Ferrari N.V. (NYSE:RACE) outperformed revenue and earnings expectations for the third quarter this year, which provided the necessary boost to accelerate the company’s share price to a new all-time high that is just short of the $170 level.
The share price appeared to have overheated after nearly tripling between its initial public offering (IPO) in the second half of 2015 and mid-2018. Therefore, after downshifting a couple of gears, the share price slowed down and, aided by the downward pressure from the overall market correction at this time, lost a third of its value in the second half of 2018.
However, once free from the pressure of the overall market decline, the share price revved up again and regained traction for another steep climb that has lasted since the beginning of 2019. Despite another minor mid-year blip, the share price has continued to rise due to strong financial results that have continued to beat Wall Street analysts’ expectations.
Financial Results
At the third quarterly pit stop of the year, Ferrari reported double-digit growth across nearly all categories. On November 4, 2019, Ferrari reported its operational and financial results for the third quarter that ended on September 30, 2019. For the period, the company produced and shipped 2,474 units which was 9.4% more than the 2,262 units that were shipped in the same period last year.
Net revenues increased 9.2% to $1,018 million (915 million euro). While other revenue categories rose between 6% and 15% year-over-year, the Engines segment saw a 34% revenue decline driven by lower deliveries to Maserati. As its own business entity, Ferrari has trimmed its contractual obligations regarding engine deliveries to its former sister brand as Maserati remains a division of Ferrari’s former parent company — Fiat Chrysler Automobiles N.V. (NYSE:FCAU).
Ferrari and Maserati used to share platforms and other parts for some models as divisions of the Fiat group and Ferrari provided engines to Maserati under the parent company agreement. In 2015, Ferrari was spun off as a separate business entity, while Maserati remained a division of Fiat. Ferrari honored its previous commitments to deliver engines to Maserati over the past few years as a separate company. However, the two brands are no longer sharing platforms, engines, transmissions and other parts. Therefore, Ferrari is phasing out engine deliveries to Maserati.
Adjusted for the impact of foreign currency exchange, the revenue growth during this period was 7.1%. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $346 million (311 million euro), which marked an 11.5% year-over-year increase and represented an EBITDA margin of nearly 34%. Adjusted earnings per share (EPS) of $1.00 (0.90 euro) was nearly 17% above the $0.87 (0.78 euro) adjusted diluted EPS from the same period last year.
For the first three quarters in 2019, Ferrari managed to produce and ship 13% more units – 7,755 through end of September 2019 versus 6,853 in the same period last year. This increase in units shipped translated to a 10% net revenues growth from $2.86 billion (2.58 billion euro) last year to $3.16 billion (2.84 billion euro) year-to-date in 2019. Adjusted EBITDA advanced 11% to $1.04 billion (0.94 billion euro). Additionally, adjusted EPS advanced 18% from $2.66 (2.39 euro) in the first three periods last year to $3.13 (2.81 euro) in the same period this year.
In light of the cumulative results over the first three periods, the company boosted its outlook for full-year 2019 expectations. The company raised its net revenues expectations 5.7% from $3.9 billion (3.5 billion euro) to $4.1 billion (3.7 billion euro). Originally estimated between $1.33 billion ($1.2 billion euro) and $1.39 billion (1.25 billion euro), the revised adjusted EBITDA for full-year 2019 is now $1.41 billion (1.27 billion euro). Consequently, the company also raised its EPS expectations for full-year 2019 above the upper limit of the originally budgeted range between $3.89 (3.50 euro) and $4.11 (3.70 euro). The revised EPS expectations are between $4.11 (3.70 euro) and $4.17 (3.75 euro).
Ferrari’s performance so far in 2019 should provide enough confidence that the company might carry its current momentum and maintain a pace which will enable it to deliver a strong finish all the way to the checkered flag at the end of the year.
Share Price
The share price entered the trailing 12-month period on a downtrend that began in mid-2018. Between early November and the 52-week low of $95.96 on December 24, 2018, the share price declined more than 18%. However, after bottoming out in late December, the share price reversed direction, recovered all its second-half 2018 losses and gained more than 75% by mid-July 2019.
After another brief pullback of approximately 11% between mid-July and early October, RACE’s share price mounted another surge to offset the pullback. The strong third-quarter results pushed the share price above its previous peak to close just one cent short of the $170 level. This was a new all-time high for Ferrari’s share price.
The $169.99 closing price on November 4, 2019, was 44.6% higher than it was one year earlier, 77% above the 52-week low from the end of December 2018 and more than triple the price from just three years ago. While capital gains have delivered most of the company’s total returns, the annual dividend payout – currently at $1.14 (1.03 euro) per share – has contributed nearly one percentage point to the total return of 45.5% over the trailing 12-month period. In addition to gaining nearly 50% in one year, the company’s shareholders have more than tripled their investment by obtaining a total return of 216% over the past three years.
Ferrari N.V. (NYSE:RACE)
Headquartered in Maranello, Italy, and founded in 1947, Ferrari N.V., designs, engineers, produces and sells luxury performance sports cars. Additionally, the company also offers non-registered racing cars for competition, engines and spare parts, as well as after sales, repair, maintenance and restoration products and services. In addition to its racing and vehicle manufacturing operations, Ferrari licenses its brand to various producers and retailers of luxury and lifestyle goods. Furthermore, the company operates two Ferrari-themed amusement parks — Ferrari World in Abu Dhabi, the United Arab Emirates and Ferrari Land at PortAventura near Barcelona, Spain. Since opening its first Ferrari Store retail location in Maranello in 2002, the company has expanded its operations to approximately 50 stores worldwide, including locations in Los Angeles and Miami. Moreover, the company operates a network of 180 dealerships in 60 markets globally, provides finance and leasing services to retail clients and dealers, manages multiple race tracks and operates two museums — in Maranello and in Modena, Italy.
Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.
