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Auto Stock Roundup: November Auto Sales Fall, AutoZone Q1 Earnings Beat Estimates

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Automakers released U.S. vehicle sales figures for the month of November, wherein light-vehicle sales declined 0.5% year over year. The waning popularity of small passenger cars, despite the rising demand for crossovers, sports utility vehicles (SUVs) and trucks, was the major reason behind this decline. The tariff spat and rising rate of interest also contributed to the sales decline. However, holiday season deals aided U.S. auto sales during that period. In fact, in November, auto sales usually benefit from efforts by dealers to clear out their stock ahead of the New Year.

The United States and China seem to have reached a trade truce, with the countries deciding to temporarily stall the imposition of additional tariffs in the next three months. Over this period, both countries will continue with their trade negotiations. It also emerged that China agreed to reduce its import tariffs on products manufactured in the United States. If this materializes, automakers, with major production in the United States, will get a relief from high import rates in China.

Recap of the Week’s Most Important Stories

1.    Per Reuters, Tesla, Inc. (TSLA - Free Report) reached the milestone of making 1,000 of its Model 3 sedans in a day. The news first appeared on Electrek.com. Tesla’s CEO Elon Musk informed employees about this achievement. After attaining this feat, the CEO wants all employees of Tesla to focus on maintaining this production rate and lowering costs.
 
Electric vehicles pioneer Tesla introduced Model 3 sedan in early 2016 and faced several ups and downs. In 2017, the company was “on track” to meet the target of producing 5,000 Model 3s per week by the end of that year and it achieved the target. This prompted it to raise the target again.

However, the latest production rate amounts to 7,000 Model 3s a week and indicates robust growth. Tesla roughly produced 5,300 Model 3 vehicles in the last week of the third quarter of 2018. The Model 3 production system was stable during the quarter. The company started the quarter by producing only Rear Wheel Drive (RWD) Model 3s and ended it by manufacturing almost the entire All-Wheel Drive (AWD) version of Model 3. (Read more: Tesla Reaches Production Milestone for Model 3 Sedan)

Tesla currently sports a Zacks Rank #1 (Strong Buy).

2.    Per AP, Ford Motor Company (F - Free Report) will allow German automaker Volkswagen AG to manufacture vehicles at its U.S. plants. Currently, the companies are in advance talks about the potential alliance.

The proposed collaboration would permit Volkswagen to use Ford’s unused factory capacity in the United States. This will allow Ford to preserve its plants, which otherwise are not used at their full potential as the company reduced production of its less-selling vehicles. Apart from sharing plants in the United States, the collaboration will strengthen this Detroit-based automaker’s presence in Europe as Volkswagen will share its platform. Sharing of U.S. factories and platform in Europe will help Ford to partly offset manufacturing costs, which are already swelling, owing to increased investments for technological developments and the production of enhanced version of SUVs and pickup trucks.

In fact, high costs related to manufacturing compelled Ford to balance production at its U.S. plants. The company intends to reduce shifts at its Michigan and Kentucky plants beside relocating approximately 1,150 workers to other hubs. Further, Ford will shift workers from its Louisville factory that manufactures slower-selling Escape and Lincoln MKC SUVs to another plant that produces top-selling Lincoln Navigator and Ford Expedition SUVs. (Read more: Ford Plans to Share US Plants to Cut Operational Costs)

Ford currently carries a Zacks Rank #3 (Hold).

3.    AutoZone, Inc. (AZO - Free Report) reported adjusted earnings of $13.47 per share in the first quarter of fiscal 2019 (ended Nov 17, 2018), beating the Zacks Consensus Estimate of $12.21. In the prior-year quarter, the figure was $10 per share. The rise in earnings was primarily due to the tax reform, which lowered the effective income tax rate.

Revenues improved 2% year over year to $2.6 billion in the reported quarter and were almost in line with the Zacks Consensus Estimate. Domestic same-store sales (sales of stores open at least for a year) rose 2.7% year over year. The rise in revenues was owing to improved performance in DIY and the company’s commercial growth, which recorded the highest increase since 2015.

Gross profit increased to $1.42 billion from $1.37 billion in the prior-year quarter. Operating profit (EBIT) rose to $487.8 million from $468.8 million registered in the first quarter of fiscal 2018.

Operating expenses, as a percentage of sales, increased to 35.2% from 34.6% a year ago.

During the quarter ended on Nov 17, AutoZone opened 13 stores, and relocated one in the United States and three in Mexico. As of Nov 17, it had 5,631 stores across 50 states in the United States, the District of Columbia and Puerto Rico; 567 in Mexico; and 20 in Brazil. The total store count was 6,218 as of that date.

AutoZone’s inventory improved 2% year over year in the quarter under review, driven by store openings and increased product placement, partially offset by the sale of two business units in fiscal 2018. At the end of the first quarter of fiscal 2019, inventory per location increased to $658,000 from the year-ago figure of $663,000. (Read more: AutoZone Q1 Earnings & Revenues Top Estimates, Up Y/Y)

AutoZone currently carries a Zacks Rank #3.

4.    Per Bloomberg, Daimler AG (DDAIF - Free Report) expressed interest in increasing its stake in a joint venture (JV) with its Beijing, China-based partner, BAIC Motor Corp. The German luxury carmaker Daimler intends to exert greater control in the attractive China market by raising its stake from 49% to 65%. However, no final agreement has been signed between these partners yet.

The trade spat between the United States and China prompted automakers to expand their footprint in the world’s largest car market. Further, the easing of the rules on an automotive joint venture with local partners simplified prospects of entry to China. In fact, a resilient business in China is crucial for Daimler to maintain its financial strength and counter the challenges posed by a slow global auto market.

Importantly, in 2017, Daimler produced 430,000 vehicles through its JV with BAIC. This accounts for the automaker’s 70% sales in the country. Daimler also manufactures electric cars under the Denza brand through a JV with BYD Co.

From 2022, global auto manufacturers will be allowed to hold majority stakes in passenger vehicle JVs. The requirement to collaborate with a partner was lifted for electric car businesses. (Read more: Daimler to Increase Stake in China Joint Venture)

Daimler currently carries a Zacks Rank #3.

5.    PACCAR Inc. (PCAR - Free Report) announced that its board approved a 14% increase in its quarterly cash dividend on common stock to 32 cents per share from the earlier payout of 28 cents. The revised dividend will be paid on Mar 5 to shareholders of record as of Feb 12, 2019. The board declared an additional cash dividend of $2 per share. The extra dividend will be paid on Jan 4, 2019, to shareholders of record as of Dec 14, 2018.

Over the past 20 years, PACCAR has been increasing its quarterly dividends on an average of 11% a year. The company’s annual dividends comprise of regular quarterly dividends beside additional cash dividends, which totaled roughly 50% of net income in several past years.

Apart from paying regular cash dividends, the company engages in stock repurchase programs. Its board approved a share buyback of worth $500 million. The new buyback program will be effective upon the completion of the existing stock repurchase program worth $300 million. Under the current program, the company is left with $124.8 million from the total amount of $300 million.

Notably, PACCAR had cash and cash equivalents of around $2.9 billion at the end of third-quarter 2018 compared with $2.3 billion in the prior-year quarter. A strong cash flow assists the company to reward shareholders through share buybacks and regular dividend payouts.

PACCAR currently carries a Zacks Rank #3.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Performance

In the last week, shares of AutoZone gained the most, whereas shares of Ford declined the most.

In the past six months, Advance Auto Parts, Inc. (AAP - Free Report) has increased the most, whereas Ford declined the most.

CompanyLast WeekLast 6 Months
GM-1.2%-17.1%
F-2.4%-23.7%
TSLA3.4%13.8%
TM-0.6%-11.4%
HMC-1.3%-13.9%
HOG-2.2%-1.6%
AAP-0.4%37%
AZO5.6%32.4%


What’s Next in the Auto Space?

Watch out for the usual news releases over the next week.

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