Tuesday, August 4, 2020

Ferrari Shares Race Ahead Despite Plunging Q2 Profits

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News shaping
the markets today

     

What’s happening: Shares of Ferrari NV gained on Monday despite the supercar-maker reporting a massive decline in profits for the second quarter.

What happened: The automaker was forced to close its factories for almost seven weeks in the second quarter due to the pandemic.

Ferrari’s quarterly earnings were practically wiped out as the company had to halt production and delay the launch of models amid strict lockdown measures in Italy. Despite this, management’s comments on the order book lifted investor sentiment.

How were the results: The Italian sports car maker reported a huge decline in sales and earnings for the second quarter.

  • Revenues plummeted 42% to €571 million in the second quarter.
  • Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) fell 60% to €124 million, but came in ahead of the consensus estimate of €120 million.
  • Net profits tumbled 95% to €9 million in the quarter.

Why it matters: Like other carmakers, Ferrari suffered a steep decline in shipments, with Italy being one of the European Union countries that was the hardest hit by the pandemic.

Shipments declined 41% in Europe, while contracting 53% and 91% in the Americas and greater China, respectively.

The company’s performance last quarter was also affected by the temporary suspension of the Formula 1 season, resulting in fewer races and lower in-store traffic.

The carmaker had already reduced its full-year projections in May to reflect the impact of the pandemic on its business, projecting 2020 EBITDA between €1.05 billion and €1.20 billion. However, management trimmed the higher end of the forecast to €1.125 billion.

Despite the depressing results, investors were happy with Ferrari’s orders being “very strong,” up by double-digit percentages in absolute terms.

The company also said it is committed to pushing ahead with its plans to roll out new models to support profit growth. Despite the coronavirus outbreak, Ferrari confirmed plans to unveil two new supercars by the end of this year.

How shares responded: Shares of Ferrari climbed 2.6% to close at $186.45 on Monday following the release of quarterly results. The stock has gained more than 8% in the past month, while rising 25% in the last three months.

What to watch: With plans to launch new models soon, the company is expected to recover some of its lost momentum. Ferrari is also expected to witness a rise in sales as European countries reopen and being in a much better position than the rest of the world.

The Markets Today

     

European stocks will be in focus today, ahead of producer prices data scheduled for release later in the day.

Context: European stocks started the first trading day of August on a positive note, driven by encouraging manufacturing data from the region. Investor sentiment was tainted to some extent by poor earnings reports from major companies.

Details: European stocks posted sharp gains on Monday after the region’s PMI (purchase managers’ index) report showed an expansion in manufacturing activity for the first time since early 2019, with a rebound in demand as economies reopened after coronavirus-induced lockdowns.

The final reading of the IHS Markit manufacturing PMI jumped to 55.3 in July, from a reading of 48.9 in June.

Investor sentiment was also lifted by a private survey suggesting China’s manufacturing PMI had risen more than expected in July.

Meanwhile, investors digested the poor performance of some big companies reporting results. Shares of Societe Generale shares fell around 1% after the company reporting unexpected losses for the second quarter. HSBC’s stock slid by 3% after the bank reported a 65% decline in pretax profits for the first half of the year. Shares of Siemens Healthineers plummeted about 9% after the German company announced plans to buy US-based firm Varian for $16.4 billion.

The pan-European Stoxx 600 closed higher by 2.1% on Monday, with mostly all sectors trading in positive territory. Auto stocks led the surge, climbing 3.8%. Germany’s DAX 30 index climbed 2.7%, while French CAC 40 gained 1.9%.

What to watch: Investors await producer prices data from the Eurozone, which are projected to rise 0.5% in June, after a decline of 0.6% in May.

Investors will continue to assess the covid-19 figures, with the total number of cases exceeding 18.1 million globally.

Other Markets: US indices trading closed higher on Monday, with the Dow Jones index, S&P 500 and the Nasdaq 100 up by 0.89%, 0.72% and 1.47%, respectively.

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Futures at 0400 (GMT)

What else to watch today

     

France's government budget value, Spain’s unemployment change, Turkey's consumer price inflation, manufacturing PMI and producer prices, Brazil's industrial production, Canada’s manufacturing PMI, Argentina’s tax revenue as well as the US Redbook index, ISM New York current business conditions index, factory orders and IBD/TIPP economic optimism index.