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Fiat Remains Confident in Its 2019 Plan

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Fiat Chrysler Automobiles NV (NYSE:FCAU) shares fell 2.8% on the Milan Stock Market after its first quarter results were announced on May 3rd.  Adjusted earnings before interest and tax (EBIT) fell 29% from the same period last year to 1.07 billion euros ($1.2 billion). Analysts had expected EBIT of 1.31 billion euros ($1.46 billion). Operating profit fell as sales decreased in the U.S. and Europe. Reported revenue for the first quarter of 2019 is 24.5 billion euros which is down 5% from the first quarter of 2018, but the company states that its first quarter Adjusted EBIT and margin declined versus the prior year as anticipated. This was expected largely due to the non-repeat of parallel production of the previous generation Jeep Wrangler alongside the new model and as a consequence of transitioning to a new commercial strategy in Europe, Middle East and Africa.

Fiat divides its units as follows: NAFTA which stands for its North American unit, APAC for Asia, Pacific, Africa and China, EMEA for Europe, Middle East and Africa, LATAM for Latin America and Maserati, FCA’s luxury vehicle brand. North America net revenues went down slightly, with lower volumes substantially offset by favorable foreign exchange translation effects and positive pricing. APAC net revenues also went slightly down due to lower volumes and negative pricing. EMEA net revenues went down 10%, due to lower volumes that were at least partially offset by a favorable mix. LATAM net revenues also went down, but its adjusted EBIT is the only one from the group that went up 42% because positive net pricing partially offset decreased volumes, negative foreign exchange effects and lower export tax benefits. Maserati’s net revenues went down 38% as the brand is still in quite a trouble. Its operating profits slumped as much as 87% in the third quarter last year due to its weak demand in China and is clearly not managing to recover, but Fiat’s CEO is confident that it will by the end of the year.

Overall, FCA reported first quarter 2019 results with net profit from continuing operations of €0.5 billion, adjusted net profit of €0.6 billion, adjusted EBIT of €1.1 billion, and margin at 4.4%. But, the sale of Fiat’s car parts unit Magneti Marelli was completed on May 2, 2019, resulting in cash proceeds of €5.8 billion. FCA is confident that the sales of new U.S. pickup trucks like the Jeep Gladiator and RAM models would help propel EBIT to its 2019 profit target of more than 6.7 billion euros ($7.5 billion).

Jeep was resurrected ten years ago, and during this decade, it evolved to become FCA’s top performing brand. Last year, which was such a challenging year for automakers, 1.56 million of Jeep vehicles were sold globally, which is a substantial increase of 11.4% when compared to 2017. The steady growth has not only positioned Jeep as FCA’s top-selling brand but also its most important source of revenue and profits.

In 2018, 46% of FCA’s revenues came from the U.S. market so the company is bound to feel the impact of the weakening U.S. demand that is troubling its peers and even giving headaches to the invincible (Toyota NYSE: TM). As for special items, debt and liquidity, FCA spent 246 million euros for restructuring in the first quarter, fortunately, these are only one-off expenses, but this strategy needs to show results. Since succeeding Marchionne as CEO last summer, Mike Manley has greatly altered FCA’s organizational chart as he delegated critical duties and brought in new fresh perspectives from veterans of rival automakers and even Amazon (NASDAQ:AMZN). Manley clearly intended to shake things up by placing outsiders in key roles. And his ability to enchant successful executives to join him is a testament to how far FCA has come in the decade since its bankruptcy filing.

But, China remains a challenge for Meunier as market saturates and Jeep has been there for quite a while so it needs to understand its mature buyer better in order to fight with a decreasing demand. Perhaps his greatest challenge and potential problem is in the fact that Fiat seems behind in the development of all-electric vehicles and China has made this trend a priority for its automakers.

The most troublesome unit is by far Maserati, which sold 31% fewer units in 2018. During the first quarter of this year, the negative trend has continued, and Maserati sold 32% fewer units and posted 38% lower revenues. Fortunately, Maserati’s share in total revenues is only 2%, but this is an indication that one part of the new strategy is not working out as planned. The second brand that is troublesome is Alfa Romeo. Alfa Romeo’s sales slowed significantly during 2018 and there are no new launches in sight.

As for forecasts, Fiat still expects that its adjusted EBIT will be greater than the 6.7 million euros it reported in 2018, with an adjusted-EBIT margin better than 6.1%, its 2018 result. Also, it expects that its adjusted diluted EPS (earnings per share) will be greater than 2.70 euros. Its 2018 result was 3.00 euros. It expects an industrial free cash flow of greater than 1.5 billion euros which is a lot less than 4.4 billion euros.

Until 2022, Jeep will enter new segments, offer electrification options, and have two launches per year. Development of the product range should ensure that global sales continue, and to ensure that Jeep continues to be the main driver of the FCA Group’s revenues and profitability. The growing truck brand Ram is the second most successful brand in the group as during 2018, Jeep and Ram sales combined amounted to 2.289.000 units, which was half of the group’s worldwide sales.

Currently, FCA trades at the bottom of the U.S. valuations and in relative terms is one of the cheapest stocks both in the automotive and large-cap sectors with an appealing risk to reward ratio. For a while, there have been speculations that FCA could be taken over, or at least that it might sell its underperforming subsidiaries – Maserati or Alfa Romeo. The primary candidate for now is the PSA Group which already showed its managerial excellence by turning around troublesome Opel and Vauxhall that were underperforming under GM’s ownership. PSA Group is not present in the U.S. and could therefore benefit from FCA’s strong North America presence as this is where FCA achieves approximately 50% of its sales and 80% of its adjusted operating profits. The second potential acquirer could be the Renault Nissan Alliance, which would in combination with FCA become the world’s biggest automotive company. But both PSA and FCA are weak in China so it wouldn’t be a clear win-win scenario.

Another significant risk is posed by further escalation of the trade conflict between the United States and China. Then, there is the technology pressure for autonomous and electric vehicles that is bound to mark a new era. One part of FCA is doing great and should follow the technological trends, but there are troublesome brands and it is a shame that they are taking away managements’ focus away from strengthening its core competencies. Nevertheless, the company is still profitable  and stable in the U.S., its most significant market. No wonder it is such an attractive takeover target. The CEO, Mike Manley, is confident in 2019’s guidance and is pleased that the market is responding enthusiastically to FCA’s s new products and vouches to further efforts that will strengthen the underperforming parts of the business. FCA is firm on its promise of a stronger 2019, but it’s surely not going to be an easy journey.

 

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Earnings

Toyota’s News: Redesigned Corolla, New Investments and Partnerships

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Toyota Stock Market News

Toyota Motor Corporation (NYSE: TM) is managing something other automakers only dream of. The company is honouring its values while achieving sustainable growth for over a decade. The dependable Japanese giant continues to deliver on its promises as it prepares for an electric future.

A new sturdy yet sporty Corolla

On September 17th, the company announced a completely redesigned Corolla that now goes beyond just being a practical buying decision. The newly evolved Corolla has a sporty design, offering pleasurable driving and advanced safety equipment. Being built on Toyota New Global Architecture (TNGA), Corolla is ready to evolve to meet customers’ needs, according to Yasushi Ueda, chief engineer in charge of development.

Since its debut in 1966, this car is nothing less than adored by consumers all over the world and now, it will have its first hybrid version available to U.S. customers.

Hybrid strategy is actually paying off

Just like Honda Motor Co. (NYSE:HMC) with its 2020 CR-V Hybrid, Toyota is using its hybrid technology to position itself for future growth and transition to an all-electric future, despite the fact these energy saving vehicles do not qualify for government subsidies. But, this strategy is paying off as hybrid demand skyrocketed and the company proudly revealed in February that Lexus reached its 10 millionth vehicle sales milestone since its launch, with its 2018 sales performance achieving several ‘best-ever records’. And it is thanks to these figures that the Chinese government is also starting to see the potential of such vehicles so things can only get even better for Toyota. As the saying goes, persistence is the key to success and these two companies have been quite brave in sticking to HEVs.

New Investment – $391 Million Goes to Texas’ San Antonio Plant

This will be Toyota’s first expansion in nine years at the plant that produces its Tundra and Tacoma pickup trucks. It is the part of the company’s strategy to invest $13 billion in its U.S. operations over the period of five years, ending in 2021.

Future Investment – $243.29 million to Produce New Vehicle in Sao Paulo

Toyota is also about to get an even stronger presence in Brazil as it will hire 300 new employees at the Sorocaba Plant to start the production of a new vehicle.

Partnership

And let’s not forget the ground-breaking partnership of Japan’s leading automakers that was revealed in August as Toyota and Suzuki Motor Co. (OTC: SZKMF) announced they will collaborate on developing autonomous car technology. This deal is cementing the bond that the two automakers kicked-off in 2016. They might seem like an odd couple as Suzuki is a everything but a big player, yet its strong presence in India is only one of the things that will greatly benefit Toyota. Although Suzuki admitted defeat on the world’s biggest playgrounds, China and the U.S., it cracked the code for emerging markets. And this is exactly where future global sales growth is expected to come from.

Inventing a car that will run forever?

According to Bloomberg, Toyota aims to go far further than electric by teaming up with Sharp Corporation (OTC:SHCAY) and Japanese governmental organization NEDO that encourages the development of innovative technologies. Considering that Toyota is a company that has even used the economic crisis and recession to only come out stronger, it’s not unlikely that it is set to out do the impossible by mixing the most efficient batteries with solar panels. The company’s strong financial performance and track record show that if anyone can do it, it’s Toyota Motor Co.

 

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Nike Exceeds Wall Street Expectations With Q1 Earnings for FY2020

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Direct-to-consumer sales and digital momentum strategies did the trick for Nike

When Nike (NYSE:NKE) released its better-than-expected first quarter of the fiscal 2020 results late Tuesday. Naturally shares jumped more than 5% to reach $91.80. The reported revenue increased 7.2% year comparing to last year, achieving $10.7 billion, greater than the expected $10.44 billion. Net income soared more than 28%, making adjusted earnings per share $0.86, also smashing expectations of $0.70 per share.

Nike managed to achieve a turnaround

The biggest contributor to total sales was Nike’s North American segment that increased 4% comparing to last year. But China sales also continue to grow and by double digit percentages: 22% to be exact, topping $1.68 billion. Overall, these are fantastic news for investors. Especially since the company’s rare earnings miss for the final quarter of the previous fiscal year. The company attributed this to increased marketing costs and a higher tax rate. But highly anticipated new product launches and solid results for continuing lines, along with efforts to draw new customers to the Nike SNKRS app, did their magic.

Digital momentum is key

Digital movement is transforming and amplifying everything Nike does and in Q1, Nike Digital grew 42% on a currency neutral basis. This growth is driven by enhanced digital services and the international expansion of its app ecosystem. Moreover, The Nike app and SNKRS app are now both live in over 20 countries, with more expansion coming throughout the year.

There are literally no weak spots for investors

Arguably, there are no weak spots for prudent investors to dig in as far as this quarter’s report is concerned. The company is literally firing on all cylinders. The company’s management attributes these results to “the depth and balance of the company’s complete offense, building on the strengths of its foundational business drivers and capitalizing on the untapped dimensions of its portfolio”. Management has also dismissed any concerns that US-China trade conflicts could harm its operations, disclosing no impact has been seen up to date.

Nike showed it can even handle the increased tariffs

Earlier this year Nike joined over 200 other footwear companies urging President Trump not to increase tariffs on footwear imported from China, calling the move “catastrophic for our consumers, our companies, and the American economy as a whole.” But while those tariffs are certainly catastrophic for small players, Nike seems more than capable of mitigating the consequences of this added expense.

Poor macroeconomic conditions are only masking Nike’s true power

The company made it clear that its figures would have been even stronger had it not been for macroeconomic challenges which are manifesting through tariffs and foreign-exchange rates. They implied that the weakening economic climate is essentially masking Nike’s true strength. And in addition to children, women are also a big opportunity for the company that Nike will continue exploiting. This is why Nike expects better-than-planned growth in its higher-margin NIKE Direct channels and international segments and consequently, its full-year gross margin. One thing is for sure: Nike has turned itself into so much more than a ‘sneaker-company’.

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Apple Will Be Making Its MacBook Pros in the US

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With a newly granted “federal product exclusion,” enabling it to import some Mac Pro parts without paying tariffs, Apple (NASDAQ: AAPL) will be able to save enough money to make US assembly worthwhile. The company announced on Monday that it will manufacture the new version of its Mac Pro desktop computer in Austin, Texas. It’s also a big political win for Apple, since President Trump has for years called on the company to make more products in the US. Tim Cook clearly made a compelling case during his meetings with President Trump. Apple described the decision to keep Mac Pro production in Austin as part of its “commitment to US economic growth.”

Macroeconomic climate is not favourable

The September figures around the world are simply awful. The uncertainty brought on by intensifying trade wars, the outlook for the car industry and Brexit are paralyzing investors, with September seeing some of the worst performance since the financial crisis in 2009, leading many to worry about whether yet another crisis is upon us. On a brighter note, Apple’s stock went up 0.2% after Bloomberg reported that ten of its 15 requests for an exemption from tariffs on imports from China had been approved.

New investments

Apple previously disclosed plans to spend $350 billion in the U.S. by 2023, a figure that includes new and existing investments. Its Apple TV+ is set to launch on November 1, with stars like Oprah Winfrey bringing her famed book club streaming show to the company’s subscription service. Among documentaries that will be released, there will even be a multi-series about mental health, featuring no other than Prince Harry himself. Apple’s subscription service will cost only $4.99 a month and will be available in 100 countries and regions at launch. Also, customers who buy a new Apple device will also get a free year of Apple TV+.

Competitors

Netflix (NASDAQ: NFLX) is still the leader when it comes to U.S. streaming, along with Amazon Prime (NASDAQ:AMZN), AT&T’s HBO (NYSE: T) and upcoming Disney+ (NYSE:DIS), it is certain that competition will be intense. Netflix’s stock has been dropping since July, which was the first time the number of subscribers fell. Moreover, Netflix’s stock price has now officially wiped out any gains it’s made over the year so far and both Disney and Apple have a shot at beating Netflix at its own game.

Apple is still facing impending import duties and innovation difficulties

Let’s not forget that the company still faces import duties scheduled for Dec. 15 that could affect nearly all of its major products including iPhones, iPads, MacBooks and Apple Watches. And more importantly, it is thought by many as facing an innovation problem so it heavily relies on customer loyalty that will continue driving its sales. We’ll just have to wait for November 1st launch of Apple TV+ to see the impact of Apple’s new streaming subscription service.

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