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Can CARZ ETF Gain Despite Mixed Auto Earnings?

Sweta Jaiswal, FRM
·6-min read

The ‘automobile, tires, trucks’ sector has come up with mixed results this reporting season. Notably, 62.5% of the S&P automobile companies beat on earnings, while 62.5% outpaced revenue estimates. Earnings declined 76.7% year over year and revenues 11.6%, per the Earnings Trends issued on May 13.

The coronavirus pandemic has affected production and sales of vehicles as carmakers had to shut down facilities in late March across the United States. However, with many states starting to ease restrictions, automakers are planning to restart operations soon.

Against this backdrop, we take a look at some big automobile earnings releases and see if these can impact ETFs exposed to the space.

Earnings in Focus

On Apr 29, Tesla TSLA reported earnings per share of $1.24 in first-quarter 2020 against the Zacks Consensus Estimate of a loss of 22 cents. The outperformance stemmed from higher-than-expected automotive revenues, which totaled $5.13 billion, beating the consensus mark of $4.47 billion. The earnings figure also compared favorably with the prior-year quarter’s loss of $2.90 per share. Revenues rose to $5.98 billion from the $4.54 billion registered in first-quarter 2019. Also, the revenue figure outpaced the Zacks Consensus Estimate of $5.37 billion. During the first quarter, Tesla reported delivery and production of 88,496 and 102,672 vehicles, reflecting a year-over-year increase of 33% and 40%, respectively.

Tesla had cash and cash equivalents of $8.1 billion as of Mar 31, 2020, compared with $6.3 billion as of Dec 31, 2019.

For 2020, the company expects vehicle deliveries to exceed 500,000 units. However, amid the coronavirus-related setbacks, Tesla refrained from providing any profit or cash-flow forecast. The electric vehicle maker expects to ramp-up production of Model 3 in Shanghai and Model Y in Fremont through second-quarter 2020 and start deliveries from both locations by 2021. Furthermore, deliveries for Tesla Semi are anticipated to begin in 2021.

On Apr 28, Ford Motor Company F reported first-quarter 2020 adjusted loss per share of 23 cents, wider than the Consensus Estimate of a loss of 10 cents. In the prior-year quarter, adjusted earnings were 44 cents per share. The year-over-year deterioration can be attributed to lower automotive sales across all markets served. The firm’s first-quarter sales were affected by depressed demand for vehicles largely due to the coronavirus outbreak.

In first-quarter 2020, the company reported adjusted negative EBIT of $600 million against a profit of $2.4 billion recorded in the corresponding period of 2019. The U.S. auto giant reported net loss of $2 billion. Ford had cash and cash equivalents of $25.9 billion as of Mar 31, 2020, compared with $17.5 billion on Dec 31, 2019.

During the reported quarter, Ford reported automotive revenues of $31.34 billion, missing the Zacks Consensus Estimate of $31.77 billion. In the prior-year quarter, the figure was $37.24 billion.

On May 6, General Motors Company GM reported adjusted earnings of 62 cents per share for first-quarter 2020, beating the Zacks Consensus Estimate of 18 cents. Stronger-than-expected contribution from the North American segment led to the outperformance. However, the bottom line declined 56% from the year-ago $1.41 a share. The company reported revenues of $32.71 billion, down from the year-ago figure of $34.88 billion. However, the revenue figure surpassed the Zacks Consensus Estimate of $32.59 billion.

General Motors had cash and cash equivalents of $38.5 billion as of Mar 31, 2020, compared with $19.1 billion as of Dec 31, 2019. The company recorded negative adjusted automotive free cash flow (FCF) of $903 million in first-quarter 2019 compared with a negative FCF of $3,876 million in the prior-year quarter.

On May 13, Honda Motor Co., Ltd. HMC incurred fourth-quarter fiscal 2020 loss of 16 cents per ADR against the Zacks Consensus Estimate of earnings of 28 cents. The reported figure also widened from the year-ago quarter’s loss of 7 cents per share. The firm reported revenues of $31.75 billion, beating the Zacks Consensus Estimate of $31.73 billion but, declining 13.6% from the prior-year sales.

Consolidated cash and cash equivalents were ¥2.44 trillion ($22.2 billion) as of Dec 31, 2019. The stock has gained 1.1% since its earnings release (as of Feb 14).Consolidated cash and cash equivalents were ¥2.67 trillion ($24.8 billion) as of Mar 31, 2020. Long-term debt was ¥4.22 trillion ($39.2 billion). The long-term debt was 33.7% of the total capital.

On May 12, Toyota Motor Corporation TM reported fourth-quarter fiscal 2020 earnings of 45 cents per share against the Zacks Consensus Estimate of a loss of a penny. However, the bottom line compared unfavorably with the year-ago earnings of $2.89 a share. Consolidated revenues came in at $65.19 billion, surpassing the consensus mark of $63.26 billion. Nonetheless, the top line declined 7.3% year over year. Toyota had cash and cash equivalents of ¥4.2 trillion ($39 billion) as of Mar 31, 2020. Long-term debt amounted to ¥10.7 trillion ($99.4 billion). At the end of fiscal 2020, operating cash flow was ¥3.6 trillion, down 4.6% year over year.

Automobile ETF in Focus

In the current scenario, it is prudent to discuss the following ETF that has a relatively higher exposure to the companies discussed.

First Trust NASDAQ Global Auto ETF CARZ

CARZ tracks the NASDAQ OMX Global Auto Index. It comprises 33 holdings with the above-mentioned companies carrying 39.4% weight. Its AUM is $14.7 million and expense ratio, 0.70%. The fund carries a Zacks ETF Rank #3 (Hold), with a High-risk outlook. The funds has lost 2.5% since Apr 28 (as of May 14) (read: Post-Lockdown Travel Plans to Impact These ETFs).

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Ford Motor Company (F) : Free Stock Analysis Report
 
Honda Motor Co., Ltd. (HMC) : Free Stock Analysis Report
 
Toyota Motor Corporation (TM) : Free Stock Analysis Report
 
General Motors Company (GM) : Free Stock Analysis Report
 
Tesla, Inc. (TSLA) : Free Stock Analysis Report
 
First Trust NASDAQ Global Auto ETF (CARZ): ETF Research Reports
 
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