of embedded in the guide would be that minus 1% to plus 2%. Operational excellence is going to play a significant role in the margin expansion. We have talked about 35 to 40 bps in a neutral environment. I think, as we are looking at 2026, likely doing a little bit better than that. And then I would say getting a pretty good pull-through, not to the level you have talked about, but pretty good pull-through by historic standards for Magna on the incremental volume.

And really, the range around the margin would be at the low end of the range. That 40 bps of expansion would be sort of at the low end with the operational excellence. And then if we get some help on the top end of the range on the sales, getting good pull-through on that volume to get to the high end of the margin range.

Swamy Kotagiri: And keep in mind that decrementals on the Complete Vehicles decline are not as high. And the other point too is on the FX. Also keep in mind, with FX helping us to the tune of, call it, 1% to 1.5%, the pull-through on the FX tends to be pretty low, because a lot of times that is coming out of Europe, where we run a little lower than the fleet average. So if FX is positive, that can tend to mix you down just slightly as well.

Philip Fracassa: But just overall, I would still say over the last few years, we have been talking about restructuring, plant closures, and efficiency efforts. We talked about 40-plus divisions that we have focused on restructuring and so on. The net benefit of these costs is starting to flow through and will flow through. And we continue to look at more of these activities even this year going forward. So I think it is just some of this that helps improve our incrementals. As the volume stays steady or even increases, that could be a tailwind.

Colin M. Langan: Got it. Okay. And any color on what you are assuming for DRAM and raw material costs? I think your ADAS business is around $3,000,000,000. That is probably the one most impacted by the DRAM issue. And aluminum is up a lot. How much should we think about that in terms of sales dilution and then potential cost headwinds if you do not get all that recovered?

Swamy Kotagiri: Good question, Colin. I think there is a little bit of wait and watch on that DRAM topic, but we are coordinating with our customers on this issue. We have not seen any disruption yet. We do see the potential for higher costs. To the extent we know, we have included a modest amount of unrecovered cost headwinds in our guide. But, obviously, this is something that we have to work with our customers, and we are working with them. So it is going to be a combination of how do we manage the supply, trilaterally figure out how we address the inventories, and how do we protect supply.

But as you said, the product line that is going to be exposed to this would be electronics and not much else. As you said, there could be indirect effects, obviously, based on what happens to the production in general for the OEMs, which we have to wait and see.

Colin M. Langan: Got it. Alright. Thanks for taking my question.

Philip Fracassa: Thanks, Colin.

Operator: Our next question comes from the line of Brian Morrison with TD. Few details, so more high level here. I am curious if a planned rollback in steel and aluminum tariffs that is going to be implemented by the President this morning would be a positive impact

Philip Fracassa: on Magna, or is this largely flow-through and affordability would be the likely benefit?

Swamy Kotagiri: I have not seen the reports today, Brian. Good morning. But typically, most of our steel is on customer resale. And even aluminum and other commodities, we try to either peg and have terms and conditions in such a way that we have an equalization quarterly or yearly or something like that. So we try to mitigate that risk to the extent possible. I have not read the article today, but that is something we have to work with our customers still. But typically, commodity steel and aluminum are pretty much on some program which mitigates our risk.

Operator: Thank you. And then second question, Appear announced that turbine contract to power data centers yesterday. I wonder if there were any consideration or anything non-auto you may add to your repertoire.

Swamy Kotagiri: I think our focus has been looking at the capabilities that we have. And if there is a use in terms of our engineering, our capacity, that can be used without distracting from our core strategy, then it is something we would look at. But I have to say our focus has been efficient use of capital. And if there is something that does not require a specific new investment, obviously that is an advantage that we can bring forward. And given the product portfolio and the expertise that we have in different manufacturing processes and assembly processes, I think there could be opportunities there, but we are really focused on we need to execute right now.

Operator: Thank you. Your next question comes from the line of Mark Delaney with Goldman Sachs.

Mark Trevor Delaney: Congratulations on the strong results. I had one on Complete Vehicles to start. You had mentioned the wins with XPeng for Europe on your last call and then in November also now the GAC business. So I understand the guidance for Complete Vehicles for 2026 that you gave. But as you look at the momentum that you have with some of those new customers, what does it suggest about when Complete Vehicles can get back to growth?

Swamy Kotagiri: Good morning, Mark. I think a couple of points. Yes, you have got the GAC and the Xiaopeng. It has launched and we continue to expand that. One thing to take note, though: the way these contracts are done is just a value-add that goes to the revenue. Louis is the right way to say it. So when you look at the growth in the past, whether it was the Z4 or I-PACE or E-PACE or a few other programs, the way you would look at the revenue line was bigger, although the value-added in the EBIT kind of remains unchanged. So you have to consider that when you compare

Philip Fracassa: growth.

Swamy Kotagiri: We still see a kind of a slow year this year, as we talked about, because of the end of production of the few programs that we mentioned. As these things come on, there are a few other discussions that continue to progress. So we see a good pipeline going forward and continuing growth there. And I would say engineering has been a little bit weaker. But we do not have visibility in engineering like we have in production programs. So the teams are working through that. And we have optimized that to look at the trends in engineering.

Philip Fracassa: So we feel pretty good about it.

Swamy Kotagiri: Understood. My other question was

Operator: to better understand Magna’s exposure at this point to autonomy. You

Christopher Patrick McNally: had made some investments bolstering your sensor portfolio. You also have some upfitting you are doing on AVs with one of the leading AV offerings. As you think about some of those opportunities, seeing the progress you are making in the P&V segment, maybe just help us better understand how much might be coming from things like sensors, upfitting AVs, and how sustainable you see that over the medium to longer term and towards the best and most bookings you mentioned today?

Swamy Kotagiri: Thanks. We continue to see the pipeline. As I said, our focus has been on assisted drive. We continue to stay very disciplined on that part of it. But the use of any of the products or the software features or technology that applies to AV, obviously we are looking into that. So we see good growth in that segment from ADAS perspective too.

Swamy Kotagiri: Thank you.

Operator: Our next

Operator: question comes from the line of Ty Cullin with TD. Hey, good morning. Thanks for taking my question. Maybe to start, can you provide a little color around your plans going forward for incremental megatrend investments, EV investments, this year and beyond? And has there been any change in thinking around that in light of some of the announcements recently by some of your larger customers around their EV strategies?

Swamy Kotagiri: I would say no. No change in strategy. We have been talking about optimizing engineering investments as well as capital. The significant investments in BEV in terms of capital sites or EVs for our product line is behind us. If the EV penetration increases and they come forward, I would say that is a tailwind. If you look at the engineering side, we have always talked two aspects of it. One is platform development.

Philip Fracassa: That is significantly or substantially behind us.

Swamy Kotagiri: Now we are talking about application. So if you remember, we used to talk about $1,200,000,000 in the P&V megatrend areas. Right now, it is about $850,000,000 to $900,000,000. That spend would remain at that level. We are not restricting it. We are just optimizing it based on what is out there. If there are program wins, then the application spend would go along with it, but that would be recoverable in the program. So no shift in strategy.

Operator: Okay. Great. Thanks for that. And then, how are you feeling about your positioning at this point with respect to Chinese vehicle exports? Are you viewing that as more of an opportunity or something that could be a longer-term opportunity, but maybe create some near-term frictions with some of your European and your North America business?

Swamy Kotagiri: We are producing in China for China and international OEMs. Of the total revenue that we have from China, about 65% comes from Chinese OEMs. The reason I make that point is we are in their ecosystem as they come to different parts of the world. We hope to grow with them. They have done that in the past as Europeans came to North America fifteen, twenty years ago. So with our presence in China, if it continues to increase, that is helpful. If the Chinese OEMs start producing locally, wherever that is in the world, we are present there. I would say that should be an opportunity for us.

Philip Fracassa: Great. Thanks, Swamy.

Operator: Once again, if you would like to ask a question, please press star followed by the number 1 on your telephone keypad. Our next question comes from the line of Jonathan Goldman from Scotiabank. Please go ahead.

Jonathan Goldman: Most of them have been asked already, but maybe just one, I am sorry if I missed it. Could you discuss the delta versus the margins for the full year in BES and Seating versus your last guidance in November? And if there are one-timers in there that caused you to beat in both those segments, why should we be using the current run rate as the starting point for next year?

Philip Fracassa: Yes. Thanks for the question, Jonathan. Looking at the fourth quarter of BES, really the story was good pull-through on the revenue and then good performance on some commercial recoveries in BES. So good over 10% margins in the quarter. But we do, as we have said before, given the year, the jumping-off point was a little lumpy with recoveries and the like, that the full-year margin has. So we are expecting another year of margin improvement in BES in 2026, again driven by operational excellence and good pull-through on the revenue. In Seating, we did see a really nice step up in margins in the quarter, and I am glad you asked the question.

We did have a large warranty reversal in the fourth quarter, and it was actually the reversal of an accrual we set up in the first quarter. As we worked through that issue that we accrued in the first quarter, it ended up being significantly less than we anticipated. So we did reverse that out. So we had, call it, unusually high margin in the fourth quarter. But even when you take that out, margins would have still been up nicely year over year, reflecting operational excellence and efforts by the team to keep costs in line, and then obviously leverage on the sales increase too.

And then looking ahead again, because of the volume reductions we are going to see in Seating with the Ford Escape that Louis talked about, and some other things, we are anticipating lower sales in that segment in 2026. But working hard to pull the margins, as you can see in the range. We are looking for resilience on the margin line just through operational excellence, cost containment, and the like.

Jonathan Goldman: Okay. That makes sense. So, if we are thinking about the bridge for next year, you are talking about op excellence, maybe just some pull-through on the FX. Commercial seems flat. On the decrementals, are we supposed to be thinking about them as being higher than the normal kind of historical range, I guess, for BES in the low 20s, BEV kind of 20-ish range, and 15 for the Seating business?

Philip Fracassa: I think I would say pretty close to normal would be the right way to think about it. The big thing, as I said, is operational excellence will be a driver. There will be puts and takes, as we show on the slide. But operational excellence is the big plus. FX, we are going to benefit from, but again, from a margin standpoint, that does not really help us. It hurts us a little bit just because it pulls through at a slightly lower level than the company average. And then, obviously, on the volumes, pretty close to normal incrementals, if you will.

Jonathan Goldman: Okay. That is helpful. Thanks for taking my questions.

Philip Fracassa: Thanks, John.

Operator: Thank you. And at this time, we have no further questions. I will now turn the call back over to Swamy Kotagiri for closing remarks.

Swamy Kotagiri: Thanks, everyone, for listening in today. I would say our confidence is rooted in what is within our control. We have demonstrated consistent execution across varying macro environments. Operational excellence continues to be a meaningful value driver. The management team here is really focused on delivering another solid year, including margin expansion, strong free cash flow, and significant returns of capital to shareholders. We remain really highly confident in Magna’s future and in executing our plan. Thanks for listening again. Have a great day, and have a great weekend.

Operator: This concludes today’s conference call. You may now disconnect your lines. We thank you for your participation.

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