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Will CARZ ETF Gain Despite Mixed Auto Earnings?

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The automobile sector came up with mixed results this reporting season. 66.7% of the S&P automobile companies beat on earnings while 100% surpassed on revenues. Moreover, earnings rose 22.4% year over year while revenues increased 20.6%, as indicated by the Earnings Trends issued on May 11.

The U.S. automobile sector has been gaining investor attention of late as the gradual resumption of U.S. and global economic activities highlights brighter prospects. Vehicle demand saw a boost, courtesy of the growing inclination toward personal mobility and easier credit conditions. Electric vehicles (EVs) are seeing greater popularity with each passing day and are likely to brighten the prospects of automakers.

However, the latest disappointing preliminary consumer sentiment readings for early May are bearing the brunt of persistently high inflation levels. The University of Michigan’s preliminary consumer sentiment declined 9.4% from the prior-month level to 59.1 in early May (the lowest reading since August 2011). The metric lagged the market forecast of the index coming in at 64, per a Reuters’ poll.

Consumers are upset about the buying conditions for durable manufactured goods, which they consider the worst since the survey began tracking the series in 1978, per a Reuters article.

The consumer spending levels are, however, expected to remain high, mainly owing to the considerable amount of savings done during the pandemic.

Against this backdrop, we look at some big automobile earnings releases and check if these can impact ETFs exposed to the sector.

Automobile ETF in Focus

Given the current scenario, it is prudent to discuss the following ETF that has relatively higher exposure to the major players in the space:

First Trust S-Network Future Vehicles & Technology ETF CARZ

The investment objective of First Trust S-Network Future Vehicles & Technology ETF is to seek investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the S-Network Electric & Future Vehicle Ecosystem Index.

First Trust NASDAQ Global Auto ETF comprises 102 holdings. CARZ’s AUM is $56.5 million while its expense ratio, 0.70%. First Trust NASDAQ Global Auto ETF currently carries a Zacks ETF Rank #3 (Hold), with a High-risk outlook.

Earnings in Focus

Tesla TSLA is the market leader in battery-powered electric car sales in the United States, owning around 60% of the market share. In fact, the company’s flagship Model 3 accounts for about half of the U.S. EV market. On Apr 20, Tesla reported earnings per share of $3.22 for first-quarter 2022, beating the Zacks Consensus Estimate of $2.15.  The outperformance was led by higher-than-expected deliveries and automotive gross profit, which came in at $5.54 billion, outpacing the consensus mark of $4.11 billion.  The earnings figure also compared favorably with the prior-year quarter’s 93 cents. Revenues rose to $18.76 billion, surpassing the consensus mark of $17.28 billion. The top line also witnessed year-over-year growth of 80.5%. During the first quarter, TSLA reported delivery and production of 310,048 and 305,407 vehicles each, reflecting a year-over-year increase of 68% and 69%, respectively.

Tesla had cash and cash equivalents of $17.51 billion as of Mar 31, 2022, compared with $17.58 billion as of Dec 31, 2021.

Ford Motor Company F designs, manufactures, markets and services cars, trucks, sport utility vehicles, electrified vehicles, and Lincoln luxury vehicles. On Apr 27, F reported first-quarter 2022 adjusted earnings per share of 38 cents, lagging the Zacks Consensus Estimate of 39 cents. Lower-than-expected profits in North America and a wider-than-expected pretax loss in China might have caused this underperformance. In the prior-year quarter, the company had reported earnings of 89 cents.

During the reported quarter, Ford reported automotive revenues of $32.10 billion, which lagged the Zacks Consensus Estimate of $39.10 billion and dipped 4% year over year. Ford had cash and cash equivalents of $10.58 billion as of Mar 31, 2022, compared with $10.96 billion on Dec 31, 2021.

One of the world’s largest automakers, General Motors GM reported first-quarter 2022 earnings results on Apr 26. GM reported adjusted earnings of $2.09 per share for first-quarter 2022, beating the Zacks Consensus Estimate of $1.56. Stronger-than-expected profits from its North America, International and Financial segments led to this outperformance. The bottom line, however, compares unfavorably with the year-ago quarter’s earnings of $2.25 per share. GM reported revenues worth $35.98 billion, up from the year-ago figure of $32.47 billion. However, the revenue figure missed the Zacks Consensus Estimate of $36.25 billion.

General Motors had cash and cash equivalents of $16.35 billion as of Mar 31, 2022, compared with $20.07 billion at the end of 2021. GM recorded an adjusted automotive free cash flow (FCF) of $6 billion for first-quarter 2022 against a negative cash flow of $1.93 billion in the year-ago period.


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