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Auto Roundup: AAP's Weak Q3 Results, GT's Transformation Plan & More

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Last week, United Auto Workers (UAW) union members ratified agreements with Detroit 3 automakers — General Motors, Ford and Stellantis — following extensive negotiations and a nearly seven-week strike. Around 68% of Ford and Stellantis’ union workers voted in favor of the agreement, while 55% of General Motors' UAW-represented workers expressed support. 

Initially, the UAW union had proposed a substantial 40% wage increase, later revising it to 36% along with other demands. Ultimately, an agreement was reached for 25% wage hikes over the duration of the contract, along with other benefits.

On the news front, Advance Auto Parts (AAP - Free Report) , XPeng (XPEV - Free Report) and Copart (CPRT - Free Report) unveiled their quarterly reports. Meanwhile, Goodyear (GT - Free Report) also made to the top stories with its transformation plan “Goodyear Forward.”

Recap of Last Week’s Important News

Advance Auto incurred an adjusted loss of 82 cents per share for third-quarter 2023 against adjusted earnings of $1.92 in the year-ago quarter. The reported figure was also in contrast to the Zacks Consensus Estimate of earnings of $1.42 per share. Advance Auto generated net revenues of $2,719 million, which topped the Zacks Consensus Estimate of $2,679 million on higher-than-expected comparable store sales. Comparable store sales increased 1.2%. We projected an increase of 0.2%. The top line increased 2.9% year over year.

Advance Auto had cash and cash equivalents of $317.5 million as of Oct 7, 2023. AAP now estimates 2023 net sales in the band of $11.25-$11.30 billion compared with the previous guided range of $11.25-$11.35 billion. Comparable store sales are projected within a range of negative 0.5% to 0%. The operating income margin is envisioned in the range of 1.8-2%, down from 4-4.3%, guided earlier. The company aims to open 55 to 65 new stores this year, up from the prior guidance of 40 to 60 stores.

Copart reported first-quarter fiscal 2024 (ended Oct 31, 2023) adjusted earnings per share of 34 cents, beating the Zacks Consensus Estimate of 32 cents on better-than-expected service revenues. The bottom line also increased 36% year over year. The online auto auction leader generated revenues of $1.02 billion, beating the Zacks Consensus Estimate of $978 million. The top line also increased by 14.2% from the year-ago reported figure.

Copart had cash, cash equivalents and restricted cash of $2.58 billion as of Oct 31, 2023, compared with $957 million as of Jul 31, 2023. Long-term debt and other liabilities declined to $9.4 million at the end of the reported quarter from $10.9 million as of Jul 31, 2023. Net cash from operating activities during the quarter totaled $375.2 million, up from $311.6 million in the year-ago quarter. Capex during the quarter was $162.2 million, up 6.3% year over year.

Goodyear announced a transformation plan called “Goodyear Forward.” The plan will help the company optimize its portfolio, expand margins and reduce leverage to create significant value for its shareholders. The Goodyear Forward plan aims to raise more than $2 billion in proceeds from portfolio optimization. After a comprehensive assessment of all assets, the company is actively pursuing strategic alternatives for its chemical business, the Dunlop brand and the Off-the-Road equipment tire business. The tire manufacturer plans to generate a run-rate benefit of $1.3 billion by the end of 2025. It will achieve this by $1 billion in cost cuts. The top-line action is expected to drive the remaining annual run-rate benefit of $300 million.

Considering the benefits of cost reduction and top-line action and the net effect of asset sales and inflation, Goodyear expects to double its operating margin from nearly 5% in 2023 to 10% by the end of 2025. In an effort to move closer toward an investment-grade rating, Goodyear aims to consolidate its financial profile via improved earnings, strong cash flow generation and debt reduction. It expects to achieve around $1.5 billion of debt reduction by 2025, targeting net leverage of 2.0-2.5 times in the same period.

GT currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

XPeng incurred a loss per share of 62 cents in the third quarter of 2023, narrower than the Zacks Consensus Estimate of a loss of 72 cents. Total revenues were $1.17 billion, up 25% on a year-over-year basis. While revenues from vehicle sales were up 25.7% year over year to $1.08, service and other sales rose 17.7% to $0.09 billion. Deliveries came in at 40,008 units during the quarter. Gross margin came in at negative 2.7%,witnessing a steep fall from 13.5% registered in the year-ago period due to high cost of sales, which flared up 48.4%.  

Vehicle margin was negative 6.1% in the quarter under review against 11.6% in the corresponding period of 2022. R&D and SG&A expenses were $180 million (down 12.9% year over year) and $230 million (up 4% year over year), respectively. As of Sep 30, the company had cash and cash equivalents of $1.67 billion. Long-term borrowings were $880 million as of Sep 30. For the fourth quarter of 2023, XPEV expects deliveries within 59,500-63,500 units, implying a jump of 168-186%. Revenues are envisioned in the band of RMB 12.7-13.6 billion, indicating a surge of 147-164.6%.

Price Performance

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

Zacks Investment Research
Image Source: Zacks Investment Research

What’s Next in the Auto Space?

Industry watchers will keep a tab on October 2023 new car registrations to be released by the European Automobile Manufacturers Association soon.

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