Will Toyota (TM) Disappoint Investors This Earnings Season? - Analyst Blog
Toyota Motor Corporation (TM) is set to report third-quarter fiscal 2015 (ended Dec 31, 2014) results on Feb 4. In the last quarter, it had posted a negative earnings surprise of 4.46%. Let’s see how things are shaping up for this announcement.
Factors Influencing this Quarter
Toyota registered a 3% year-over-year rise in global sales to 10.23 million units in 2014, thus becoming the leading automaker once again after 2012 and 2013. Sales in Europe improved 4.6% over 2013, while sales in China surged 12.5% year over year. Further, sales in North America increased 6.2% in 2014. Thus, we can expect improved sales figures for the third quarter of fiscal 2015, which should boost revenues and earnings.
However, Toyota’s operating net cash flow declined in the first half of fiscal 2015 and may continue in the third quarter as well. Moreover, Toyota is among the automakers which reduced prices of car parts in China, following the National and Development Reform Commission’s (“NDRC”) antitrust probe in the auto industry. Toyota has lowered the price of almost 15,000 Lexus parts, which includes a cut of 35% in radiator parts’ prices and 30% in engine and transmission prices, in China, from Sep 1, 2014. On an average, the prices of the spare parts were reduced by 26%. This will adversely affect the company’s revenues.
Earnings Whispers
Our proven model does not conclusively show that Toyota is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:
Zacks ESP: The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. Toyota’s Earnings ESP is 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate both stand at $3.16.
Zacks Rank: Toyota carries a Zacks Rank #2 (Buy). Though a Zacks Rank #2 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
O'Reilly Automotive Inc. (ORLY) has an Earnings ESP of +2.40% and a Zacks Rank #2. The company will report its fourth-quarter 2014 results on Feb 4.
American Axle & Manufacturing Holdings Inc. (AXL) has an Earnings ESP of +1.85% and a Zacks Rank #2. The company’s fourth-quarter financial results are scheduled for release on Feb 6.
Magna International Inc. (MGA) has an Earnings ESP of +0.90% and a Zacks Rank #3 (Hold). It will release its fourth-quarter earnings results on Feb 25.
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