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Car ETF in Focus Post Mixed Auto Earnings

After strong U.S. light-vehicle sales in March, April witnessed a record. As a result, sales on a seasonally adjusted annualized rate basis improved significantly. The automobile sector has been seeing certain favorable elements such as low fuel prices and a low interest rate environment. However, these factors failed to translate into impressive growth numbers during the first quarter as a stronger yen stood in the way of realizing the sector’s full potential (read: 3 Alternative ETFs for a Shaky Market).
 
As per our Earnings Trend report, Tech and Auto sectors suffered the most negative price   reaction of all the 16 sectors during this earnings season. Below we have highlighted in detail quarterly results of some of the major auto companies that have reported recently.
 
Auto Earnings in Detail
 
The largest U.S. automaker, General Motors Co.’s (GM) adjusted earnings of $1.26 per share for the quarter beat the Zacks Consensus Estimate of $1.01 by a wide margin. Earnings increased 46.5% year over year. Revenues in the reported quarter were $37.3 billion, up 4.5% year over year, beating the Zacks Consensus Estimate of $35.7 billion. The stock has shed 5.2% since reporting earnings (as of May 13, 2016).
 
The second-largest carmaker by sales, Ford Motor Co. (F) posted adjusted earnings per share of 68 cents in the first quarter, up 39 cents from the prior-year quarter and ahead of the Zacks Consensus Estimate of 43 cents. Revenues increased 11% to $37.7 billion and surpassed the Zacks Consensus Estimate of $36.1 billion. For 2016, the company expects pre-tax profit, earnings per share, revenue and Automotive operating margin to be equal to or higher than 2015 levels. The stock has lost 3.2% since releasing earnings.
 
Japanese automaker, Honda Motor Co., Ltd. (HMC) reported a loss per share of ¥51.85 (46 cents) in the fourth quarter of fiscal 2016 (ended March 31, 2016) as against earnings of ¥45.45 (40 cents) in the year-ago quarter. The Zacks Consensus Estimate was of earnings of 49 cents per share. However, consolidated net sales and other operating revenues escalated 4.8% year over year to ¥3.66 trillion ($32.46 billion). The figure also surpassed the Zacks Consensus Estimate of $31.88 billion. The year-over-year increase can be attributed to higher revenues from automobile and financial services business operations. For fiscal 2017, Honda expects revenues to decline 5.8% to ¥13.75 trillion ($7.64 trillion). The stock lost 4.8% since it reported earnings.
 
Another Japanese automaker, Toyota Motor Corporation (TM) posted earnings of $2.40 per ADR in its fiscal 2016 fourth quarter, beating the Zacks Consensus Estimate of $2.07. However, the company’s consolidated revenues fell 2.1% year over year to ¥6.97 trillion ($60.6 billion) and were short of the Zacks Consensus Estimate of $63.1 billion. Toyota’s consolidated revenue guidance of ¥26.5 trillion ($252.4 billion) for fiscal 2017 reflects a 6.7% decline from fiscal 2016. The stock is down 4.4% (as of May 13, 2016).
 
While Ford and General Motors reported better-than-expected earnings and revenues for the first quarter, Honda quarterly earnings and revenues for the quarter fell short of estimates and Toyota reported mixed results. This puts the spotlight on the exclusive auto ETF, NASDAQ Global Auto Index Fund (CARZ), which has a sizable exposure to the above mentioned stocks. CARZ lost more than 2.7% (as of May 13, 2016) in the last 10 days. Let us take a look at this ETF in detail (see all Consumer Discretionary ETFs here).

CARZ in Focus
 
This ETF tracks the NASDAQ OMX Global Auto Index, having exposure to automobile manufacturers across the globe. The product holds 37 stocks in the basket with Honda, Ford, General Motors and Toyota placed among the top five holdings with a combined allocation of nearly 31.5% of fund assets. Other firms hold less than 5% of assets.
 
In terms of country exposure, Japan takes the top spot at 35.4% while the U.S. takes the second spot having a 23.6% allocation, followed by Germany and South Korea with 19.5% and 8% allocations, respectively.
 
The ETF is neglected with $39.6 million in AUM and sees light trading volume of around 9,500 shares. The product is a bit expensive with 70 bps in annual fees and currently has a Zacks ETF Rank #3 or ‘Hold’ rating with a High risk outlook (read: Q1 Earnings Appear Dull: ETFs & Stocks to Bet On).
 
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FT-NDQ GL AUTO (CARZ): ETF Research Reports
 
GENERAL MOTORS (GM): Free Stock Analysis Report
 
HONDA MOTOR (HMC): Free Stock Analysis Report
 
FORD MOTOR CO (F): Free Stock Analysis Report
 
TOYOTA MOTOR CP (TM): Free Stock Analysis Report
 
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