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Key Predictions for Q3 Earnings Reports of FCAU, LKQ & More

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A host of companies from the Auto-Tires-Trucks sector are likely to come up with quarterly numbers by the end of this week.

So far, around 50% of S&P auto components including bigwigs like Ford (F - Free Report) and General Motors (GM - Free Report) have already reported quarterly results. The majority of the companies that have unveiled quarterly numbers have managed to beat earnings estimates. However, per the Earnings Trends report dated Oct 23, revenues and sales in third-quarter 2019 are expected to decline 2% and 20.8% year over year, respectively.

So what’s up with the auto sector?

Automakers around the globe have been struggling with declining car sales amid economic slowdown concerns. This trend is likely to have continued in the third quarter. Auto sales in China, the world’s largest car market, continued to plunge during the quarter amid recession worries and trade war tensions that have been denting confidence of consumers and holding back manufacturers. Increasing popularity of ride-sharing platforms is also likely to have weighed on car sales. Stricter emission woes, and shift toward electric and autonomous vehicles are likely to have changed the sector’s dynamics. Widespread usage of technology and rapid digitalization resulted in fundamental restructuring of the automotive market. This is likely to have increased manufacturing vehicles’ costs, which were passed on to consumers and dented demand.

Key Releases

Given the bleak year-over-year backdrop, let’s take a glance at how four auto players are placed ahead of their third-quarter results, slated to release on Oct 31.

Fiat Chrysler Automobiles N.V. (FCAU - Free Report) : Fiat Chrysler, one of the leading automobile companies, is slated to report quarterly results before the opening bell.

Our proprietary model clearly indicates that a company needs to have the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. You can see the complete list of today’s Zacks #1 Rank stocks here.

The auto giant came up with weaker-than-expected earnings in the last reported quarter, primarily due to weak contribution from Europe, Middle East and Africa (EMEA) segment, along with lower revenues from Fiat Chrysler’s luxury brand Maserati. As far as earnings surprises are concerned, the firm displays a mixed record. It surpassed the Zacks Consensus Estimate in two of the last four quarters, with an average positive surprise of 0.38%.

Our proven model does not conclusively predict an earnings beat for Fiat Chrysler this time around,as it carries a Zacks Rank #4 and has an Earnings ESP of 0.00%. The Zacks Consensus Estimate for the quarter to be reported is earnings of 97 cents per share on revenues of $30.1 billion. This indicates a decline from the year-ago earnings and revenues of $1 per share and $33.5 billion, respectively.

Strong performance in North America and Latin America is likely to have aided Fiat Chrysler’s earnings in the to-be-reported quarter. Notably, the company’s third-quarter sales in the United States (which is the firm’s most significant market) came in at 565,034 units versus the year-ago figure of 564,507. Higher sales of RAM truck line (which increased 15% year over year) are expected to have boosted the firm’s third-quarter U.S. sales. However, soft contribution from the APAC unit, primarily due lower vehicle sales in China amid economic growth concerns and trade tussle, is anticipated to have negatively reflected on the firm’s third-quarter results. Further, weak performance of the EMEA market amid soft economic growth in Europe and Brexit uncertainty is likely to have dented its overall margins.

LKQ Corporation (LKQ - Free Report) : Aftermarket auto parts distributor, LKQ Corp, is set to report quarterly results before the opening bell.

The firm came up with better-than-expected results in the last reported quarter on the back of higher-than-anticipated profits from the North American segment. As far as earnings surprises are concerned, the company managed to surpass estimates in two of the trailing four quarters, with the average positive surprise being 0.34%.

LKQ Corporation Price and EPS Surprise

LKQ Corporation Price and EPS Surprise

LKQ Corporation price-eps-surprise | LKQ Corporation Quote

It has an unfavorable combination of a Zacks Rank #4 and an Earnings ESP of -1.45%. The Zacks Consensus Estimate for the quarter to be reported is earnings of 57 cents per share on revenues of $3,119 million. This suggests an increase from third-quarter 2018 earnings of 56 cents a share but a marginal decline from the year-ago revenue figure of $3,122 million.

With Europe being a major market for LKQ Corp, lower vehicle sales amid weakening consumer demand and soft economic conditions are expected to have hampered the firm’s top line. Evidently, the Zacks Consensus Estimate for the to-be-reported quarter’s revenues is pegged at $1,448, suggesting a sequential and year-over-year decline of 4.2% and 1.1%, respectively. Resultantly, the Zacks Consensus Estimate for the European segment’s EBITDA stands at $115 million, implying a decline from $129 million and $116 million recorded in the second quarter and year-ago period, respectively. (Read more: Will Weak European Market Mar LKQ Corp's Q3 Earnings?)

BorgWarner (BWA - Free Report) : Automotive equipment supplier, BorgWarner is slated to unveil quarterly results before opening bell.

The firm’s earnings in the last reported quarter were in line with the Zacks Consensus Estimate of $1 per share. As far as earnings surprises are concerned, the company surpassed estimates in three of the trailing four quarters, with the average positive surprise being 5.12%.

BorgWarner Inc. Price and EPS Surprise

BorgWarner Inc. Price and EPS Surprise

BorgWarner Inc. price-eps-surprise | BorgWarner Inc. Quote

BorgWarner carries an unfavorable combination of a Zacks Rank #4 and an Earnings ESP of -2.00%. The Zacks Consensus Estimate for the quarter to be reported is earnings of 85 cents per share on revenues of $2.38 billion. This implies a decline from the year-ago earnings and revenues of $1 per share and $2.48 billion, respectively.

Decline in light-vehicle production across all major markets served is likely to have impacted BorgWarner’s top line in the to-be-reported quarter. Due to softening demand in China amid trade tensions, the company is increasingly pessimistic about its markets in the country. Weakness in European auto markets is expected to have negatively impacted the company’s third-quarter performance. Divestiture of the thermostat product line and unfavorable foreign currency translations are likely to reflect on the firm’s third-quarter results. (Read more: BorgWarner to Post Q3 Earnings: What's in the Cards?)

Wabco Holdings Inc. (WBC - Free Report) : Wabco recorded weaker-than-expected earnings in the last reported quarter amid lower sales of products across all major markets served. As far as earnings surprises are concerned, the firm has a mixed record. It surpassed the Zacks Consensus Estimate in two of the last four quarters.

Wabco Holdings Inc. Price and EPS Surprise

Wabco Holdings Inc. Price and EPS Surprise

Wabco Holdings Inc. price-eps-surprise | Wabco Holdings Inc. Quote

It currently carries a Zacks Rank #3 and has an Earnings ESP of -11.56%. The Zacks Consensus Estimate for the quarter to be reported is earnings of $1.77 per share on revenues of $886.3 million. This indicates a decline from the year-ago earnings and revenues of $1.78 per share and $915 million, respectively.

Wabco’s third-quarter results are likely to reflect the impact of macroeconomic headwinds. A challenging environment resulted in a slump in the global production of buses and passenger cars. This is likely to have negatively impacted the performance of the auto parts manufacturer. The company’s revenues from markets in Europe and China are likely to have felt the heat of sagging auto sales amid slow economic growth. Operational inefficiency is also likely to have dented its margins. Raw material cost inflation amid U.S.-Sino trade tensions, and high research & development expenses are likely to have clipped profits. 

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