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Auto Stock Roundup: Ford Focuses on Mobility Services, Johnson Controls to Sell Unit

Zacks Equity Research
In third-quarter 2018, earnings for Magna (MGA) and Advance Auto Parts (AAP) surpass the Zacks Consensus Estimate and the figures are higher than the year-ago quarter.

Majority of auto companies have reported their quaterly results. The past week saw releases from the likes of Magna International Inc. MGA, Johnson Controls International plc JCI and Advance Auto Parts, Inc. AAP.

Earnings for Magna and Advance Auto Parts surpassed the Zacks Consensus Estimate and were higher than the year-ago quarter. While Johnson Controls’ earnings were in line with estimates, the figure improved year over year. Additionally, on the revenue front, all three companies witnessed year-over-year improvements. Revenues surpassed estimates for both Advance Auto Parts and Johnson Controls, while Magna’s revenues missed the same.

In the past week, Ford Motor Company’s F subsidiary Ford Smart Mobility LLC announced that it acquired an electric-scooter-sharing company, Spin. This acquisition is likely to aid the company improve its portfolio of mobility services. Johnson Controls announced its plan to sell the power solutions business. The sale will help the company focus on its building technologies & solutions segment.

Recap of the Week’s Most Important Stories

1.    Magna delivered third-quarter 2018 adjusted earnings per share of $1.56, beating the Zacks Consensus Estimate of $1.49. Further, the bottom line was higher than the year-ago figure of $1.39.

Revenues increased 9% year over year to $9.6 billion. However, the top line missed the Zacks Consensus Estimate of $9.8 billion. Light-vehicle production growth was 4% in North America and unchanged in Europe in the quarter.

Moreover, adjusted EBIT declined to $699 million from the year-ago $705 million.

Revenues at the Body Exteriors & Structures segment were $4.2 billion in the reported quarter compared with $4 billion in third-quarter 2017. Moreover, adjusted EBIT rose 5.2% year over year to $322 million.

Revenues at the Power & Vision segment totaled $2.9 billion in comparison with $2.8 billion recorded in the prior-year quarter. Adjusted EBIT declined 3.4% year over year to $258 million.

Revenues at the Seating Systems segment totaled $1.22 billion, almost flat year over year. Adjusted EBIT declined 27.4% year over year to $69 million.

Revenues at the Complete Vehicles segment increased to $1.39 billion in the quarter under review from $938 million in third-quarter 2017. Adjusted EBIT rose 41.2% year over year to $24 million. (Read more: Magna Beats Q3 Earnings Estimates, Lowers Guidance)

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

2.    Ford’s subsidiary Ford Smart Mobility LLC announced that it acquired an electric-scooter-sharing company, Spin. Based in San Francisco, CA, the acquired company is a two-year-old start-up that offers alternative first and last-mile transportation solutions to customers.

Per Ford’s management, the acquisition will aid the company to improve its portfolio of mobility services. Ford is trying to adjust itself with the changing needs of its markets, which is complemented with the addition of electric-scooters (e-scooters).

Currently, Spin has presence in 13 cities, apart from campuses across the United States. Per a source mentioned in Reuters, Ford will invest approximately $200 million in Spin. Further, the company plans to expand Spin’s services to more than 100 markets in North America within a span of one and a half years.

Among a number of mobility options available to customers, e-scooter has become fairly popular, which is suitable for short distances. Apart from Spin, two other companies namely Lime and Bird offer similar services. The companies offer services through applications that allow users to rent e-scooters within the rate of 15 cents to $1 a minute. These two major players, Lime and Bird attracted huge investments from big companies, valuing $4 billion and $2 billion, respectively. (Read more: Ford Includes Mobility Service Company to Its Portfolio)

Ford currently carries a Zacks Rank #3.

3.    Johnson Controls has announced that it is selling its power solutions business to Brookfield Business Partners L.P. and institutional partners (jointly, "Brookfield"). A definitive agreement has been signed between Johnson Controls and Brookfield for the sell-off, which is valued at a cash transaction of $13.2 billion. Depending on regulatory approvals and closing conditions, the transaction is anticipated to close by Jun 30, 2019.

Out of the total cash transaction, net cash proceeds are anticipated to be $11.4 billion after deducting tax-related expenses. Johnson Controls expects to use $3-$3.5 billion in debt repayment while the rest will be returned to shareholders. A complete detail on the cash proceeds usage will be reported after the closing of the transaction.

The company started weighing on alternatives for the power solutions unit in March. Apart from this, it functions through another segment i.e. building technologies & solutions.

The sale of the unit will aid Johnson Controls to focus on its building technologies & solutions segment, which is better placed for the integration and development of connected building. Per management, its building technologies have better possibility of capturing opportunities in the HVAC industry.

The company’s power solutions business is a manufacturer and distributor of advanced battery technologies for vehicles across the globe. The division also works in partnership with its customers to meet evolving electrification requirements in cars.

In the last week, Johnson Controls announced its fiscal 2018 results. During the fiscal year, the company’s power solutions unit generated revenues of $8 billion, and earnings before interest, taxes, depreciation and amortization (EBITDA) of $1.7 billion. (Read more: Johnson Controls to Sell Power Solutions Unit for $13B)

Johnson Controls currently carries a Zacks Rank #3.

4.    Advance Auto Parts reported adjusted earnings of $1.89 per share in third-quarter 2018 (ended Oct 6, 2018), up from $1.43 in the prior-year quarter. The figure surpassed the Zacks Consensus Estimate of $1.77. Adjusted operating income increased 12.5% year over year to $193.7 million.

Advance Auto Parts reported net revenues of $2.3 billion, beating the Zacks Consensus Estimate of $2.23 billion. Revenues were 4.3% higher than the year-ago quarter. During the quarter under review, comparable store sales were 4.6% higher year over year. This marks strongest comparable sales growth in eight years for the company.

Gross profit was $1.01 billion in the reported quarter, higher than the prior-year quarter figure of $947.7 million. Gross Profit margin increased 90 basis points year over year to 44.3%.

Adjusted selling, general and administrative (SG&A) expenses totaled $813.8 million compared with $775.5 million in the year-ago period.

Advance Auto Parts had cash and cash equivalents of $970 million as of Oct 6, 2018, up from $363.3 million as of Oct 7, 2017. Total long-term debt was $1.05 billion as of Oct 6, 2018, higher than $1.04 billion as of Dec 30, 2017.

In third-quarter 2018, operating cash flow was $681.5 million compared with $401 million in the same period of 2017. (Read more: Advance Auto Parts Beats on Q3 Earnings & Revenues)

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

5.    O’Reilly Automotive, Inc. ORLY announced that its board of directors approved rise of $1 billion in its share repurchase program. This brought the total share repurchase authorization to $11.75 billion. Further, this auto parts retailer agreed to purchase all the auto parts-related assets of automotive parts supplier Bennett Auto Supply, Inc., based in Pompano Beach, FL.

O’Reilly pursues an aggressive share-repurchase policy, which continues to boost earnings per share. In third-quarter 2018, the company repurchased 0.9 million shares for $416 million, the average price being $306.22 per share.
Subsequently, from the end of third-quarter 2018 to the date of the earnings release on Oct 24, it purchased additional 0.2 million shares for $68 million.

This new $1-billion share repurchase authorization is effective for a three-year period. Before this hike in share buyback, in February 2018, O’Reilly raised the share repurchase authorization amount by additional $1 billion to $10.75 billion.

On the other hand, the purchase of Bennett assets is likely to be completed by the end of 2018. Over the past six decades, the Bennett family has successfully built its business, which aims to provide excellent customer service. The deal positions the company for growth in Florida by opening up huge opportunities. (Read more: O'Reilly to Raise Share Buyback Program, Buys Auto Assets)

O’Reilly currently carries a Zacks Rank #2.

Performance

In the last week, Advance Auto Parts gained the most while General Motors Company GM declined the maximum.

In the past six months, Advance Auto Parts has increased the most, whereas Ford declined the most.

Company Last Week Last 6 Months
GM -4.5% --7.3%
F -0.6% -16.3%
TSLA -1.2% 20.1%
TM -2% -14.9%
HMC -2% -14.6%
HOG 1.4% -1.9%
AAP 4.2% 49.3%
AZO 4.1% 27.15


What’s Next in the Auto Space?

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

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