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Auto Stock Roundup: Disruptions Galore as Coronavirus Cripples the Sector

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The coronavirus pandemic has rattled the auto industry, with closure of factories, lower footfall at dealerships and disruptions in global supply chains. Last week, various auto companies having operations in the United States and Europe temporarily suspended production. To preserve cash and maintain ample liquidity, the firms have started resorting to dividend cuts or even suspension. The pandemic prompted many automakers to withdraw their full-year guidance.  

(Read the Last Auto Stock Roundup here)

Recap of the Week’s Most Important Stories

1. Operations Disrupted Amid Virus Scare

Detroit’s Big Three automakers — namely Ford (F - Free Report) , Fiat Chrysler (FCAU - Free Report) and General Motors (GM - Free Report) — announced that they have temporarily planned to close all factories across North America from Mar 19 through Mar 30. All three automakers have bowed to pressure from the United Auto Workers union that has called for protection from the pandemic in order to safeguard members, families and communities. Ford and Fiat Chrysler also halted operations at the majority of their European plants.

Germany-based auto biggie Volkswagen (VWAGY - Free Report) — which owns Audi, Bentley, Bugatti, Ducati, Lamborghini, Porsche, Seat and Skoda brands — temporarily closed all its European plants in the wake of the health hazard. A couple of days back, CEO Herbert Diess had warned that the crisis may force the company to keep factories shut for weeks.

BMW will be shuttering its dealerships and plants in Europe by the end of this week, which will last until mid-April. The company will suspend its manufacturing facilities at Oxford and Swindon for four weeks until Apr 17.

Daimler — which owns the Mercedes-Benz luxury car brand — shut down factories and administrative departments for two weeks initially, starting last week.

Honda North America announced that it will be closing four U.S.-based plants from today until March-end due to an anticipated decline in market demand. The hiatus is likely to reduce its production by 40,000 vehicles. The affected plants include vehicle production plants in Ohio, Illinois, Alabama and Indiana.

Effective Mar 20, Nissan has stopped production across all U.S. plants from a few days to more than two weeks. The firm also halted operations at the Sunderland factory in the United Kingdom, which builds about 440,000 vehicles a year. Renault also announced that it would be ceasing production at 12 of its industrial sites in France in compliance with the measures taken by the French government. The company has not indicated when it is going to resume operations. 

Toyota also announced suspension of operations at all its automobile and components plants in Huntsville until Mar 25. The firm also kept operations suspended at all its major plants across Europe over the course of last week until further notice. 

Harley-Davidson (HOG - Free Report) has also temporarily suspended the majority of production at its U.S. manufacturing facilities, beginning Mar 18 through Mar 29. The affected facilities are York Vehicle Operations in Pennsylvania, and Wisconsin facilities Tomahawk Operations and Pilgrim Road Powertrain Operations.

Early last week, Westport Fuel Systems announced the temporary suspension of production in its Brescia, Italy plant on rising coronavirus fears. The company plans to reassess the suspension of production at the plant in two weeks’ time.

Cooper Tire & Rubber Company announced that it would temporarily shut down tire manufacturing facilities in the United States and Mexico. The firm is currently evaluating plans for European operations. Goodyear Tire has also suspended manufacturing across tire, retread and chemical plants in the United States until Apr 3.

The engine maker, Cummins, has suspended production at the Midrange Engine Plant in Walesboro for two weeks in response to Fiat Chrysler's decision to shut down pickup truck assembly plant till March-end.

2. Dividends in Jeopardy to Preserve Cash

Some auto companies cut/suspended their dividend payout to shore up their balance sheet as they brace for a period of revenue slump amid the virus mayhem.

Ford suspended its quarterly dividend of 15 cents per share, not specifying the tenure of suspension. BMW slashed its dividend payout from 3.50 euros per share to 2.50 euros. Power sports vehicle manufacturer BRP Inc. also suspended quarterly cash dividend until further notice to preserve its financial flexibility.

3. Guidance Withdrawn Amid Uncertainty

Ford withdrew its 2020 guidance to preserve cash as vehicle sales fade on the coronavirus outbreak. The company had $22.3 billion in cash and $35.4 billion in liquidity at the end of 2019, which would be used to deal with the downturn caused by shutdowns in production due to the pandemic-led crisis. The carmaker is also planning to draw $15.4 billion from two credit lines. It will borrow $13.4 billion under its corporate credit facility and an additional $2 billion under the supplemental credit facility.

Volkswagen has already warned that 2020 will be a tough year amid dwindling sales and supply chain distortion. The company finds it impossible to come up with a reliable 2020 guidance as the COVID-19 outbreak poses serious operational and financial challenges. 

BMW warned investors that the firm’s sales and profits will drop significantly in wake of the pandemic. The firm now expects automotive EBIT margin in the range of 2-4% compared with the prior view of 6-8%.

Automotive seating specialist, Adient suspended its fiscal 2020 guidance due to global economic uncertainty amid the virus eruption.

Coronavirus threat also prompted Cummins to withdraw full-year 2020 outlook.

4. Earnings Release

Last week, China-based EV maker NIO Inc. and Canada-based natural gas-powered-engine maker Westport came up with their respective quarterly results.

NIO reported fourth-quarter 2019 loss of 40 cents, wider than the Zacks Consensus Estimate of a loss of 37 cents. Revenues came in at $409 million, missing the consensus mark of $412 million. The company expects deliveries and sales to decline in first-quarter 2020 amid the outbreak of COVID-19 in China. The firm expects deliveries within 3,400-3,600 vehicles in the quarter, indicating 50% sequential drop.

Westport reported break-even earnings per share in fourth-quarter 2019 against the Zacks Consensus Estimate of a loss of a penny. The metric also compares favorably with the year-ago quarter’s loss of 8 cents a share. The firm generated consolidated revenues of $74.3 million in the fourth quarter, up 23% year over year, mainly on strength in transportation businesses and higher HPDI revenues. Moreover, the company’s revenues surpassed the Zacks Consensus Estimate of $71 million.

Price Performance

Company

Last Week

Last 6 Months

GM

-13.6%

-50.7%

F

-13.5%

-52.5%

TSLA

-3.9%

91.5%

TM

7.4%

-15.2%

HMC

2.4%

-21%

HOG

-21.3%

-52.3%

AAP

-21.2%

-52.9%

AZO

-14.4%

-33.6%

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

In the past week, all stocks apart from Toyota and Honda have declined. In the past six months, Tesla has been the maximum gainer, while Advance Auto Parts has declined the most.

What’s Next in the Auto Space?

Watch out for further impact of the pandemic on the auto sector. All eyes will remain glued to how automakers tackle the coronavirus scare and make resultant changes in business operations. Investors await second-quarter fiscal 2020 results of recreational vehicle maker Winnebago Industries (WGO - Free Report) , which is set to report on Mar 25. Winnebago currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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