The ‘Auto’ sector kicked off this earnings season on a somewhat weak note. So far, 50% of the S&P sector components have reported quarterly numbers. Per the Earnings Trends report dated Feb 5, earnings and revenues of these firms have declined 38.6% and 5.6% year over year, respectively. Among the auto firms that have posted quarterly results, 50% beat EPS estimates and 50% surpassed revenue estimates.
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.Looking at Q4 expectations as a whole and combining the actual results that have come out with estimates for the still-to-come companies, total earnings and revenues for the auto sector are expected to decline 58% and 10.4% 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 Impacting the Sector’s Q4 Results
Macro-economic headwinds and other industry-related challenges are likely to have impacted the auto sector this earnings season. 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.
Indeed, U.S. GDP grew at an annualized rate of 2.1% in fourth-quarter 2019, buoyed by a strong labor market, soaring job growth and low unemployment. However, U.S. light vehicle sales in the fourth quarter fell 1.7% year over year to 42, 90,911 units.
Tougher 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, in turn denting demand.
Key Q4 Releases on Feb 13
Dana Incorporated DAN: Automotive equipment supplier, Dana came up with better-than-expected earnings in third-quarter 2019 on the back of benefits from recent acquisitions and backlog conversion.
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 see the complete list of today’s Zacks #1 Rank stocks here.
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 company surpassed the Zacks Consensus Estimate in three of the last four quarters.
Dana Incorporated Price and EPS Surprise
Dana Incorporated price-eps-surprise | Dana Incorporated Quote
However, this time around, things are not looking up for Dana, as the firm carries a Zacks Rank #3 and has an Earnings ESP of -0.11%. The Zacks Consensus Estimate for the quarter to be reported is earnings of 62 cents per share on revenues of $2 billion. The firm is set to report quarterly results before the opening bell.
Dana’s strong business backlog, contract wins, and smart buyouts like Nordresa acquisition and others are likely to have boosted the firm’s results in the quartertobe reported. However, volatility in off-highway markets and slowing economic growth in India and China are likely to have dented demand for its products. The firm is also bearing the brunt of high raw material cost and increasing SG&A expenses, which may have clipped fourth-quarter 2019 margins to some extent.
CarGurus, Inc. CARG: CarGurus is a global online automotive marketplace thatbrings together buyers and sellers of new and used vehicles using technology, data analytics, and search algorithms. The firm delivered an earnings beat in the third quarter on better-than-expected sales from the U.S. market. As far as earnings surprises are concerned, the company surpassed the Zacks Consensus Estimate in each of the last four quarters.
CarGurus, Inc. Price and EPS Surprise
CarGurus, Inc. price-eps-surprise | CarGurus, 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 0.00%. The Zacks Consensus Estimate for the quarter to be reported is earnings of 14 centsper share on revenues of $155 million. The firm is set to report quarterly results after the closing bell.
Higher market subscription revenues are expected to reflect on the upcoming results. The consensus estimate for fourth-quarter 2019 revenues from U.S. and international markets is pegged at $145 million and $10 million, indicating an uptick of 19.7% and 100%, respectively, from the prior-year period. However, higher general/administrative and sales/marketing expenses, along with soaring technology/development costs are likely to have impacted the bottom line.
BorgWarner Inc. BWA: Michigan-based BorgWarner is a global leader in clean and efficient technology solutions required for combustion, hybrid and electric vehicles.The automotive equipment supplier posted better-than-expected earnings in the last reported quarter,mainly driven by revenue growth in the Drivetrain segment. As far as earnings surprises are concerned, the company surpassed estimates in each of the last fourquarters.
BorgWarner Inc. Price and EPS Surprise
BorgWarner Inc. price-eps-surprise | BorgWarner Inc. Quote
Encouragingly, BorgWarner is expected to maintain its beat streak as it has the favorable combination of an Earnings ESP of +0.75% and a Zacks Rank #3.The Zacks Consensus Estimate for the quarter to be reported is earnings of $1.03 per share on revenues of $2.49 billion.The firm is scheduled to unveil quarterly results before opening bell.
Global expansion efforts, innovative product launches, strategic collaborations and strong backlog are likely to reflect on the firm’s fourth-quarter results.Notably, the Zacks Consensus Estimate for the firm’s Engine and Drivetrain segment’s EBIT is pegged at $243 million and $124 million, respectively, indicating sequential increase from the year-ago reported figures.
SPX Corporation SPXC: Based in Charlotte, the global manufacturing and industrial equipment supplier is slated to report quarterly numbers after the closing bell. The firm posted better-than-expected earnings in the last reported quarter, driven by higher-than-anticipated revenues from HVAC and Engineered Solutions businesses. As far as earnings surprises are concerned, the company surpassed estimates in each of the last four quarters.
SPX Corporation Price and EPS Surprise
SPX Corporation price-eps-surprise | SPX Corporation Quote
However, our model depicts that the company may not be able to beat on the earnings this season as it has a Zacks Rank #2 and Earnings ESP of 0.00%. The Zacks Consensus Estimate for the quarter to be reported is earnings of 94 cents per share on revenues of $439 million.
The Zacks Consensus Estimate for the HVAC segment’s revenues is pegged at $185 million, suggesting an increase from $182.7 million in the prior-year quarter. Increase in sales of heating products and a rise in cooling product sales are likely to have positively impacted the segment’s top line. The consensus mark for revenues from the Detection& Measurement unit is pegged at $113 million, pointing to growth from fourth-quarter 2018 revenues of $96.4 million. However, the Zacks Consensus Estimate for revenues from Engineered Solutions is pegged at $143 million, implying a year-over-year decline. Rising SG&A costs are likely to have hurt the bottom line.
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