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CARZ ETF Gains on Tesla's Rally Despite Mixed Auto Earnings

Sweta Jaiswal, FRM

The automobile/tires/trucks sector has reported mixed results so far this reporting season. Of the 62.5% S&P automobile companies that have reported so far, 60% beat on earnings, while 40% outpaced revenue estimates. Earnings have declined 65% year over year and revenues 11.6%, per the Earnings Trends issued on Feb 12.

However, the automobile ETF — First Trust NASDAQ Global Auto Index Fund CARZ — has been observed to gain 4.4% as of Feb 14, since the release of Tesla, Inc.’s TSLA earnings release on Jan 29. Notably, the fund holds 18.3% exposure to Tesla. Meanwhile, Tesla has rallied 37.7% since it reported impressive fourth-quarter 2019 results with record deliveries. At the time of the earnings release, the electric carmaker said the Shanghai plant has reached a production rate of 1,000 units per week. It also commenced production of the new Model Y this month and aims to deliver the first model by March-end, ahead of schedule (read: ETFs to Soar as Tesla Beats on Q4 Earnings, Shares Spike). 

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 Jan 29, Tesla reported earnings per share of $2.14 for fourth-quarter 2019, surpassing the Zacks Consensus Estimate of $1.62. This outperformance stemmed from higher-than-expected automotive revenues, which came in at $6.37 billion, beating the consensus mark of $5.96 billion. The earnings figure also came in higher than the prior-year quarter’s $1.93 per share. Revenues rose to $7.38 billion from the $7.22 billion registered in fourth-quarter 2018. Also, the revenue figure outpaced the Zacks Consensus Estimate of $7.05 billion. During the quarter, Tesla reported record delivery of 112,095 vehicles.

For full-year 2020, the company expects vehicle deliveries to exceed 500,000 units. Due to the ramp-up of Model 3 in Shanghai and Model Y in Fremont, production will likely outpace deliveries this year. Both solar and storage deployments will be up at least 50% in 2020.

Tesla had cash and cash equivalents of $6.3 billion as of Dec 31, 2019, compared with $3.69 billion as of Dec 31, 2018, driven by positive quarterly free cash flow of $1 billion.

On Feb 4, Ford Motor Company F reported fourth-quarter 2019 adjusted earnings per share (EPS) of 12 cents, lagging the Zacks Consensus Estimate of 17 cents. In the year-ago quarter, adjusted earnings were 30 cents. The company reported adjusted earnings before interest and taxes of $485 million and adjusted EBIT margin of 1.2% during this period, down from the $1.46 billion and 3.5% witnessed in the year-earlier quarter, respectively.

During the December-end quarter, Ford reported automotive revenues of $36.67 billion, missing the Zacks Consensus Estimate of $36.79 billion. In the prior-year quarter, the figure was $38.72 billion.

Ford had cash and cash equivalents of $17.5 billion as of Dec 31, 2019 compared with $16.7 billion as of Dec 31, 2018. The stock has depreciated 11.8% since its earnings release (as of Feb 14).

On Feb 5, General Motors Company GM reported adjusted earnings of 5 cents per share for the fourth quarter, slumping 96.5% from the prior-year quarter figure amid the UAW strike. However, its earnings compared favorably with the Zacks Consensus Estimate of a loss of 11 cents. The company reported revenues of $30.83 billion, down from the year-ago figure of $38.40 billion. The revenue figure also missed the Zacks Consensus Estimate of $35.25 billion.

General Motors had cash and cash equivalents of $19.1 billion as of Dec 31, 2019 compared with the $20.8 billion reported in the corresponding period of 2018. The company recorded negative adjusted automotive free cash flow (FCF) of $1.3 billion in fourth-quarter 2019 comparing unfavorably with the FCF of $4.2 billion in the prior-year period. The stock has gained 1.1% since its earnings release (as of Feb 14).

On Feb 7, Honda Motor Co., Ltd. HMC reported third-quarter fiscal 2020 results, wherein both earnings and revenues missed the Zacks Consensus Estimate, and declined year on year. Honda posted earnings of 61 cents per ADR, lagging the Zacks Consensus Estimate of 69 cents and down from the year-ago figure of 85 cents. The firm reported revenues of $34.47 billion, missing the Zacks Consensus Estimate of $34.61 billion and down from the prior-year sales of $35.25 billion.

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).

On Feb 6, Toyota Motor Corporation TM reported third-quarter fiscal 2020 earnings of $4.79 per ADR, up from the year-ago figure of $1.11. In addition, the bottom line surpassed the Zacks Consensus Estimate of $3.84. The company recorded net income of ¥738 billion in the quarter, up a whopping 307.9% from the year-ago period. Consolidated revenues decreased to ¥7.5 trillion ($69.4 billion), down 3.3% year over year. The top-line number also lagged the Zacks Consensus Estimate of $69.7 billion. Toyota had cash and cash equivalents of ¥3.7 trillion ($34 billion) as of Dec 31, 2019. The stock has lost 2.6% since its earnings release (as of Feb 14).

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 Index Fund (CARZ)

CARZ tracks the NASDAQ OMX Global Auto Index. It comprises 33 holdings with the above-mentioned companies, carrying 43.93% weight. Its AUM is $19.2 million and expense ratio is 0.70%. The fund carries a Zacks ETF Rank #3 (Hold), with a High risk outlook (read: 5 ETFs Riding on Tesla's Incredible Surge).

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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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