Auto Roundup: AZO & THO’s Quarterly Results, BWA’s Spin-Off Plans & More

Last week, China Passenger Car Association (CPCA) released vehicle sales data for November. Per the agency, vehicle sales in China totaled 1.67 million units last month, down 9.5% year over year. This marked the first decline since May.

On the news front, auto parts retailer AutoZone Inc. AZO and recreational vehicle (RV) maker Thor Industries THO reported quarterly results, wherein both companies managed to pull off an earnings beat. Auto equipment provider BorgWarner Inc. BWA drew much attention with its plans to spin off its Fuel Systems and Aftermarket business segments into a new company to better realize its electrification goals underlined in its Charging Forward strategy. Meanwhile, auto retailer Lithia Motors LAD continued with its buyout spree and purchased a Ferrari dealership in Denver. Trucking giant PACCAR PCAR also made it to the top stories with its investor-friendly moves.

Last Week’s Top Stories

AutoZone reported earnings of $27.45 per share for first-quarter fiscal 2023, up 6.8% from the prior-year figure of $25.69. The bottom line surpassed the Zacks Consensus Estimate of $25.15 per share on higher-than-expected comps growth. The net sales also grew 8.6% to $3,985.1 million. The top line beat the Zacks Consensus Estimate of $3,836 million. Domestic same-store sales (sales at stores open at least for a year) rose 5.6%, ahead of the Zacks Consensus Estimate of 3.37%.

During the quarter ended Nov 19, AutoZone opened 28 new stores in the United States, three in Mexico and four in Brazil. It exited the quarter with 6,196 stores in the United States, 706 in Mexico and 76 in Brazil. The total store count was 6,978 as of Nov 19. AutoZone had cash and cash equivalents of $269.8 million as of Nov 19, plunging from $961.1 million on Nov 20, 2021. The total debt amounted to $6,328.3 million as of Nov 19, marking an increase from $5,271.3 million on Nov 20, 2021.

AutoZone currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

Thor posted adjusted earnings of $2.53 per share for first-quarter fiscal 2023 (ended Oct 31, 2022), which surpassed the Zacks Consensus Estimate of $2.09. This marked the 11^th straight earnings beat for Thor. The bottom line, however, declined from the year-ago profit of $4.34 per share. The company registered revenues of $3,108.1 million for the quarter under review, missing the Zacks Consensus Estimate of $3,117 million. The top line also fell 21.5% year over year. During the fiscal first quarter, the company hiked its quarterly payout by 5%, marking the 13^th straight year of dividend increase.

As of Oct 31, 2022, Thor had cash and cash equivalents of $291.7 million and long-term debt of $1,714.6 million. Thor expects fiscal 2023 net sales in the band of $11.5-$12.5 billion, implying a decline from $16.31 billion recorded in fiscal 2022. The gross profit margin is expected in the range of 14.2-14.9%. Earnings per share are envisioned to be between $7.40 and $8.70, suggesting a sharp contraction from $20.59 in fiscal 2022.

BorgWarner announced its plans to execute a tax-free spin-off of its Fuel Systems and Aftermarket segments into a separate, publicly traded company known as NewCo. Upon completing the proposed separation, BorgWarner would consist of e-Propulsion & Drivetrain and Air Management segments. NewCo would consist of the company’s current Fuel Systems and Aftermarket segments. The transaction is expected to be completed in late 2023, subject to the satisfaction of customary conditions and other regulatory approvals.

The intended separation will optimize BWA’s combustion portfolio and accelerate its electrification game, while NewCo will pursue growth opportunities in alternative fuels, such as hydrogen and Aftermarket. The spin-off would better allow BorgWarner to focus on its set goals underlined in its Charging Forward strategy. The company estimated that after giving effect to the intended transaction, it is already on track with its organic bookings and acquisitions to date to deliver more than 22% of its revenues from EVs by 2025.

Lithia bolstered its footprint in Colorado with the purchase of the Ferrari dealership in Denver. This is the company’s first Ferrari store purchase. Apart from Ferrari, the dealership also sells Bentley and other luxury brands. Lithia expects the dealership to generate around $75 million in annualized revenues, bringing LAD’s total expected annualized revenues acquired in 2022 to more than $3.3 billion. The acquisition is part of LAD’s nationwide network expansion initiative under the company’s 2025 plan, wherein it targets $50 billion in revenues and EPS in the range of $55-$65.

Lithia’s strategic buyouts are helping the auto retailer increase its market share and boost its portfolio. The spree of acquisitions brought Lithia’s total expected annualized revenues acquired to $7 billion in 2021, keeping it ahead of schedule laid out in the five-year plan rolled out in July 2020. Its total expected annualized revenues acquired in 2022 have reached $3.3 billion.

PACCAR gave investors a reason to cheer by boosting its dividend payout. The company declared a 50% stock dividend, rewarding investors with one additional share for each two shares held. While the new shares would be issued on Feb 7, 2023, to stockholders on record as of Jan 17, 2023, PACCAR will be paying a quarterly dividend of 25 cents on each newly-split share which will be payable on Mar 8 to shareholders on record as of Feb 14.

Notably, PACCAR will pay an extra cash dividend of $2.80 a share, to be paid out on Jan 5, 2023, to shareholders on record as of Dec 16, 2022. This marks an 86.6% increase from the extra cash dividend of $1.50 a share paid in January 2022. PACCAR has paid a dividend every year since 1941. PCAR has been generating robust cash flow on account of impressive growth in its trucking and aftermarket business, which enables it to remain committed to increasing its shareholder value. People looking for regular income from stocks are most likely to choose companies that have a track record of consistent and incremental dividend payouts.

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 November passenger vehicle registrations to be released by the European Automobile Manufacturers’ Association soon. China Association of Automobile Manufacturers will also release China vehicle sales data in a couple of days. Investors are also awaiting quarterly results of one of the leading RV makers, Winnebago Industries.

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