Ferrari 2019 (NYSE:RACE) Core Q-3 Earnings Unchanged

Ferrari 2019 (NYSE:RACE) Core Q-3 Earnings Unchanged

$RACE

Ferrari’s (NYSE:RACE) sales mix trended toward its “entry-level” Portofino Supercar in the Q-3 rather than its high-margin Limited-Edition models.

The iconic Italian Supercar maker has had a run of record earnings, helped by its higher-margin Special Edition models and a “customisations programme’.

Investors have been looking for reassurance that new CEO Louis Camilleri can maintain Ferrari’s strong growth achieved under the late Sergio Marchionne, who more than 2X’d the value of the company since he took it public in Y 2015.

Ferrari’s Q-3 results showed strong demand for the Portofino – an 8-cylinder entry level model priced at around $200,000 – and 12-cylinder models such as the 812 Superfast.

But the higher shipments, +11% partially offset lower volumes of the $2-M LaFerrari Aperta hybrid convertible that is finishing its limited series run.

CEO Camilleri said the negative impact from the model sales mix would be short lived, as the entry-level Portofino helped to attract new customers who “tend to become loyal to the brand, go up the range and eventually buy the special series or Limited Edition models”.

The Ferrari Portofino convertible was designed specifically to bring new buyers to the brand. Sales have been strong since its debut early in Y 2018. 

He said the stock remained a “relative safe haven” given uncertainties related to raw material costs, tariffs, China and pricing faced by other auto makers.

The Q-3 is the 2nd set of results presented by CEO Camilleri, who took over in July after Mr. Marchionne’s death. The sudden change at the Top jolted shareholders who had expected Marchionne to remain at the helm until Y 2021.

Investors welcomed a mid-term plan presented by CEO Camilleri in September, where he promised 15 new models, including hybrids, a FUV (utility vehicle) and Special Editions in a drive to boost margins to more than 38 percent.

CEO Camilleri said 2 new models would be launched in 1-H of this year, but declined to give more details.

He said the company’s order book is “significant” and had expanded across all regions. Ferrari also had “considerable flexibility” to adjust to any potential trade issues, he added.

Asked about any potential US tariffs, CEO Camilleri said these would have no material impact.

“We would pass that on to our customers and we don’t feel that would have a material impact,” he said.

He said China was still a single-digit market as a percentage of overall sales for Ferrari so its exposure was not as heavy as for other luxury product manufacturers.

Ferrari kept its 2018 core earnings unchanged, and analysts said the move showed the new management is taking a more conservative approach than it had under Mr. Marchionne.

Ferrari’s adjusted earnings before interest, tax, depreciation and amortization (EBITDA) for July-September period rose 4.7% to $316-M according to I/B/E/S data from Refinitiv.

Ferrari argues that its luxury-level margins deserve a valuation more like a luxury-goods maker than a traditional automaker. The Maranello Outfit currently trading at about 27X its expected Y 2018 earnings.

Ferrari may never again be as cheap as it was in the 1st few months after its  IPO in Y 2016.

Given its outstanding brand, pricing power, and legitimate profit-growth prospects, it could be a terrific buy for a long-term investor at current Bear-market prices. 

Ferrari is the Aristocrat of the world’s automotive sector.

Have a terrific New Year!

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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