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Auto Roundup: WGO and KMX's Quarterly Earnings Beat, TM's Output Cut and More

Last week, the European Automobile Manufacturers Association (“ACEA”) released data for commercial car registrations for May 2022. The European Union (EU) passenger vehicle market contracted 17.7% in May to 136,410 units, marking the eleventh straight month of decline. A fall in new van sales primarily impacted the results. Most of the countries in the EU witnessed a double-digit drop in registrations, including four key markets. Registrations in Italy, Germany, Spain and France witnessed a yearly decline of 11.1%, 19.5%, 29.3% and 16.8%, respectively. During the first five months of 2022, new commercial vehicle registrations contracted 19.8% from the prior-year period to 673,095 units. Registrations in Italy, France, Spain and Germany declined 8.2%, 22.3%, 31.2% and 17.1%, respectively, over the same timeframe.

On the news front, recreational vehicle maker Winnebago Industries WGO and used vehicle retailer CarMax KMX unveiled their quarterly results. Japan’s top maker Toyota TM announced production cut plans for the month of July due to supply chain disruptions. U.S. legacy auto giant General Motors GM plans to halt operations at its Factory Zero facility in Michigan for four weeks to prepare for a production expansion. Meanwhile, France-based tire maker Michelin MGDDY collaborated with Hyundai for sustainable electric vehicle (EV) tires.

While Winnebago, General Motors and Toyota carry a Zacks Rank 3 (Hold), Michelin and CarMax presently hold a Zacks Rank #4 (Sell) and #5 (Strong Sell), respectively.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Recap of Last Week’s Important Stories

1. Winnebago reported third-quarter fiscal 2022 (ended May 28, 2022) adjusted earnings per share of $4.13, surpassing the Zacks Consensus Estimate of $3.01 and surging 84% year over year. This outperformance can be attributed to higher-than-anticipated revenues across all segments. The company reported revenues of $1,458 million for the quarter under review, outpacing the Zacks Consensus Estimate of $1,204 million. The top line also grew 52% year over year.

Winnebago had cash and cash equivalents of $238 million as of May 28, 2022, down from $434.6 million on Aug 28, 2021. Long-term debt (excluding current maturities) totaled $541.4 million, down from $528.6 million recorded on Aug 28, 2021. During the quarter under review, WGO repurchased shares worth $70 million. It approved a payout of 18 cents a share, payable on Jun 29, 2022, to shareholders of record as of Jun 8, 2022

2. CarMax reported first-quarter fiscal 2023 (ended May 31, 2022) net earnings per share of $1.56, beating the Zacks Consensus Estimate of $1.51 amid higher-than-anticipated revenues from the wholesale segment. The bottom line, however, decreased from $2.63 per share recorded in the year-ago period. The auto retailer registered revenues of $9,311 million for the May-end quarter, which fell short of the Zacks Consensus Estimate of $9,375 million. The top line, however, recorded a 21% year-over-year increase.

During the fiscal first quarter, CarMax bought back 1.6 million shares of common stock for $157.6 million under the share repurchase program. As of May 31, 2022, it had $2.62 billion remaining under the share-repurchase authorization. The company opened one new store during the fiscal first quarter. KMX currently operates more than 230 used car stores. In fiscal 2023, CarMax targets to open 10 stores. It expects fiscal 2023 capital expenditure to increase to $500 million.

3. Toyota slashed its production plan yet again amid exacerbated supply chain snarls due to the Russia-Ukraine war and COVID-induced curbs in China. It trimmed its July worldwide output target by 50,000 vehicles. Volumes for July are expected to be around 800,000 units (with 25,000 units in Japan and 550,000 units overseas). The automaker also expanded production halts at its Motomachi and Takaoka plants.

Toyota expects the average global output for the July-September period to be around 850,000 units per month. Nonetheless, it hasn’t lowered its fiscal 2022 global production target of 9.7 million vehicles but has notified that there might be a "possibility" that the forecast might be lowered. Considering the production cuts and a limited supply of microchips, inventory is likely to remain low for quite some time. The executive vice president of sales for Toyota North America, Bob Carter believes that it would take around six months for inventory rates to normalize after the supply chain recovers. 

4. General Motors decided to suspend production of its all-electric pickup, Hummer EV, at the Factory Zero facility in Michigan for four weeks to modify and increase the unit’s production capacity. Per media sources, the downtime will stretch from Jun 27 to Jul 22. The company noted that the upgrades were taking place earlier than the scheduled date, and affected employees have already been notified.

The plant aims to launch the Chevrolet Silverado EV and GMC Sierra Denali EV pickups next year together with an autonomous van, the Origin, for its self-driving ride-share company, Cruise. Notably, GM delivered a mere 99 of the Hummer EV Edition 1 pickups during the first quarter of 2022. However, it has more than 77,500 reservations in hand and will be bolstering its output throughout the year to cope with the demand.

5. Michelin has inked an agreement with South Korean automaker Hyundai Motor to develop next-generation tires for the latter’s premium EVs. The agreement is a continuance of a five-year partnership signed in November 2017 to manufacture an exclusive tire for the Hyundai Ioniq 5. The recent deal will run for three years, during which both the companies aim to conduct a study on tire wear, tire load and road friction beyond the current degrees of tire temperature and air pressure. They will also explore ways to up the use of eco-friendly materials in tires to about 50% of the total tire weight from the current 20%.

The properties of the tires are supposed to contribute to autonomous driving technology via a real-time tire monitoring system. The partnership pivots on the success of the previous venture of the Hyundai Ioniq 5 and now looks to offer safer and cleaner mobility. Both companies are optimistic about the breakthrough innovation plans coming to fruition and creating synergies in the collaboration.

Price Performance

The following table shows the price movement of some of the major auto players over the last week and six-month period.

Image Source: Zacks Investment Research

What’s Next in the Auto Space?

Industry watchers will keep a tab on U.S. vehicle sales for the month of June. Also, stay tuned for any update on how automakers will tackle the semiconductor shortage — compounded by the Russia-Ukraine war and COVID-19 restrictions in China — and make changes in business operations.

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Toyota Motor Corporation (TM): Free Stock Analysis Report
General Motors Company (GM): Free Stock Analysis Report
CarMax, Inc. (KMX): Free Stock Analysis Report
Winnebago Industries, Inc. (WGO): Free Stock Analysis Report
Michelin (MGDDY): Free Stock Analysis Report
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