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Auto Stock Roundup: F Recalls, HOG to Expand in China, WGO Beats on Q3 Earnings

Zacks Equity Research

Recall issues continue to plague automakers. Ford Motor Company F was again embroiled in a recall mess. The auto giant announced the recall of 1.2 million Explorer sport utility vehicles in the United States because of a potential suspension link fracture issue.

Motorcycle manufacturer, Harley-Davidson, Inc. HOG, unveiled plans to expand overseas and downsize at home this week. In fact, Harley inked a deal with China’s Zhejiang Qianjiang Motorcycle Co. to develop two new motorbike models. The aim is to sell the first bike in China by the end of 2020 and thereafter expand in other markets, including Thailand, Indonesia and India.

In another development, Winnebago Industries Inc. WGO reported third-quarter fiscal 2019 results. Its earnings surpassed the Zacks Consensus Estimate and were higher than the prior-year quarter figure. Improved tax rate arising from Tax Cuts and Jobs Act (TCJA) and a change in estimates related to R&D tax credits aided its results.

Recap of the Week’s Most Important Stories

1.    Ford made an announcement to recall 1.2 million Explorer sport utility vehicles in the United States because of a potential suspension link fracture issue, per Reuters. It is suspected that the glitch could lead to reduced steering control.

The affected vehicles include 2011-2017 Explorers that could experience a fractured rear suspension to link that could increase chances of crash. The recalled vehicles were manufactured in the Chicago plant between May 2010 and January 2017.

Frequent recalls for fixing faulty vehicles are concerns for Ford. Apart from elevating expenses for repairing faulty vehicles, recalls also hurt consumers’ confidence in a brand. Last month, the second largest U.S. automaker announced the recall of roughly 273,000 of Ford Ranger pickups and Fusion vehicles in North America. A transmission glitch can shift gear and roll the vehicle away if the gear is not in the "park" mode.

Ford stated that costs of $180 million, which will be incurred by its North America business unit, will be included in the second quarter. However, the company still expects 2019 adjusted earnings before interest and taxes to be higher than the same in 2018. (Read more: Ford to Recall 1.2M Explorer SUVs for Steering Issue)

Ford currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here..

2.    Navistar International Corporation NAV recently announced plans to invest $125 million in new manufacturing facilities at its Huntsville, AL-based engine plant over the next three years.

The company manufactures International brand diesel engines for trucks and buses in the Huntsville plant. The primary engine manufactured in the plant is International A26, a 12.4-liter big-bore engine used in Class 8 on-highway trucks as well as some vocational trucks.

Notably, this investment will likely create 145 additional jobs in the company's Huntsville facility.

The investment aids Navistar’s plans to manufacture next-generation big-bore powertrains developed with its global alliance partner — Traton — a subsidiary of Volkswagen. Through the Traton subsidiary, Volkswagen owns around 17% of Navistar. (Read more: Navistar to Invest $125M for Alabama Operation Expansion)

Navistar currently carries a Zacks Rank #3 (Hold).

3.    Winnebago reported earnings of $1.14 per share in the third quarter of fiscal 2019 (ended May 25, 2019), beating the Zacks Consensus Estimate of $1.05. In the year-ago period, earnings were $1.02 a share. Net income rose 11.2% year over year to $36.2 million. Earnings were positively impacted by an improved tax rate arising from Tax Cuts and Jobs Act (TCJA) and a change in estimates related to R&D tax credits.

Revenues in the reported quarter declined 5.9% to $528.9 million. The figure lagged the Zacks Consensus Estimate of $556 million.

Operating income in the quarter under review rose 1.4% to $49 million. Gross profit improved to $86.6 million from $85.5 million a year ago.

Revenues at the Motorized segment were down 34.6% to $160.2 million from a year ago. Adjusted EBITDA declined 96.7% to $0.4 million.

Revenues at the Towable segment improved 10.8% to $346.8 million year over year. The upside was driven by strong organic growth across the Grand Design RV brand. Adjusted EBITDA was $57.2 million, up 26% from the prior-year quarter.

Winnebago had cash and cash equivalents of $4.2 million as of May 25, 2019, compared with $39 million as of May 26, 2018.

For the first nine months of fiscal 2019, the company’s cash flow from operations was $82.8 million, marking an increase of 21.8 million from the same period in fiscal 2018.

Winnebago currently has a Zacks Rank #3.

4.    In an effort to boost the company’s production outside the United States, Harley-Davidson recently entered into an agreement with Chinese manufacturer — Zhejiang Qianjiang Motorcycle Co. — to produce small motorcycles for global markets.

Per Bloomberg and Reuters reports, the motorbike models will be sold under Harley’s brand name. Remarkably, these bikes will feature an engine displacement of 338 cubic centimeters —one of the smallest-powered engine bikes in the company’s history. In fact, Harley’s existing motorcycles sold in the United States are bigger, with high price and engine capacities of more than 601 cubic centimeters.

The new 338 cc models will likely be initially rolled out in China, one of the largest motorcycle markets, by the end of next year, before being introduced in other Asian countries.

Qianjiang has experience in building premium smaller motorcycles, supply base with the knowledge of emerging markets. Qianjiang is a unit of Geely Holding Group, a Chinese company that owns Volvo cars.

This partnership is aimed at capturing China’s huge bike and moped market, and is also in line with the company’s plan to cut costs and generate half of all sales outside the United States by 2027.

Harley currently carries a Zacks Rank #3.


In the past week, all the stocks except for Toyota Motor Corporation TM have improved. Tesla, Inc. TSLA stock gained the most.

In the past six months, Tesla has declined the most while AutoZone, Inc. AZO recorded maximum gain.

Company Last Week Last 6 Months
GM 3.1% 11.6%
F 1.9% 24.8%
TSLA 8.2% -29.2%
TM -0.4% 9.9%
HMC 0.7% -0.4%
HOG 1% 8.4%
AAP 2.1% 1.6%
AZO 1.4% 35.9%

What’s Next in the Auto Space?

Watch out for the usual news releases over the next week.

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