Auto Stock Roundup: GM, F February Sales Fall, Thor Earnings Beat, Tariff-Fear Lurks

The last week saw auto companies coming up with February 2018 sales figures. Most of them witnessed sales decline during the month. Per the sales data provided by Autodata Corp, the seasonally adjusted annualized rate (SAAR) of U.S. car and light truck sales fell to 17.08 million units in February from 17.45 million in February 2017. Both General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) reported a 6.9% decline in U.S. sales. Again, sales of Fiat Chrysler Automobiles N.V. (NYSE:F) and Honda Motor Company, Ltd. (NYSE:HMC) declined 1.4% and 5% and 4%, respectively. The only exception was Toyota Motor Corporation (NYSE:TM) , which witnessed a 4.5% rise in sales.

In addition to the February sales slide, the recent proposal by Donald Trump to impose steep tariffs on imports of steel and aluminum, which are widely used by automobile companies, has put these companies on back gear. If the tariff is imposed, U.S. automotive companies would lose their level-playing competitive capabilities to global rivals and will be badly hit.

Apart from those two important developments, there was the usual alacrity from the auto companies in the electric and autonomomous vehicles front. Earnings announcements also continued in the past week.

Recap of the Week’s Most Important Stories

1. Harley-Davidson, Inc. (NYSE:HOG) reported that it has invested in Alta Motors. Headquartered in Brisbane, CA, Alta Motors is a manufacturer of advanced electric motorcycles and lightweight electric vehicles drivetrains. The two companies will team up to develop electric motorcycle technology and focus on product developments.

This recent progress of Harley-Davidson’s investment in EV technology is in sync with its 10-year strategy to build its next-generation riders. Also, the company aims to introduce its first electric motorcycle in 2019. With this collaboration, both companies aspire to draw new customers through their launch of electric motorcycles minus gears or clutch.

Per management, Harley-Davidson aims to be a world-leader in motorcycle electrification and at the same time, aims to remain committed to its broad portfolio of gas and oil motorcycles for riders, globally. (Read more: Harley-Davidson to Tie With Alta for Electric Motorcycle)

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

2. Toyota announced that it will invest approximately $3 billion in developing software for self-driving vehicles, per Wall Street Journal. Additionally, it will set up a new Tokyo-based company for the same purpose, along with DENSO Corporation and Aisin Seiki Co., Ltd.
The new venture, Toyota Research Institute-Advanced Development, will garner an investment of ¥300 billion ($2.8 billion) from its owners.

Toyota will hold a 90% stake in the company while Denso and Aisin Seiki will hold 5% each. Further, the new research institute will start its operation with an employee count of 300 and aims to raise the count to roughly 1,000 in the future. The new company will have English as its official language, thus, widening the pool of job applicants.

Per management, Japan’s Toyota Research Institute-Advanced Development will try to connect researchers of Toyota Research Institute in California with the engineers of Japan’s vehicle designers.

Apart from Toyota, a number of other automakers are also separating their self-driving divisions to pull engineers for developing their technologies, who otherwise won’t be interested in working for an auto manufacturer. (Read more: Toyota to Create New Company for Self-Driving Cars)

Toyota carries a Zacks Rank #2 (Buy).

3. Ford stated that it needs clarification on trading conditions in the aftermath of Brexit, per Reuters. Ample clarification on all aspects of trade is required to make any concrete investment decision in Britain. Significantly, Britain is Europe's second-largest automotive market. Following a referendum in 2016, the country is scheduled to leave European Union (EU) by the end of March 2019.

Ford is a leading producer of automotive engines in Britain. Presently, the company has its engine manufacturing hubs at Bridgend in Wales and Dagenham, London. The combined output of the two factories is 2.7 million units, which is almost half of the country’s total engine production.

The company intends to carry on with its engine production at its Bridgend factory. Per management, depending on clarity regarding future trading conditions after Brexit, it will be able to take positive or negative decisions about its investment plans in the country. (Read more: Ford Seeks Clarity on Brexit to Frame UK Investment Plans)

Ford carries a Zacks Rank #3.

4. Lithia Motors, Inc. has made the announcement of acquiring six auto stores from Prestige Family of Fine Cars in Bergen County, NJ. The acquired stores include a BMW, Mini, Mercedes, Toyota and two Lexus stores. The acquisitions are likely to generate steady state revenues of $900 million, annually.

Located in Paramus and Ramsey, these stores will add to the diversification mix of Lithia Motors in the Northeast and will strengthen its offerings of luxury products. In fact, Lithia Motors, the leading automotive retailer in the United States, aims at building strong franchised stores in key marketplaces, where the company is yet to realize its full potential.

The company has stated that this latest acquisition, along with the earlier declared acquisitions of Day Auto Group and Ray Laks, has generated annual steady state revenues of over $1.3 billion in the first two months of 2018. This has prompted Lithia Motors to raise its 2018 outlook for annual revenues in the band of $12-$12.5 billion and earnings per share to $10.60. (Read more: Lithia Acquires 6 Auto Stores, Adds $900M Revenue).

Lithia Motors carries a Zacks Rank #2.

5. Thor Industries, Inc. (NYSE:THO) reported second-quarter fiscal 2018 (ended Jan 31, 2018) adjusted earnings of $1.92 per share, surpassing the Zacks Consensus Estimate of $1.82. Net income grew 4% to $79.8 million from $64.8 million in the prior-year quarter.

Revenues rose 24% year over year to $1.97 billion and outpaced the Zacks Consensus Estimate of $1.9 billion.

Gross profit increased 27.7% to $270.3 million from $211.7 million in second-quarter fiscal 2017. The gross profit margin increased to 13.7% from 13.3% in the year-ago quarter, driven by strong production and process improvement, primarily by Jayco.

Sales of Towable RVs went up 26.9% year over year to $1.08 billion. This upside was primarily prompted by strong demand of its affordably priced travel trailers. Pre-tax income shot up 49.7% to $116.7 million from $78 million in the comparable quarter, last fiscal. This growth in the metric was backed by higher sales and improved gross margin plus decreased selling, general and administrative expenses.

Sales from Motorized RVs improved 17.9% to $559.9 million from $475 million in the year-ago quarter. This upside was driven by robust demand of its Class A and Class C motor-homes by dealers and end consumers. Pre-tax income from the segment surged 31.8% to $37.5 million from $28.5 million, a year ago, driven by enhanced gross margins and operating efficiency.

Thor carries a Zacks Rank #3.

Performance

Last week, maximum increase was registered by Advance Auto Parts, Inc. while the sharpest decline was witnessed by General Motors.

In the last six months, the maximum rise was recorded by Advance Auto Parts while Harley-Davidson shares declined the most.

What’s Next in the Auto Space?

Watch out for the earnings releases and other developments in the sector in the coming days.

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