Zacks Investment Research | Oct 25, 2016 10:10PM ET
The performance of the auto sector has been weak so far in Q3, with a few exceptions like General Motors Co. (NYSE:GM) . Nearly 20% of the sector’s companies had posted results as of Oct 21. These companies recorded a year-over-year decline of 8.8% in earnings and 0.6% in revenues, per our Earnings Preview report. In comparison, total S&P 500 companies that had reported till then posted a 3.3% increase in earnings and a 1.8% rise in revenues.
The overall projections for the auto sector appear bleak for Q3. By the end of the earnings season, auto sector earnings and revenues are expected to be down 19.7% and 4.7%, respectively. This will place it among the worst performers in the 16 Zacks sectors. In comparison, total S&P 500 earnings are projected to improve 0.1%, with revenues rising 1.5% year over year.
A large part of the projected earnings decline in the auto sector is expected due to Ford Motor Company (NYSE:F) , which will record a $640 million recall-related expense in the quarter. Moreover, the fall in U.S. auto sales over the last two months is expected to weigh on the results of many automakers. The pressure to maintain attractive incentives and deals may also strain their margins. Further, expenses related to safety recalls as well as the negative impact of foreign currency translation remain headwinds for the sector.
However, there are a few positives as well. Strong sales growth in China and Europe is the primary driving factor for the auto sector in Q3. Moreover, low fuel prices are driving the sales of higher margin vehicle segments, such as SUVs and light trucks. With all these factors in mind, let’s see what awaits these four auto stocks that are slated to release their third-quarter 2016 results on Oct 27.
Ford Motor Co. has an Will Ford Disappoint Investors This Earnings Season? )
LKQ Corp. (NASDAQ:LKQ) currently has an Earnings ESP of -2.22% as the Most Accurate estimate of 44 cents stands below the Zacks Consensus Estimate of 45 cents. The company has a Zacks Rank #3 (Hold). We note that LKQ Corp. delivered positive earnings surprises in three of the trailing four quarters, with an average positive surprise of 5.21%.
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