With the Q1 earnings season well past the halfway mark, we can see that the auto sector is performing exceptionally. Nearly 80% of the companies in this sector have reported results as of Apr 29, with an impressive earnings beat ratio of 100% and revenue beat ratio of 50%. Total earnings of the auto sector companies that have reported so far have surged 63.6% year over year, while their revenues have improved 5%, per our Earnings Preview report.
In terms of earnings, the auto sector has performed the best among the 16 Zacks sectors. Also, it is expected to maintain this lead through the end of the season, with projected earnings growth of 52.7%. Revenue growth is expected to be a modest 0.9% by the end of the season. Meanwhile, the overall outlook for the S&P 500 companies remains weak, with projections of a 7.3% decline in earnings and a 1.1% fall in revenues.
Revenues of auto companies are expected to be driven by strong sales in important markets like U.S., Europe and China in the first quarter. Meanwhile, the bottom line will benefit from an increase in the sales of higher margin vehicle segments, such as SUVs and light trucks, due to low fuel prices. However, the negative impact of foreign currency translation remains a major headwind for the auto sector. Sluggishness in many emerging markets and expenses related to safety recalls are other challenges.
Among the many companies lined up to report this week, let’s see what awaits these three major auto stocks scheduled to release their results this week.
Cummins Inc. CMI is set to report first-quarter 2016 results before the opening bell on May 3. The company has the potential to benefit from increased use of its engines by a number of original equipment manufacturers. Cummins’ Distribution segment is poised to gain from the acquisitions undertaken in North America. The company completed 10 acquisitions in a span of over two years. However, Cummins expects revenues to decrease in 2016 due to a fall in heavy-duty truck production in North America, weakness in the global off-highway and Power Generation markets, and strengthening of the U.S. dollar against a number of currencies. The company is facing challenges in its Power Generation business due to weak global demand, mainly for larger units. These factors can adversely affect the quarterly results of the company.
Cummins, carrying a Zacks Rank #3 (Hold), has an Earnings ESP of -3.96% for the first quarter of 2016. The Zacks Consensus Estimate for the quarter is pegged at $1.77. Cummins has missed the Zacks Consensus Estimate in 3 of the trailing 4 quarters with a negative average surprise of around 4.95%. (Read more: Cummins: What's in the Cards This Earnings Season?)
Delphi Automotive PLC DLPH is slated to release first-quarter 2016 results before the market opens on May 4. The company has an Earnings ESP of 0.00% for the first quarter of 2016. The Zacks Consensus Estimate for this Zacks Rank #3 stock’s earnings is pegged at $1.34 per share.
Delphi Automotive regularly undertakes acquisitions and alliances to enhance its technological capability, increase operating scale, augment its client base and expand geographically. In Dec 2015, the company completed the acquisition of HellermannTyton Group PLC, a leading global manufacturer of cable management solutions. The transaction is expected to boost Delphi Automotive’s earnings, excluding one-time integration expenses, by 15 cents per share from 2016. Some of the incremental earnings will likely be visible in the company’s first-quarter results.
On the flip side, the loss of revenues from the divested Thermal Systems business is negatively impacting Delphi Automotive’s top line. Moreover, economic weakness in South America is leading to lower production in the region by original equipment manufacturers. This can adversely affect Delphi Automotive’s sales.
Delphi Automotive delivered mostly positive earnings surprises in the last four quarters. It outperformed the Zacks Consensus Estimate in 3 of the trailing 4 quarters and reported in-line results in one quarter. This resulted in an average beat of 0.97% over the last four quarters. (Read more: Will Delphi Automotive's Earnings Surprise in Q1?)
Tesla Motors, Inc. TSLA is set to report first-quarter 2016 results after the closing bell on May 4. The company has an Earnings ESP of -57.14% for the first quarter of 2016.
Attractive products, rapid international expansion and improving production capacity are helping boost Tesla’s sales. The company delivered 12,420 Model S and 2,400 Model X vehicles in the first quarter of 2016, marking a 50% improvement over the first quarter of 2015. This should lead to significant revenue growth. The addition of revenues from the Tesla Energy business, launched in Apr 2015, should also aid the top line in the quarter to be reported.
However, despite increasing sales, Tesla remains a loss-making company due to high expenses. In each of the quarters and full-year 2015, Tesla reported significantly higher net loss on both adjusted and reported basis, compared to the corresponding quarters of 2014 and the full year. The company is expected to report losses in the first quarter of 2016 as well. The Zacks Consensus Estimate for this Zacks Rank #3 stock is pegged at a loss of 84 cents per share.
For 2016, Tesla’s operating expenses are estimated to increase by 20% due to development expenses related to Model 3. However, in first-quarter 2016, operating expenses are expected to increase only marginally from the fourth quarter of 2015, as the company is focusing on expense management.
Tesla delivered mixed earnings surprises in the last four quarters. It outperformed the Zacks Consensus Estimate in 2 of the trailing 4 quarters and missed in the other two. This resulted in a negative average surprise of around 66.77% over the last four quarters. (Read more: Will Tesla Incur a Loss Again this Earnings Season?)
Check back later for our full write-up on the earnings releases of these stocks.
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