VWAGY and STLA to Pay Emissions Fines, TM Cuts Output Target & More


Last week, the European Automobile Manufacturers Association (“ACEA”) released data for commercial vehicle registrations for April 2022. The European Union (EU) commercial vehicle market contracted 27.1% in April to 125,034 units amid chip woes aggravated by the Russia-Ukraine war. 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 17.5%, 30.5%, 36% and 28.6%, respectively. During the first four months of 2022, new car registrations declined 20.3%, with last month’s dismal performance pulling down the cumulative results further. All four major EU markets saw declines, with Spain suffering the steepest fall of 31.8%. Registrations in France, Italy and Germany declined 23.6%, 7.7% and 16.5%, respectively, over the same timeframe.

On the news front, two auto parts retailers Advance Auto Parts, Inc. AAP and AutoZone, Inc. AZO came out with their quarterly releases. Both the companies managed to pull off an earnings beat. Meanwhile, two auto giants Volkswagen AG VWAGY and Stellantis NV STLA announced that they will pay settlement fines of $242 million and $300 million, respectively, over emission scandals. Japan’s auto bigwig Toyota Motor TM cut its production target for June amid the chip crisis.

Last Week’s Top Stories

1. Advance Auto reported adjusted earnings of $3.57 per share for first-quarter 2022 (ended Apr 23, 2022), up 6.9% from the year-ago quarter figure and surpassing the Zacks Consensus Estimate of $3.53. Advance Auto generated net revenues of $3,374.2 million, falling short of the Zacks Consensus Estimate of $3,381 million but edging up 1.3% from the year-ago reported figure. While comparable same-store sales grew 0.60%, adjusted operating income was up 1.6% year over year to $303.6 million despite a rise in SG&A costs. Adjusted SG&A expenses increased $1.3 billion for first-quarter 2022, up from $1.2 billion in the year-ago period.

Advance Auto estimates 2022 net sales in the band of $11.2-$11.5 billion. Comparable store sales growth and adjusted operating income margin are envisioned in the range of 1-3% and 10-10.2%, respectively. Advance Auto expects capex in the $300-$350 million range and targets FCF of a minimum of $775 million. Adjusted EPS is now forecast between $13.30 and $13.85, up from the previously guided range of $13.20-$13.75. The auto parts retailer intends to buy back stocks worth $500-$700 million. AAP aims to open 125-150 new stores this year.

2. AutoZone reported earnings of $29.03 per share for third-quarter fiscal 2022, up 9.6% from the prior-year figure of $26.48. The bottom line also surpassed the Zacks Consensus Estimate of $25.87. Net sales also grew 5.8% to $3,865.2 million. The top line beat the Zacks Consensus Estimate of $3,702 million. In the reported quarter, domestic commercial sales totaled $1,044.3 million, up from $828.6 million recorded in the year-ago period. Domestic same-store sales (sales at stores open at least for a year) rose 2.6% in the quarter under discussion.

During the fiscal third quarter, AutoZone opened 24 new stores, four in Mexico and three in Brazil. It exited the quarter with 6,115 stores in the United States, 673 in Mexico and 58 in Brazil. The total store count was 6,846 as of May 7, 2022.AutoZone had cash and cash equivalents of $263 million as of May 7, 2022, down from $975 million on May 8, 2021. Total debt amounted to $6,057.4 million as of May 7, 2022, marking an increase from $5,267.9 million on May 8, 2021.

3. Volkswagen stated that it will pay £193 million ($242 million) to settle 91,000 out-of-court legal claims in England and Wales over the Dieselgate emissions scandal that the largest European carmaker was embroiled in.The scandal ensued in 2015 after around 11 million company cars worldwide and 1.2 million in Britain were alleged to have been fitted with software that hoodwinked diesel emission tests designed to limit nitrogen oxide car fumes. It has gone down as one of the costliest corporate scandals in history. Volkswagen has spent more than €30bn (£26bn) in legal fees and payouts to customers, including a $15 billion (£12bn) settlement in the United States.

Per the settlement, the claimants will receive average payments of more than £2,100 each after joining the lawsuit that claimed that Volkswagen’s Audi, Seat and Skoda’s emissions, too, were more than what the company stated. The carmaker will also pay out an amount estimated to be tens of millions of pounds to cover the claimants’ legal costs and other fees that include the costs levied by investors who backed the legal actions.

4. Stellantis agreed to plead guilty to end a multi-year investigation probing its involvement in concealing the amount of pollution created by its diesel engines. The automaker company is gearing itself up to pay $300 million to settle allegations of criminal fraud. Stellantis declined to comment on the report.

This will settle a long-standing probe by the U.S. Justice Department and the Securities and Exchange Commission initiated in 2019 when Stellantis recalled nearly 1 million vehicles in the United States and Canada for not meeting federal tailpipe emission standards. The agency has pressed criminal charges on three employees so far. The probe involved nearly 100,000 Ram pickup trucks and Jeep SUVs sold in the United States.

5. Toyota slashed its production targets twice last week, citing supply chain issues and coronavirus-induced lockdowns in China. Amid the shortage of microchips, Toyota announced last Tuesday that it is trimming its output plan for June by about 100,000 vehicles. On Friday, the automaker again cut its production target by 50,000 units and now expects global production in June to total 800,000 units.

Toyota notified that it would halt operations at some of its domestic plants for one week starting Jun 6. While Toyota hasn’t lowered its 2022 worldwide production target of 9.7 million vehicles, the company states that there might be a “possibility” that the forecast might be lowered. TM currently carries a Zacks Rank #4 (Sell).

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

Price Performance

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

Zacks Investment Research

Zacks Investment Research

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
Advance Auto Parts, Inc. (AAP) : Free Stock Analysis Report
AutoZone, Inc. (AZO) : Free Stock Analysis Report
Volkswagen AG Unsponsored ADR (VWAGY) : Free Stock Analysis Report
Stellantis N.V. (STLA) : Free Stock Analysis Report
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