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Auto Stocks' Q4 Earnings Due on Jan 28: HOG, PCAR & More

Zacks Equity Research

The fourth-quarter earnings season for the Auto-Tires-Trucks sector will kick off this week, with a host of companies due to release quarterly results.

A look back at the Q3 earnings season reflects that the auto sector’s earnings dipped 0.3% year over year on 0.4% revenue decline. In the fourth quarter, overall earnings and revenues for the auto sector are projected to decline 59.1% and 5.2% year over year, per the latest Earnings Preview. In fact, the auto sector’s earnings are likely to decline the most among all the 16 Zacks sectors.

Let’s take a look at the factors that are likely to have affected auto stocks in the to-be-reported quarter.

Factors Setting the Tone for Auto Sector Results in Q4

Automakers around the globe have been struggling with declining car sales amid economic slowdown concerns. China, the world’s largest auto market, witnessed a massive decline in vehicle sales during the quarter amid recession worries and trade war tensions. U.S. light vehicle sales in the fourth quarter also fell 1.7% year over year to 42, 90,911 units. Vehicle sales from each of the Detroit 3 carmakers— Ford, General Motors and Fiat Chrysler— dropped year over year in the December quarter.

Increasing popularity of ride-sharing platforms is likely to have weighed on car sales. Stricter emission woes, and shift toward electric and autonomous vehicles have changed the sector’s dynamics. Widespread usage of technology and rapid digitization resulted in fundamental restructuring of the automotive market. This is likely to have increased manufacturing vehicles’ costs, which are passed on to consumers and in turn dented demand. Meanwhile, technological complications call for high-priced aftersales services, which may have created new opportunities for auto equipment manufacturers to capitalize on.

Key Releases on Jan 28

Let’s take a glance at how five auto players are placed ahead of fourth-quarter results, slated to release on Jan 28, before the opening bell.

Harley Davidson, Inc. HOG: In the last reported quarter, Harley Davidson came up with better-than-expected results on the back of higher-than-anticipated sales in the firm’s motorcycle and related products segment.

Our proprietary model clearly indicates that a company needs to have the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

As far as earnings surprises are concerned, the American motorcycle manufacturer surpassed the Zacks Consensus Estimate in three of the last four quarters.

Harley-Davidson, Inc. Price and EPS Surprise

Harley-Davidson, Inc. Price and EPS Surprise
Harley-Davidson, Inc. Price and EPS Surprise

Harley-Davidson, Inc. price-eps-surprise | Harley-Davidson, Inc. Quote

However, this time around, things are not looking up for Harley Davidson as the firm carries a Zacks Rank #4 (Sell) and has an Earnings ESP of +117.39%. The Zacks Consensus Estimate for the quarter to be reported is earnings of 5 cents per share on revenues of $924.9 million.

Harley-Davidson’s efforts to launch lighter motorcycles and bolster dealer networks are likely to have positively impacted fourth-quarter performance. The firm’s initiatives to lower expenses are expected to have boosted margins in the quarter to be reported. However, softness in the U.S. and European market are likely to have dented sales volume and the top line in the fourth quarter. As such, the consensus mark for revenues from the sale of motorcycles for the fourth quarter is pegged at $709 million, suggesting a 3.9% year-over-year decline. (Read more: Harley-Davidson Q4 Earnings Coming Up: What to Expect)

PACCAR Inc. PCAR: The Washington-based truck manufacturer posted better-than-anticipated results in the last reported quarter backed by record truck delivery and solid after-market part sales. As far as earnings surprises are concerned, PACCAR surpassed the Zacks Consensus Estimate in three of the last four quarters.

PACCAR Inc. Price and EPS Surprise

PACCAR Inc. Price and EPS Surprise
PACCAR Inc. Price and EPS Surprise

PACCAR Inc. price-eps-surprise | PACCAR Inc. Quote

Encouragingly, it has the favorable combination of an Earnings ESP of +0.78% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for the quarter is a profit of $1.51 a share on revenues of $5.55 billion.

PACCAR’s impressive line-up of innovative truck models and technologies is likely to have aided the firm’s fourth-quarter performance. Healthy U.S. economy and freight growth are likely to have spurred demand for PACCAR’s Class 8 truck during the quarter. Fourth-quarter gross margins for Truck, Parts and Other are expected in the 14-14.5% range. The metric in the year-ago quarter was 14.23%. However, rising selling, general and administrative expenses are expected to have clipped profit margins to some extent. (Read more: Is a Beat in Store for PACCAR This Earnings Season?)

Lear Corporation LEA: Lear — one of the leading Tier 1 suppliers to the global automotive industry — posted better-than-expected results in the last reported quarter on the back of higher-than-anticipated revenues from the Seating segment.

As far as earnings surprises are concerned, the firm displays a mixed record. It surpassed the Zacks Consensus Estimate in two of the last four quarters, with an average positive surprise of 3.3%.

Lear Corporation Price and EPS Surprise

Lear Corporation Price and EPS Surprise
Lear Corporation Price and EPS Surprise

Lear Corporation price-eps-surprise | Lear Corporation Quote

Lear has a favorable combination of a Zacks Rank #3 and an Earnings ESP of +7.10%. The Zacks Consensus Estimate for the quarter to be reported is earnings of $3.20 per share on revenues of $4.75 billion. 

Lear’s acquisition of Xevo early this year, which integrated the latter’s e-commerce vehicle platform technology with Lear’s electronic expertise, is likely to have positively reflected on the quarter to be reported.Growing mix of high-content crossovers and SUVs are expected to have driven demand for the firm’s Seating segment.Rising need for electrification and connectivity is also likely to have propelled demand for the E-Systems segment in fourth-quarter 2019.However, General Motors-UAW six-week strike is likely to have hurt the firm’s top line to some extent.

Autoliv, Inc. ALV: Autoliv, a Swedish auto-industry supplier, posted weaker-than-expected results in the last reported quarter amid raw-material expenses and decline in global light vehicle production.

As far as earnings surprises are concerned, the firm displays a dismal record of missing the Zacks Consensus Estimate in three of the last four quarters.

Autoliv, Inc. Price and EPS Surprise

Autoliv, Inc. Price and EPS Surprise
Autoliv, Inc. Price and EPS Surprise

Autoliv, Inc. price-eps-surprise | Autoliv, Inc. Quote

However, our model predicts an earnings beat for Autoliv in the to-be-reported quarter, as it has a Zacks Rank #3 and an Earnings ESP of +0.28%. The Zacks Consensus Estimate for the quarter to be reported is earnings of $1.78 per share on revenues of $2.14 billion. 

The firm’s product launches and strong performance of frontal and side airbags, especially in North America, are likely to have buoyed earnings in the fourth quarter. The company’s product segments — Airbags and Seatbelts — are anticipated to have performed well in the to-be-reported quarter. The Zacks Consensus Estimate for fourth-quarter 2019 Seatbelt revenues is pegged at $721 million, implying a 6.3% sequential rise. Further, the consensus estimate for Airbag revenues is $1,428 million, suggesting an uptick from $1,349 million recorded in the prior quarter.

Polaris Industries Inc. PII: The Minnesota-based motorcycles and off-road vehicles (ORV) firm delivered an earnings beat in the last reported quarter,primarily on the back of higher-than-expected contribution from the ORV/Snowmobiles segment.

As far as earnings surprises are concerned, the firm surpassed the Zacks Consensus Estimate in each of the last four quarters.

Polaris Industries Inc. Price and EPS Surprise

Polaris Industries Inc. Price and EPS Surprise
Polaris Industries Inc. Price and EPS Surprise

Polaris Industries Inc. price-eps-surprise | Polaris Industries Inc. Quote

However, our model indicates that the company may not be able to maintain earnings beat streak in the quarter to be reported, as it has a Zacks Rank #3 and an Earnings ESP of -1.59%. The Zacks Consensus Estimate for the quarter to be reported is earnings of $1.78 per share on revenues of $1.77 billion. 

It is expected to have benefited from increasing year-over-year revenues across most of the product segments including ORV/snowmobiles, aftermarket, global adjacent markets and motorcycles. Evidently, the consensus mark for revenues from ORV/snowmobiles, motorcycles, aftermarket and global adjacent markets is pegged at $1,163 million, $118 million, $230 millionand $132 million, indicating year-over-year increase of 9.7% 35.6%, 8.4% and 8.1%, respectively. However, the positives are likely to have been offset by higher costs and tariff woes. Lower sales and profits from the Boat segment are expected to have dented overall results. Notably, the Zacks Consensus Estimate for sales and gross profit from the Boat segment is pegged at $131 million and $24.6 million, depicting year-over-year decline of 9.8% and 5.2%, respectively.

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