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Auto Stock Roundup: Ford to Axe Jobs, AZO & AAP Beat on Earnings

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Fiat Chrysler (FCAU) wishes to collaborate with Renault (RNLSY) for floating the third leading auto giant in the world. Toyota (TM) mulls over investing around $550 million in a ride-hailing start-up.

This week Ford Motor Company F announced that it will cut 7,000 white-collar jobs throughout the world by August. This move is in sync with its strategy to restructure operations as it is preparing for the future of autonomous and electric vehicles. In fact, huge capital requirement to update current vehicles and develop those for the future might have necessitated the job cuts. Earlier, General Motors Company GM also made an announcement to realign its manufacturing capacity and reduce blue-collared salaried workforce in an effort to improve business performance.

Two important companies — AutoZone, Inc. AZO and Advance Auto Parts, Inc. AAP — reported their quarterly numbers in the past week. The companies posted an earnings beat.

Fiat Chrysler Automobiles N.V. FCAU made the announcement to recall over 208,000 minivans in North America. Risk of the engine getting stalled or loss of power steering may have prompted the automaker to make such a move.

Recap of the Week’s Most Important Stories

1.    Fiat Chrysler is recalling over 208,000 minivans in North America, per Associated Press in view of the risk of engines getting stalled or loss of power steering.

The vehicles to be recalled cover certain Chrysler Pacifica minivans from the model year 2017 through 2019. Per the company’s sources, there is a chance of contamination of the wiring harness, which may cause the vehicle to crash. But no case of injury or crash has been reported yet. The recall will start on Jun 28 and the dealers will clean the wiring contacts.

Notably, in March, Fiat Chrysler made the announcement to recall approximately 965,000 gasoline vehicles that do not comply with U.S. emission standards. The flawed vehicles are from the United States and Canada that will require catalytic converter replacements. In-use emissions investigation conducted by Environmental Protection Agency (“EPA”) and in-use testing led by Fiat Chrysler, per the U.S. regulations, impelled the company to issue the recall. (Read more: Fiat Chrysler to Recall 208,000 Minivans in North America)

Fiat Chrysler currently carries a Zacks Rank #4 (Sell).

2.    Ford made the announcement to cut 7,000 jobs throughout the world by August, per Reuters. This will result in the elimination of around 10% of its global white-collar workforce. This move is in sync with the Dearborn, MI-based company’s restructuring plan as it is preparing for the future of autonomous and electric vehicles.

The layoffs cover broad areas of Ford’s operations, including engineering, product development, marketing, information technology, logistics, finance and others. However, the company revealed that it is hiring people for developing software, and in the areas of self-driving and electric vehicles.

With this restructuring measure, the auto giant will save about $600 million annually. Also, this will reduce bureaucratic control and expedite decision making.

Notably, in November 2018, General Motors made the announcement to realign its manufacturing capacity and reduce blue-collared salaried workforce in an effort to improve business performance. However, the job cuts received the wrath of President Donald Trump and the Congress. In fact, huge capital requirement to update current vehicles and develop those for the future might have necessitated the job cuts.

In fact, Ford has been restructuring operations globally to enhance profitability, speed up product development and announce job cuts. (Read more: Ford Plans to Restructure by Axing 7K White-Collar Jobs)

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

3.    AutoZone reported earnings of $15.99 per share for the third quarter of fiscal 2019 (ended May 4, 2019), up from $13.42 in the prior-year quarter. Further, the figure surpassed the Zacks Consensus Estimate of $15.23. Net income rose 10.7% year over year to $405.9 million, which benefitted from lower effective income tax rate.

In the reported quarter, net sales improved 4.6% year over year to $2.78 billion. Domestic same-store sales (sales for stores open at least for a year) rose 3.9% year over year, driven by improved performances by AutoZone’s DIY and commercial businesses.

Gross profit increased to $1.49 billion from $1.42 billion in the prior-year quarter. Operating profit (EBIT) rose to $547.5 million from $545.8 million registered in the third quarter of fiscal 2018.

During the quarter ended on May 4, 2019, the company opened 35 stores in the United States, eight in Mexico and three in Brazil. As of the same date, it had 5,686 stores across 50 states in the United States, the District of Columbia and Puerto Rico; 576 in Mexico; and 25 in Brazil. The total store count was 6,287 as of May 4.

AutoZone’s inventory improved 8% year over year in the quarter under review, driven by store openings and increased product placement. At the end of the reported quarter, inventory per location increased to $688,000 from the year-ago quarter figure of $658,000. (Read more: AutoZone Earnings Surpass Estimates in Q3, Up Y/Y)

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

4.    Volkswagen AG’s VWAGY truck brand Scania made the announcement to invest 1.4 billion reais ($344.14 million) to modernize its factory in Sao Bernardo do Campo, Brazil, per Reuters. In a joint statement with the Sao Paulo state government, it revealed that the new investment will begin in 2021 and end in 2024.

Scania, which is the long-standing Swedish brand, manufactures heavy trucks, buses and engines. It now aims to overhaul its assembly line as well as launch a new generation of trucks in Latin America.

Per the local automakers association — Anfavea, in the first four months of 2019, the sale of Scania heavy trucks increased 31% on a year-over-year basis. Notably, the latest decision of this company under the Volkswagen Group was taken after Ford decided to exit the heavy truck business in South America and close its plant in Sao Bernardo do Campo.

Another auto giant, General Motors planned big cuts at its Sao Paulo factories. This prompted aggressive negotiation by the state governor.  Finally, General Motors decided to invest $2.7 billion to take advantage of the tax program. In this backdrop, the decision of Volkswagen to invest in the historic center of Brazil’s auto industry is significant. (Read more: Volkswagen Group’s Scania to Invest $344M in Brazil)

Volkswagen currently carries a Zacks Rank #3.

5.    Advance Auto Parts reported adjusted earnings of $2.46 per share in first-quarter 2019 (ended Apr 20, 2019), up 17.1% from that of the prior-year quarter. The figure surpassed the Zacks Consensus Estimate of $2.36. Adjusted operating income increased 8.7% year over year to $243.6 million.

Advance Auto Parts reported net revenues of $3 billion, beating the Zacks Consensus Estimate of $2.9 billion. Revenues were 2.7% higher than the year-ago quarter. During the quarter under review, comparable store sales were 2.7% higher year over year.

Operating income rose 4.9% to $207.9 million in the reported quarter. Operating income margin increased 15 basis points year over year to 7%.

Adjusted selling, general and administrative (SG&A) expenses totaled $1.1 billion compared with $1.07 billion in the year-ago period.

Advance Auto Parts had cash and cash equivalents of $537.3 million as of Apr 20, 2019, down from $639.1 million as of Apr 21, 2018. The total long-term debt was $746.8 million as of Apr 20, 2019, lower than $1.05 billion as of Dec 29, 2018.

In first-quarter 2019, operating cash flow was $204.5 million, up 32.8% year over year.

On May 14, 2019, Advance Auto Parts’ board approved a cash dividend of 6 cents per share to be paid as of Jul 6, 2019, to shareholders of record as of Jun 21, 2019.

On Aug 8, 2018, the board of directors authorized a $600-million share repurchase program, replacing the existing $500-million share repurchase program. Under this program, the company repurchased 0.8 million shares for $127.2 million in first-quarter 2019. Advance Auto Parts had $200 million remaining under the share repurchase program at the end of the reported quarter. (Read more: Advance Auto Parts Q1 Earnings Beat Estimates, Up Y/Y)

Advance Auto Parts currently carries a Zacks Rank #3.

Performance

Last week, Advance Auto Parts stock gained the most while Tesla, Inc. TSLA lost the most.

In the last six months, AutoZone gained the maximum while Tesla declined the most.
 

Company Last Week Last 6 Months
GM -4.9% -5.6%
F -3.8% 6.1%
TSLA -16.9% -44.3%
TM -2.8% -3.2%
HMC -1.1% -9.7%
HOG 0.6% -15%
AAP 6.7% -6.4%
AZO 6.7% 27.3%


What’s Next in the Auto Space?

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

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