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Auto Roundup: Chip Crunch Crimps Firms' Near-Term Profit Projections

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Last week, various auto giants unveiled October 2021 U.S. sales reports. U.S. auto giant Ford’s (F - Free Report) overall sales totaled 175,918 units, down around 4% year over year amid tight chip supply, depicting the fifth consecutive monthly decline. Vehicle sales of Japan-based auto biggies Toyota (TM - Free Report) and Honda (HMC - Free Report) tanked 28.6% and 23.5%, respectively, on a year-over-year basis. Subaru, Kia, Mazda, and Volvo registered year-over-year sales drop of 40%, 7.2%, 14.1%, and 18.6%, respectively. Seasonally adjusted annualized rate for vehicle sales fell to 13.1 million last month from 16.44 million units in October 2020, per U.S. Automotive News.

Shortage of semiconductor supply prompted most auto companies that reported quarterly numbers last week to slash their full-year projections. The companies cited low light vehicle production, manufacturing inefficiencies, high commodity costs and a tough labor market as the key factors behind the trimmed forecasts. 

Recap of the Week’s Important News

1. Cummins Inc. (CMI - Free Report) reported third-quarter 2021 earnings of $3.61 per share, which increased from $3.57 recorded in the year-ago period but lagged the Zacks Consensus Estimate of $3.99. Revenues increased 16.6% year over year to $5,968 million. The reported figure, however, fell short of the Zacks Consensus Estimate of $5,999 million.

Amid persistent supply chain disruptions and cost headwinds, Cummins has downwardly revised its full-year 2021 guidance. The revised top-line estimate indicates year-over-year growth of 20% versus the prior guided range of 20-24%. EBITDA is envisioned at 15% of sales, down from the previous forecast of 15.5-16% of sales. 

2. BorgWarner Inc. (BWA - Free Report) reported adjusted earnings of 80 cents per share for third-quarter 2021, declining from 88 cents recorded in the prior-year period but beating the Zacks Consensus Estimate of 66 cents. Net sales of $3,416 million outpaced the Zacks Consensus Estimate of $3,342 million and grew 34.8% year over year.

For full-year 2021, the company now anticipates net sales within $14.4-$14.7 billion, down from the previous guided range of $15.2-$15.6 billion. Adjusted operating margin and net earnings are expected in the band of 9.6-10% and $3.65-$3.95 per share, lower than the earlier guided range of 10.2-10.5% and $4.15-$4.40, respectively. Free cash flow is projected in the band of $600-$700 million versus the prior guided range of $800-$900 million. 

3. Honda reported earnings of 88 cents per American Depositary Receipt for second-quarter fiscal 2022, surpassing the Zacks Consensus Estimate of 74 cents. The bottom line, however, declined from the year-ago earnings of $1.31 a share. Quarterly revenues totaled $30,925 million, missing the Zacks Consensus Estimate of $31,188 million. The top line also slid 6.7% year on year.

For fiscal 2022, the Japan-based auto biggie forecasts sales of ¥14.6 trillion, down from the earlier estimate of ¥15.45 trillion. Profit before taxes is envisioned at around ¥860 billion, down from the previous projection of ¥1 trillion. The revised forecast also implies a 6% decline year over year.

4. Magna (MGA - Free Report) reported third-quarter 2021 adjusted earnings of 56 cents per share, plummeting from $1.95 recorded in the year-ago period. The bottom line also missed the Zacks Consensus Estimate of 75 cents per share. For the reported quarter, net sales contracted 13.2% from the prior-year quarter to $7,919 million but topped the consensus mark of $7,849 million.

The automotive equipment provider now expects full-year 2021 revenues in the band of $35.4-$36.4 billion, down from the previous view of $38-$39.5 billion. Adjusted EBIT margin is anticipated to be 5.1-5.4% versus the prior guided range of 7-7.4%.

5. Tenneco (TEN - Free Report) reported adjusted earnings of 17 cents per share for third-quarter 2021, declining from the year-ago figure of 33 cents but topping the Zacks Consensus Estimate of 15 cents. Revenues of $4,332 million topped the Zacks Consensus Estimate of $3,995 million but inched down from $4,256 million recorded in the corresponding quarter of 2020.

Full-year revenues are now envisioned within $17.75-$17.85 billion, down from the prior view of $18.3-$18.6 billion. The company expects 2021 adjusted EBITDA in the band of $1.25-$1.28 billion, lower than the previous estimate of $1.36-$1.44 billion.

6. American Axle (AXL - Free Report) reported adjusted earnings of 15 cents per share for third-quarter 2021, beating the Zacks Consensus Estimate of 2 cents. The bottom line, however, slipped from the year-ago earnings of $1.15 a share. The company generated quarterly revenues of $1,213 million, surpassing the Zacks Consensus Estimate of $1,180 million but falling 14.4% on a year-over-year basis.

Revenues for full-year 2021 are now envisioned in the range of $5.15-$5.25 billion, down from the previous guidance of $5.3-$5.5 billion. The firm expects adjusted EBITDA in the band of $830-$850 million, down from the prior estimate of $875-$925 million.

Price Performance

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

Zacks Investment ResearchImage Source: Zacks Investment Research

In the past six months, all stocks have increased, apart from Honda and Harley-Davidson. Tesla was the best performer, with shares up 94.3%. In the past week, all stocks rose, with Ford registering the maximum gains.

What’s Next in the Auto Space?

Industry watchers will track China vehicle sales data for October 2021, which is likely to be released by the China Association of Automobile Manufacturers this week. Automotive equipment providers Westport Fuel Systems and Adient plc are slated to report quarterly numbers this week. Also, stay tuned for updates on how automakers tackle the semiconductor shortage, and make changes in business outlook as well as operations.