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Will CARZ ETF Gain Despite Mixed Auto Earnings?

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The coronavirus pandemic affected production and sales of vehicles due to shutdown of facilities. However, the industry is expected to rebound amid economic recovery from the pandemic-led slowdown. The U.S. economy seems to be strongly on the mend from the coronavirus lows. Several factors like reopening of the U.S. economy, accelerated vaccine rollouts and a solid fiscal support are raising consumer optimism.

The FDA granting the first full U.S. approval to Pfizer (PFE - Free Report) /BioNTech’s (BNTX - Free Report) coronavirus vaccine can buoy bullish sentiments for the sector. The full FDA nod is expected to increase the urgency of imposing vaccine mandates. Also, the unvaccinated population is now more likely to opt for the shots.

However, the resurging cases from the highly-contagious Delta variant unnerved investors as they fear hurdles in global economic recovery achieved so far. Meanwhile, vehicle demand is on the upswing, courtesy of the growing inclination toward personal mobility and easier credit conditions. Electric vehicles (EV) are seeing greater popularity with each passing day and are likely to boost the prospects of automakers.

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

Earnings in Focus

On Jul 26, Tesla (TSLA - Free Report) reported earnings per share of $1.45 for second-quarter 2021, beating the Zacks Consensus Estimate of 90 cents.  The outperformance stemmed from higher-than-expected automotive gross profit, which came in at $2.90 billion, outpacing the consensus mark of $2.50 billion.  The earnings figure also compared favorably with the prior-year quarter’s number of 44 cents per share. Revenues rose to $11.96 billion, beating the consensus mark of $11.39 billion. The top line also witnessed year-over-year growth of 98.1%. During the second quarter, Tesla reported delivery and production of 201,304 and 206,421 vehicles, reflecting a year-over-year increase of 121% and 151%, respectively.

Tesla had cash and cash equivalents of $16.23 billion as of Jun 30, 2021 compared with $19.38 billion as of Dec 31, 2020.

On Jul 28, Ford Motor Company (F - Free Report) reported second-quarter 2021 adjusted earnings per share of 13 cents. The Zacks Consensus Estimate was of a loss of 11 cents per share. In the prior-year quarter, adjusted loss was 35 cents per share.  Higher-than-expected revenues, primarily in Europe and the North America markets, drove the earnings results higher.

During the reported quarter, Ford reported automotive revenues of $24.1 billion, which outpaced the Zacks Consensus Estimate of $21.5 billion. Ford had cash and cash equivalents of $22.96 billion as of Jun 30, 2021 compared with $25.24 billion on Dec 31, 2020.

On Aug 4, General Motors Co. (GM - Free Report) reported adjusted earnings of $1.97 per share for second-quarter 2021, beating the Zacks Consensus Estimate of $1.89. Stronger-than-expected contribution from the North American and Financial segments led to this outperformance. The bottom line also turned around the year-ago quarter’s loss of 50 cents per share amid cost-containment initiatives, and robust demand for SUVs and pickups. The company reported revenues worth $34.17 billion, up from the year-ago figure of $16.78 billion. Also, the revenue figure surpassed the Zacks Consensus Estimate of $29.00 billion.

General Motors had cash and cash equivalents of $22.9 billion as of Jun 30, 2021 compared with $19.9 billion at the end of 2020.  The company recorded adjusted automotive free cash flow (FCF) of $2.48 billion for second-quarter 2021 against the negative FCF of $9.04 billion in the prior-year period.

On Aug 4, Honda Motor Co., Ltd. (HMC - Free Report) reported earnings of $1.18 per American depositary receipt for first-quarter fiscal 2022, surpassing the Zacks Consensus Estimate of 74 cents. The bottom line reversed the year-ago loss of 44 cents per share. Quarterly revenues totaled $32.74 billion, lagging the Zacks Consensus Estimate of $33.86 billion. Nonetheless, the top line surged 65.8% year over year.

Consolidated cash and cash equivalents were ¥2.5 trillion ($22.5 billion) as of Jun 30, 2021. Long-term debt was ¥4.5 trillion ($40.1 billion).

On Aug 4, Toyota Motor Corporation (TM - Free Report) reported first-quarter fiscal 2022 earnings of $5.87 per share, which surpassed the Zacks Consensus Estimate of $4.68 on higher-than-expected revenues. Moreover, the bottom line jumped from the year-ago earnings of $1.06 a share. Consolidated revenues came in at $72.50 billion, beating the consensus mark of $68.91 billion. The top-line figure also climbed 69.5% year over year.

Toyota had cash and cash equivalents of ¥5 trillion ($45.1 billion) as of Jun 30, 2021. Long-term debt amounted to ¥13.9 trillion ($125.5 billion).

Automobile ETF in Focus

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

First Trust NASDAQ Global Auto Index Fund  (CARZ - Free Report)

The investment objective of the Fund is to seek investment results that correspond generally to the price and yield, before the Fund's fees and expenses, of an equity index called the NASDAQ OMX Global Auto Index. It comprises 34 holdings with the above-mentioned companies carrying about 28.1% weight. Its AUM is $62.6 million and expense ratio, 0.70%. The fund currently carries a Zacks ETF Rank #3 (Hold) with a High-risk outlook. It has lost about 1% since Jul 26 (as of Aug 24) (read:  4 Sector ETFs & Stocks to Shine Despite Soft April Retail Sales).

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