The Auto-Tires-Trucks sector’s results for the June-end quarter are likely to reflect a surge in demand for vehicles amid the rising consumer preference for personal mobility, improved credit conditions and fiscal stimulus. However, the gained momentum in vehicle sales during the second quarter has somewhat been hindered by the global semiconductor chip dearth grappling the auto sector, along with rising commodity costs, especially steel.
 
In the last reported quarter, the auto sector’s earnings skyrocketed 608.9% year over year on an 11% revenue increase amid the sustained recovery of the economy from the pandemic. For the April-June quarter, the auto sector is estimated to earn $5.2 billion, turning around the loss of $1.2 billion witnessed in the year-earlier period. Revenues for the sector are projected to jump 58.4% year over year, per the latest Earnings Trend Report.

Let’s glance at the factors that are likely to have impacted auto stocks during the to-be-reported quarter.

Factors Shaping Auto Sector in Q2

Auto sales across the globe continued to gather steam in the second quarter despite the prevailing global semiconductor supply crisis thwarting vehicle production. Amid the rising demand for sport utility vehicles (SUVs), most automakers reported an upswing in the U.S. quarterly sales. Per Bloomberg, U.S. new car sales in the second quarter were up 51% from the prior-year quarter — a period heavily impacted by the pandemic-induced shutdowns. Moreover, the sales figure was even slightly above the same period in 2019, when adjusted for selling days.

The pandemic-induced rising preference for individual personal transportation over shared options has spurred demand for vehicles even as prices continue to shoot up on constrained inventories following the global semiconductor shortage. Also, low interest rates and government stimulus have triggered demand for new vehicles in the country. The soaring popularity of electric vehicles (EVs) has also contributed toward the rising vehicle sales.

GM, HMC, MTOR & BWA in the Spotlight

Let’s see how these companies belonging to the auto sector stand when their quarterly numbers are out on Aug 4.

General Motors (GM Quick QuoteGM - Free Report) : This U.S. auto giant is slated to release second-quarter 2021 results, before market open. The Zacks Consensus Estimate for the quarter’s earnings is pegged at $1.89 per share on revenues of $29 billion.

The company registered robust profits in the last reported quarter amid stellar demand for SUVs as well as pick-ups. Over the trailing four quarters, General Motors topped the Zacks Consensus Estimate on all occasions — the average surprise being 75.8%. This is depicted in the graph below:

Per the Zacks quantitative model, the combination of a positive Earnings ESP, and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), increases the odds of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Our proven model predicts an earnings beat for General Motors this time around. The company has an Earnings ESP of +19.83% and flaunts a Zacks Rank of 1, at present. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

High demand of vehicles in the United States and China is likely to have aided the firm’s quarterly sales. It sold 688,236 vehicles in the United States during the to-be-reported quarter, jumping 40% on a yearly basis. The company sold 750,800 vehicles in China, marking a year-on-year increase of 5%. Robust demand for pick-ups and SUVs is expected to have boosted the firm’s sales and earnings during the quarter.

(Read more: Can General Motors Maintain its Earnings Beat Streak in Q2? )

Honda Motor (HMC Quick QuoteHMC - Free Report) : This Japanese auto bigwig is slated to release first-quarter fiscal 2022 results, before market open. The Zacks Consensus Estimate for the quarter’s earnings is pegged at 74 cents per share on revenues of $33.86 billion.

The company delivered higher-than-anticipated earnings in the last reported quarter on stellar revenues. Over the preceding four quarters, the company beat estimates on all occasions, the average beat being 111.4%.

Honda has an Earnings ESP of 0.00% and holds a Zacks Rank of 3, currently. For the quarter in discussion, vehicle sales in Japanese market summed 133,964 units, higher than the 126,095 units sold in the prior-year period. Also, for the June-end quarter, the vehicle sales in the American market totaled 486,419 units, up 65.7% year on year. This is likely to have boosted the automaker’s revenues during the quarter.

However, soaring research and development (R&D) expenses on advanced technologies and alternative fuels might have dented Honda’s profit margin for the period in consideration. Further, global shortage of microchips, coupled with higher commodity prices, is likely to have eroded the firm’s profit levels and cash flows during the quarter under discussion.

Meritor Inc. : This automotive parts manufacturer and supplier is scheduled to announce third-quarter fiscal 2021 results before the opening bell. The Zacks Consensus Estimate for the quarter’s earnings and revenues is pegged at 49 cents per share and $936.86 million, respectively.

In the last reported quarter, Meritor posted an earnings beat on higher-than-anticipated revenues and profit from the Commercial Truck & Trailer segment. Over the last four quarters, the firm topped earnings estimates on all occasions, the average surprise being 59.6%.

Meritor, Inc. Price and EPS Surprise

Currently, Meritor has an Earnings ESP of -0.68% and carries a Zacks Rank of 2. The consensus estimate for revenues from the Commercial Truck & Trailer and Aftermarket & Industrial units is pegged at $697 million and $274 million, calling for a rise from the year-ago levels of $336 million and $203 million, respectively. Meanwhile, the consensus mark for EBITDA from the Commercial Truck & Trailer unit is $54 million, suggesting a reversal of the loss of $23 million reported in the year-ago quarter. Also, the consensus mark for EBITDA from the Aftermarket & Industrial segment is pinned at $41.25 million, indicating an improvement from the $31 million witnessed in the prior-year period.

While rising vehicle sales are anticipated to have driven demand for the company’s parts, components and systems, soaring R&D costs related to electrification programs and rising commodity costs, especially steel, might have dragged down the firm’s margins during the quarter to be reported.

BorgWarner Inc. (BWA Quick QuoteBWA - Free Report) : This automotive equipment supplier’s second-quarter 2021 results are slated for a release before the bell. The Zacks Consensus Estimate for the quarter’s earnings is pegged at 79 cents per share on revenues of $3.5 billion.

The company registered higher-than-anticipated earnings in the last reported quarter on outstanding contributions from the Air Management and e-Propulsion & Drivetrain segments. Over the preceding four quarters, the company exceeded estimates on all occasions, the average beat being 38.3%.

BorgWarner has an Earnings ESP of -0.32% and presently carries a Zacks Rank of 3. The Zacks Consensus Estimate for the Air Management segment’s sales is pegged at $1,582 million, for the period in discussion, suggesting a fall from the $2,011 million reported in the prior quarter. In addition, the consensus mark for the segment’s EBIT is pinned at $223 million, calling for a slump from the $322 million seen in the first quarter of 2021.

The consensus mark for quarterly sales from the e-Propulsion & Drivetrain segment is pegged at $1,201 million, suggesting a drop from the $1,466 million reported in the last quarter. The same for the segmental EBIT is $97 million, indicating a plunge from the prior quarter’s $137 million.

The consensus mark for quarterly sales from the Fuel Injection unit is pegged at $473 million, calling for a slight fall from the $475 million witnessed in the prior quarter. Nonetheless, the consensus mark for quarterly sales from the Aftermarket unit is pinned at $200 million, indicating an improvement from the $197 million recorded in the March-end quarter.