Auto Roundup: KMX Beats on Q3 Earnings, CMI to Pay $1.7B in Fines & More
Last week, the European Automobile Manufacturers Association released data on new car registrations for November 2023. The European Union (“EU”) car market rose 6.7% last month to 885,580 units, marking the 16th straight month of growth. Among the four key markets, registrations in Spain, France and Italy rose 7%, 14% and 16.2%, respectively, on a year-over-year basis. Germany saw a decrease of 5.7% in registrations last month. In the first 11 months of 2023, EU market vehicle registrations reached nearly 10 million units, up 15.7% year over year. During the timeframe, all markets except Hungary recorded growth. Registrations in Spain, Italy, France and Germany increased 17.3%, 20%, 16.2% and 11.4%, respectively, during the first 11 months of 2023.
On the news front, used car retailer CarMax Inc. KMX and recreational vehicle (“RV”) maker Winnebago Industries WGO released quarterly results. While KMX topped earnings estimates, WGO missed the same. A leading player in the automotive aftermarket industry, O'Reilly Automotive, Inc. ORLY is set to foray into the Canadian market with the buyout of Groupe Del Vasto.
Engine maker Cummins Inc. CMI will be paying a fine of nearly $1.7 billionto settle claims of using emissions defeat devices on its engines. This marks the largest-ever fine under the Clean Air Act as well as the second-highest environmental penalty in the history of the United States. Japan’s auto giant Toyota TM also made headlines as it is calling back more than 1 million Toyota and Lexus vehicles due to potential airbag failure.
TM currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Last Week’s Top Stories
CarMax posted third-quarter fiscal 2024 (ended Nov 30, 2023) adjusted earnings per share of 52 cents, surpassing the Zacks Consensus Estimate of 42 cents. The bottom line improved from 24 cents per share recorded in the year-ago period. The auto retailer registered revenues of $6,149 million for the November-end quarter, which fell short of the Zacks Consensus Estimate of $6,278 million. The top line contracted 5.5% year over year.
CarMax’s used-vehicle net sales totaled $4,832.1 million for the reported quarter, down 7.2% year over year. Wholesale vehicle revenues inched up 1.1% from the year-ago level to $1,165.2 million. Other sales and revenues increased 1.4% year over year to $151.3 million. The firm had cash/cash equivalents and long-term debt of $605.3 million and $1,605.6 million, respectively, as of Nov 30, 2023. During the fiscal third quarter, CarMax repurchased shares worth $41.9 million. As of Nov 30, 2023, it had $2.41 billion remaining under the share repurchase authorization. KMX currently operates more than 240 used car stores. It plans to open four stores in the fourth quarter of fiscal 2024.
Winnebago delivered adjusted earnings of $1.06 per share for first-quarter fiscal 2024 (ended Nov 25, 2023), missing the Zacks Consensus Estimate of $1.20. The bottom line also fell 48.8% year over year. The RV maker reported revenues of $763 million for the quarter under review, outpacing the Zacks Consensus Estimate of $728 million. The top line, however, fell 19.9% year over year.Winnebago had cash and cash equivalents of $219.6 million as of Nov 25, 2023. Long-term debt (excluding current maturities) increased to $593.1 million from $592.4 million recorded on Aug 26, 2023. The company returned $50 million to shareholders via share repurchases and dividends.
Revenues in the Towable RV segment fell 4.8% year over year to $330.8 million. Adjusted EBITDA declined 8.8% to $33.1 million. The segment’s backlog was $199.8 million (5,290 units). In the reported quarter, revenues in the Motorhome RV segment slumped 28% year over year to $334.4 million. The segment recorded an adjusted EBITDA of $21.3 million. The backlog was $545.3 million (3,200 units). Revenues in the Marine segment were $87.3 million, decreasing 33.5% year over year. The Marine segment recorded an adjusted EBITDA of $7.2 million. The backlog for the segment was $140.4 million (1,897 units).
O'Reilly inked a deal to buy Groupe Del Vasto, a prominent family-owned auto parts supplier based in Montreal, Quebec. This acquisition, expected to close in January 2024, subject to regulatory approvals, will further solidify ORLY’s North American presence. Groupe Del Vasto, operating under the name Vast-Auto Distribution, brings more than 35 years of market experience in the Canadian automotive aftermarket to the table. The acquisition includes all outstanding shares of Groupe Del Vasto and its affiliated entities. Vast-Auto's network comprises two distribution centers, six satellite warehouses, 23 company-owned stores, and numerous independent partners, significantly expanding O'Reilly's service reach.
O'Reilly's decision to acquire Groupe Del Vasto is not just a geographical expansion but a strategic alignment with market trends and customer demands. The company's consistent performance, marked by 30 years of record revenues, showcases its robust business model. O'Reilly's dual-market strategy, serving both DIY and DIFM customers, and its strong distribution network give it a competitive edge in the ever-evolving automotive aftermarket.
Cummins agreed to pay a $1.67 billion fine for violating the Clean Air Act. Reportedly, the engine manufacturer installed emissions defeat devices on hundreds of thousands of engines. The Justice Department alleges that Cummins installed defeat devices on 630,000 RAM 2500 and 3500 pickup truck engines from model years 2013 to 2019, plus 330,000 RAM 2500 and 3500s from model years 2019 to 2023.Cummins anticipates incurring a charge of around $2.04 billion during the fourth quarter of 2023 to address various issues, including those related to approximately one million pickup truck applications in the United States.
Per Merrick Garland, Attorney General of the United States, the devices that Cummins allegedly installed in its engines have an adverse impact on people’s health and safety. The preliminary estimates indicate that defeat devices on some Cummins engines led to thousands of tons of excess emissions of nitrogen oxides. Long-term exposure to this pollutant can lead to breathing issues such as asthma and respiratory infections. He added that the fine imposed on Cummins should make it clear that the department will remain aggressive in its efforts to hold accountable those who make a profit at the expense of people’s health and safety.
Toyota is recalling nearly 1.12 million vehicles worldwide, including 1 million vehicles in the United States, due to airbag issues. Per the automaker, the front passenger airbag may not deploy properly in the event of a crash, exposing the passenger to the risk of injury. Per a notice posted on Toyota’s website, a possible fault in the Occupant Classification System (“OCS”) sensors may cause a short circuit, due to which the airbag system may fail to detect the passenger’s presence and weight and may not deploy as designed.
The recall covers Avalon Hybrid, Camry Hybrid, Corolla, Highlander Hybrid, RAV4 Hybrid & Sienna Hybrid as well as Lexus ES250, ES350, RX350 and RX450H with model year 2020-21 & ES300H with model year 2020-22. Toyota and Lexus dealers will inspect the vehicles and, if necessary, will replace OCS sensors free of cost. Per the National Highway Traffic Safety Administration, the new sensors are preferred over the older ones, which are deployed for drivers and passengers alike, increasing the chances of injury and even death in a few cases. The automaker plans to notify affected vehicle owners by mid-February 2024.
Price Performance
The following table shows the price movement of some of the major auto players over the last week and six-month period.
Image Source: Zacks Investment Research
What’s Next in the Auto Space?
Industry watchers will be keeping a close watch on fourth-quarter and full-year delivery updates of auto biggies.
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Toyota Motor Corporation (TM) : Free Stock Analysis Report
Cummins Inc. (CMI) : Free Stock Analysis Report
O'Reilly Automotive, Inc. (ORLY) : Free Stock Analysis Report
CarMax, Inc. (KMX) : Free Stock Analysis Report
Winnebago Industries, Inc. (WGO) : Free Stock Analysis Report
