Impressive Auto Earnings Put This Car ETF In Focus
The automobile sector has been riding on a host of favorable elements this year such as plunging oil prices, a recovering U.S. economy, rising consumer confidence and spending, increasing aging vehicles on the road, high incentives and discounts and easy availability of credit. While these factors led to better-than-expected earnings during the third quarter, it is only the stronger dollar that stood in the way of the sector to realize its full potential, leading to revenue weaknesses across the board. As per Earnings Trend report, earnings of all the automobile companies that have reported so far are up 30.7% year over year for the third quarter of the year, with 60% of the companies beating the Zacks Consensus Estimate. Meanwhile, revenues of all the companies are down nearly 1% for the quarter, with only 20% of them surpassing the Zacks Consensus Estimate (read: ETF & Stocks Riding on Auto Sector Boom ). Below we have highlighted in detail the third quarter results of some of the major auto companies that have reported recently. Auto Earnings in Detail The largest U.S. automaker, General Motors Co.’s (NYSE: GM ) adjusted earnings of $1.50 per share for the quarter beat the Zacks Consensus Estimate of $1.17 by a wide margin. Earnings increased 55% from 97 cents per share recorded in the third quarter of 2014. The robust year-over-year improvement was driven by solid performance in China and the U.S. However, revenues in the quarter declined 1.3% year over year to $38.8 billion, marginally missing the Zacks Consensus Estimate of $39.1 billion. The year-over-year decline was due to the adverse impact of foreign currency translation. The second-largest carmaker by sales, Ford Motor Co. (NYSE: F ) posted adjusted earnings per share of 45 cents in the third quarter, way above the 24 cents earned in the prior-year quarter (all excluding special items). Earnings per share were in line with the Zacks Consensus Estimate. Pre-tax income (excluding special items) surged 128% to $2.7 billion, marking a third-quarter record. Revenues increased 9.1% to $38.1 billion due to full-scale production of the F-150 and surpassed the Zacks Consensus Estimate of $35.4 billion. The automaker reaffirmed its pre-tax profit guidance (excluding special items) in the range of $8.5-$9.5 billion for 2015, significantly higher than $6.3 billion recorded in 2014. Automotive revenues, operating margin and operating-related cash flow are also expected to be higher than 2014. Japanese automaker, Honda Motor Co., Ltd. (NYSE: HMC ) reported earnings per share of ¥70.88 (59 cents) in the second quarter of fiscal 2016 (ended September 30, 2015) compared with ¥66.32 (61 cents) in the year-ago quarter. Earnings per share missed the Zacks Consensus Estimate of 63 cents. Consolidated net sales and other operating revenues escalated 15.6% year over year to ¥3.62 trillion ($30.19 billion). However, revenues fell short of the Zacks Consensus Estimate of $30.22 billion. The year-over-year increase can be attributed to higher revenues from all the businesses. For fiscal 2016, Honda expects revenues to increase 9.5% to ¥14.6 trillion ($123.7 billion) while operating income is likely to rise 2.1% to ¥685 billion ($5.81 billion). Another Japanese automaker, Toyota Motor Corporation (NYSE: TM ) posted earnings of ¥192.51 per share ($3.16 per ADR) in fiscal 2016 second quarter, compared with ¥170.54 per share ($3.28 per ADR) in the prior fiscal quarter. Earnings per ADR surpassed the Zacks Consensus Estimate of $3.09. The company’s consolidated revenues grew 8.4% year over year to ¥7.1 trillion ($58.2 billion) and outpaced the Zacks Consensus Estimate of $57.81 billion. However, Toyota lowered its consolidated revenue guidance to ¥27.5 trillion ($233.1 billion) from ¥27.8 trillion ($237.6 billion) for fiscal 2016. Nevertheless, the revenue guidance reflects a 1% improvement over fiscal 2015. The automaker’s net earnings are expected to be around ¥2.25 trillion ($19.1 billion) or ¥713.76 per share ($12.10 per ADR), reflecting an expected 3.5% improvement over fiscal 2015. Due to better-than-expected earnings, most of the auto stocks have been posting gains following their results. In fact, the exclusive auto ETF, the NASDAQ Global Auto Index Fund (NASDAQ: CARZ ) – which has a sizable exposure to the above mentioned stocks – returned more than 3% (as of November 6, 2015) since General Motors released its quarterly results on October 21. Let us take a look at this ETF in detail, which is expected to post gains in the coming days as well. CARZ in Focus This ETF tracks the NASDAQ OMX Global Auto Index, having exposure to automobile manufacturers across the globe. The product holds 37 stocks in the basket with General Motors, Ford, Toyota and Honda placed among the top five holdings with a combined allocation of nearly one-third of fund assets. In terms of country exposure, Japan takes the top spot at 36.3% while the U.S. takes the second spot having a 23.9% allocation, followed by Germany and South Korea with 16.4% and 8.8% allocations, respectively. The ETF is neglected with $40.8 million in AUM and sees light trading volume of around 9,000 shares. The product is a bit expensive with 70 bps in annual fees and currently has a Zacks ETF Rank #2 (Buy) with a High risk outlook. Link to the original post on Zacks.com