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Auto Roundup: F's Profit Warning, AZO's Solid Quarterly Results & More

Last week, the European Automobile Manufacturers Association (“ACEA”) released data for commercial vehicle registrations for July and August 2022. The European Union (EU) commercial vehicle market contracted 17.4% year over year in July. In August, registrations fell another 8%, marking the 14th straight month of decline. The overall decline was primarily because of the sharp drop in van registrations. For the first eight months of 2022, commercial vehicle sales declined 18.8% to around 1 million units. Most of the countries in the EU witnessed a double-digit drop in registrations, including four key markets. Registrations in Italy, Germany, Spain and France witnessed a yearly decline of 11.1%, 17.1%, 25.2% and 21.5%, respectively.

On the news front, U.S. auto giant Ford F issued a profit warning last week. It expects its third-quarter 2022 profits to take a hit in view of commodity cost headwinds stemming from exacerbated supply chain snarls and inflationary pressure. The persistent microchip shortage has been crippling the auto industry, as the auto part shortage is choking supplies, putting automakers on edge. Companies are battling with high raw material prices. This supply-chain chaos is expected to linger through 2022 and into 2023 as well.

Amid the persistent chip supply crunch, Japan-based auto giants Toyota and Honda are prompted to slash output targets. Toyota now intends to manufacture around 800,000 vehicles worldwide in October, indicating a fall from its prior production target of 900,000 vehicles. During the month, Toyota will be halting operations at seven domestic factories for around 12 days. Meanwhile, Honda also plans to cut production by around 40% at two Japanese plants in early October due to supply chain disruptions and logistical issues.

Despite the multiple headwinds surrounding the auto sector, AutoZone Inc. AZO managed to pull off a comprehensive beat in its latest quarterly results. In addition to keeping its earnings beat streak alive, the auto parts retailer also witnessed year-over-year growth in revenues and earnings. The agreement between General Motors GM and Hertz for the supply of electric vehicles to the car rental titan also drew attention. Auto equipment providers BorgWarner Inc. BWA and Allison Transmission ALSN also made it to the top stories. While BWA signed a deal to acquire the charging business Hubei Surpass Sun Electric (SSE), ALSN entered into new partnerships for its eGen electric axles.

Last Week’s Top Stories

Ford announced that it anticipates its cost of auto parts to be $1 billion higher than expected in the third quarter of 2022. F envisions third-quarter adjusted EBIT to be $1.4-$1.7 billion, implying a fall from $3.7 billion recorded in the last reported quarter and $3 million earned in third-quarter 2021. The weak forecast is primarily attributed to $1 billion in added supplier costs for the three months ending September due to inflation and component shortages.

While Ford expects its profits to take a hit in the ongoing quarter, it has reaffirmed its full-year adjusted EBIT forecast of $11.5-$12.5 billion. Amid the scarcity of parts and components, Ford’s inventory of half-completed vehicles remains elevated. The company anticipates having 40,000-45,000 partially-built vehicles in inventory at the end of the third quarter. The vehicles are mainly high-margin trucks and SUVs, which Ford expects to get completed and sell by the end of 2022.

AutoZone reported earnings of $40.51 per share in fourth-quarter fiscal 2022, up 13.4% from the prior-year figure of $35.72. The bottom line surpassed the Zacks Consensus Estimate of $38.38 a share. Our estimate for fiscal fourth-quarter 2022 EPS was $37.71. The net sales grew 8.9% to $5,348.3 million. The top line beat the Zacks Consensus Estimate of $5,143 million. Our estimate for the top line was $5,103.1 million.

During the fiscal year that ended Aug 27, 2022, AutoZone opened 118 new stores and closed one in the United States, opened 39 stores in Mexico and 20 stores in Brazil. The total store count was 6,943 as of Aug 27, 2022. AZO had cash and cash equivalents of $264.4 million as of Aug 27, 2022, down from $1,171.3 million on Aug 28, 2021. The total debt amounted to $6,122.1 million as of Aug 27, 2022, marking an increase from $5,269.8 million on Aug 28, 2021.

BorgWarner announced that it is set to acquire the Electric Vehicle Solution, Smart Grid and Smart Energy businesses of Hubei SSE. The transaction will have an enterprise value of nearly RMB 410 million, of which around RMB 267 million would be delivered at or soon after closing. It allows contingent payments of about RMB 143 million over a rough span of two years following the closing.The transaction is subject to customary closing conditions and SSE shareholder approval and is expected to close in the first quarter of 2023.

Based in Hubei province in China, SSE’s electrification business offers patented EV charging solutions to customers in China and more than 70 other countries. SSE has an excellent track record of delivering over 50,000 charging points and leading the engineering, procurement and construction of more than 250 charging station sites. BorgWarner is focused on expediting its fast-charging capabilities worldwide so that the recent development is an added advantage for the company. BorgWarner’s strength in Europe and North America will complement SSE’s electrification efforts in China.

BorgWarner currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

General Motors and Hertz inked a deal, per which the former will sell nearly 175,000 of its EVs to the latter. The legacy US automaker will start supplying Chevrolet, Buick, GMC, Cadillac and even its commercial delivery unit, BrightDrop EVs, to the global vehicle rental giant from the first quarter of next year and over the next five years. These vehicles are expected to be followed by newer EV models built on GM’s Ultium battery technology, such as the Chevrolet Blazer, Chevrolet Equinox and vehicles from its other brands.

The extensive upcoming EV lineup by GM that includes everything from SUVs to pickup trucks and luxury vehicles will be made available to Hertz for rent. BrightDrop will make its Zevo 600 van available. Both GM and Hertz are of the view that the plan is the largest expansion drive of EVs among fleet customers because it includes a wide range of vehicle categories across varied price points, thereby making it more popular. General Motors, through the move, ensures that the EV market footprint widens and more customers can partake in the benefits of cleaner transport.

Allison formed a strategic cooperation agreement with Anadolu Isuzu, Turkey’s top manufacturer of buses and trucks. Per the agreement, Allison will supply its eGen Power 100S electric axles to Anadolu Isuzu. These will be integrated with Anadolu Isuzu’s light-duty truck and midibus platforms for application in refuse, distribution and public transportation.The axles, with premium characteristics, will bolster the performance of Anadolu Isuzu's light-duty trucks and midibuses and enable them to score high on reliability.

In another development, the Germany-based vehicle manufacturer, Quantron integrated Allison’s 130D e-Axle into its new fuel cell electric vehicle. It is a heavy-duty truck capable of tractor and chassis derivatives and made its debut at the IAA Transportation 2022, currently held in Hanover, Germany. ALSN also expanded its eGen Power family with the introduction of eGen Power 130S. The new product joins the impressive lineup of eGen Power e-axles, including the 100D (launched in 2020) and 130D and 100S (launched in 2021).

Price Performance

The following table shows the price movement of some of the major auto players over the last week and six-month period.

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Zacks Investment Research


Image Source: Zacks Investment Research

What’s Next in the Auto Space?

Stay tuned for any update on how automakers tackle the semiconductor shortage — compounded by the Russia-Ukraine war and COVID-19 restrictions in China — and make changes in business operations.


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Ford Motor Company (F) : Free Stock Analysis Report
 
BorgWarner Inc. (BWA) : Free Stock Analysis Report
 
AutoZone, Inc. (AZO) : Free Stock Analysis Report
 
General Motors Company (GM) : Free Stock Analysis Report
 
Allison Transmission Holdings, Inc. (ALSN) : Free Stock Analysis Report
 
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