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Auto Stock Roundup: Recalls Continue, Ford Partners Mahindra, AutoZone Reports Q4 Results

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Last week saw usual readiness on the part of several automakers to move toward electric vehicles. Ford Motor Company (F - Free Report) announced that it has collaborated with Mahindra Group, an Indian automotive manufacturing company, to work on areas such as mobility programs, electrifications, connected vehicle projects and product development, among other aspects.

Even Autoliv, Inc.’s (ALV - Free Report) plans of splitting into two separate publicly traded companies — Passive Safety and Electronics — gives an indication that auto companies are seriously mulling over producing electric vehicles (EVs).

Amid this, a couple of companies came up with their earnings results. Both AutoZone, Inc. (AZO - Free Report) and Copart, Inc. (CPRT - Free Report) reported better-than-expected results.

In this otherwise normal week, a few automakers were once again embroiled in recall issues. The cases of recalls in China, the largest car market in the world, can prove to be serious for these automakers. At a time when these automakers are investing huge money on electric vehicles, these recalls are further putting strains on their exchequers.

(Read the previous roundup here: Auto Stock Roundup for Sep 14, 2017)

Recap of the Week’s Most Important Stories

1.    Autoliv recently announced that it is mulling over splitting into two separate publicly traded companies. The decision to split is currently under strategic review. The plans of separating its two business segments — Passive Safety and Electronics — sent its share price soaring.

However, there is no certainty that the review would fructify into a separation or listing of the businesses. If the separation at all happens, it would take around a year.

While one entity would focus on passive safety, which includes equipment such as airbags and seatbelts, the other would concentrate on automotive radars and cameras with driver-assist systems, which are used in autonomous-driving technology (read more: Autoliv Stock Soars on Electronics Segment Split-Off Plan).

Currently, Autoliv has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2.    AutoZone reported 6.1% year-over-year growth in adjusted earnings per share to $15.18 for the fourth quarter of fiscal 2017 (ended Aug 26, 2017). Earnings beat the Zacks Consensus Estimate of $15.11. Net income increased 1.7% to $433.9 million.

For fiscal 2017, adjusted earnings per share increased year over year from $40.70 to $43.04.

Quarterly revenues improved 3.3% year over year to $3.51 billion. Also, the figure surpassed the Zacks Consensus Estimate of $3.49 billion.
Domestic same-store sales (sales for stores open at least for one year) increased 1% year over year.

Fiscal 2017 sales rose to $10.89 from $10.64 billion a year ago.

Gross profit increased to $1.85 billion from $1.79 billion in the prior-year quarter. Operating profit rose to $707.6 million from $703.4 million in the fourth quarter of fiscal 2016.

Operating expenses, as a percentage of sales, increased to 32.6% from 32.1% a year ago (read more: AutoZone Q4 Earnings & Revenues Top Estimates, Up Y/Y).

3.    Ford has agreed to collaborate with Mahindra Group, an Indian automotive manufacturing company. This strategic alliance aims at using the skill and global reach of the former with the latter’s presence in India.

In an age of unparalleled changes in the global auto industry, strengths will be exploited mutually to drive profitable growth in India and other emerging markets.

For a period of three years, teams from both companies will synergize on areas that include mobility programs, electrifications, connected vehicle projects, product development and many more aspects.

Ford believes that this coalition will enable it to deliver the best batch of vehicles and services to customers as well as grow profitably in the world’s fifth largest vehicle market. Further, in conjunction with India’s ambition to convert into electric vehicles, this cooperation will help both parties to tap the growing potential of the utility market and the emerging usage of battery-powered electric vehicles (read more: Ford Partners Mahindra to Power Electric Vehicles in India).

4.    The problem of recalls is far from over for global automakers. The last few days saw auto giants General Motors Company (GM - Free Report) , Ford and Volkswagen AG facing recalls again.

Reportedly, General Motors will be recalling more than 2.5 million vehicles in China. The issue stemmed from concerns over faulty airbags manufactured by Takata. This is indeed a serious blow to the U.S. automaker, which will start withdrawing faulty vehicles from next month. Ford has reportedly come closer to recalling SUV models in the United States. Reports of leakage in exhaust fumes were responsible for this development.

Last week, German automaker Volkswagen announced that along with Chinese joint-venture partners, it will recall 4.86 million vehicles in China. Once again, the reason was faulty air bags supplied by Takata.

The instances of recalls in China, the largest car market in the world, can be damaging for these automakers. At a time when these automakers are investing open-handedly on electric vehicles, these recalls are doing no good to them (read more: Recalls Plague Automakers: General Motors, Ford in Focus).

5.    Copart reported adjusted earnings per share of 35 cents in fourth-quarter fiscal 2017 (ended Jul 31, 2017) and beat the Zacks Consensus Estimate of 31 cents. The figure shows a steep rise of 20.7% from 29 cents recorded in the year-ago quarter.

Net income was $70.3 million, reflecting a decrease of 16.4% or $13.8 million from the fourth quarter of fiscal 2016.

Copart’s revenues rose 13.8% to $378.6 million from the year-ago quarter and surpassed the Zacks Consensus Estimate of $355.5 million. Service revenues went up 16.3% to $336.8 million, while revenues from vehicle sales declined 3.2% to $41.8 million.

Gross margin improved 18.4% to $167.5 million from $141.5 million a year ago. Operating expenses also increased to $267.8 million from $226.5 million in the year-ago quarter.

Operating income shot up to $110.8 million from $106.2 million reported a year ago (read more: Copart Q4 Earnings & Revenues Beat Estimates, Up Y/Y).

Performance

Last week, save Advance Auto Parts (AAP - Free Report) and AutoZone, all the stocks listed below moved north.

In the last six months, Tesla, Inc. (TSLA - Free Report) gained the most, while Advance Auto Parts registered the sharpest decline.

CompanyLast WeekLast 6 Months
GM1.8%13.1%
F0.8%-0.5%
TSLA2.1%46.6%
TM3.2%8.6%
HMC1.5%-3.2%
HOG0.8%-20.1%
AAP-5.3%-37.3%
AZO-4.5%-25%


What’s Next in the Auto Space?

Stay tuned for the usual news updates in the space.

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