Auto Stock Roundup: KMX & AZO's Earnings, AXL's Divestment Deal & More

The United Auto Workers’ (“UAW”) nationwide strike against General Motors (NYSE:GM) has reached the tenth day. The strike was called after the company’s four-year contract with workers expired on Sep 15 without any agreement on replacement. Notably, this marks the first major work stoppage at the company in the last 12 years and the longest national strike in the United States since 1970.

In the past couple of days, negotiations between the two parties have intensified and they are reportedly closing in on a tentative deal that could end the strike soon. The pace of pay hike for new employees and policies related to temporary workers are yet to be discussed.

Meanwhile, CarMax Inc. (NYSE:KMX) and AutoZone, Inc. (NYSE:AZO) released quarterly results this week, wherein both the companies delivered a comprehensive beat.

(Read the Last Auto Stock Roundup here).

Recap of the Week’s Most Important Stories

1. CarMax reported better-than expected results in second-quarter fiscal 2020 (ended Aug 31, 2019), wherein earnings and revenues surpassed estimates. This was attributed to better-than-expected performance across all its segments. The specialty retailer of used and new vehicles posted net earnings per share of $1.40, which beat the Zacks Consensus Estimate of $1.33 and increased from the year-ago profit of $1.24. Net sales and operating revenues in the reported quarter increased 9.1% year over year to $5,201 million.

In second-quarter fiscal 2020, CarMax’s used-vehicle sales rose 9.3% from the prior-year period to $4,346.3 million. Wholesale vehicle revenues rose 8% from a year ago to $678.3 million in the reported quarter. CarMax Auto Finance reported a 4% year-over-year increase in income to $114.1 million. CarMax had cash and cash equivalents of $40.7 million, and long-term debt of $1,689.1 as of Aug 31, 2019. (Read more: CarMax Q2 Earnings Beat on Used-Vehicle Unit Strength)

2. AutoZone reported earnings of $22.59 per share in the fourth quarter of fiscal 2019 (ended Aug 31, 2019), up from $15.02 in the prior-year period. Further, the figure surpassed the Zacks Consensus Estimate of $21.64. Net income rose 41.2% year over year to $565.2 million, benefitting from lower effective income tax rate.

In the reported quarter, net sales improved 12% year over year to $3,988.4 million. The top line also beat the Zacks Consensus Estimate of $3,940 million. AutoZone had cash and cash equivalents of $176 million as of Aug 31, 2019, down from $217 million on Aug 25, 2018. Total debt amounted to $5,206.3 million, marking an increase from $5,006 million on Aug 25, 2018. (Read more: AutoZone Q4 Earnings Beat on Higher Commercial Sales)

3. American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) entered into an agreement to sell its U.S iron casting operations, named Grede, to funds managed by New York-based private investment firm, Gamut Capital Management, for $245 million. The total consideration includes $185 million in cash and a $60-million deferred payment obligation. Subject to satisfactory closing conditions, the transaction is set for closure in the fourth quarter of 2019.

For Detroit-based American Axle, the sale of Grede will help the firm to streamline its portfolio, reduce debt and improve margin profile.The acquisition of Grede offers significant growth opportunities to Gamut Capital. Meanwhile, American Axle will retain its Mexico iron casting operations named El Carmen. (Read more: American Axle to Sell U.S Iron Casting Unit to Gamut Capital)

4.Toyota Motor Corporation’s (NYSE:TM) Brazil-based sales and manufacturing subsidiary — Toyota do Brasil Ltda. (“TDB’’) — intends to invest R$ 1 billion ($243.29 million) in its Sorocaba facility in Sao Paulo. Notably, the Sorocaba plant will manufacture new models for the market. The models will be commercialized in 2021. The facility has already provided expansion and logistics ease to suppliers since its initial project.

Also, Toyota plans to add 300 new employees in order to commence production of the fresh models. Toyota has two other plants in Brazil and the latest investment reflects the company’s team work with suppliers, dealers, employees, unions and the government, while also reinforcing its long-term vision in the country. (Read more: Toyota to Invest $243 Million in Brazilian Facility)

5.Navistar International Corporation (NYSE:NAV) is set to invest more than $250 million to build a manufacturing facility in San Antonio, TX. The move comes as part of its four-year plan to grow its market share. The new facility will produce three trucks of different sizes — class 6, class 7 and class 8. The move will likely create jobs for 600 people.

The firm anticipates producing up to 365,000 trucks and buses in 2019. The company’s revenues are estimated between $10 billion and $10.5 billion. It plans to raise its EBIDTA margin from 8% to 12% by 2024. The company aims to rev up its market share from 17% to 25% by 2025. (Read more: Navistar to Invest $250M to Build Truck Plant in Texas)

Price Performance

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

In the past week, Tesla (NASDAQ:TSLA) recorded the maximum loss, whereas Advance Auto Parts registered the highest gain. In the past six months, Tesla has declined the most, while Toyota Motors has recorded the maximum gain.

What’s Next in the Auto Space?

Industry participants will be waiting for new updates related to the UAW-General Motors strike. Car enthusiasts will be keeping a close watch on September U.S. car sales, which will be coming out early next week. Investors interested in the auto sector will be closely tracking the monthly sales reports of auto biggies like Honda, Hyundai and Toyota, among many others.

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