Car ETF in Focus Post Upbeat Auto Earnings

The automobile sector has been seeing certain favorable elements such as low fuel prices and a low interest rate environment. These factors failed to translate into impressive growth numbers during the second quarter (read: 4 Sector ETFs at a Bargain).
 
As per our Earnings Trends report, the Auto sector reported one of the highest growth rates this quarter with 16.3% earnings growth on higher revenues of 5.2%. Earnings and revenue beat ratios of 81.8% and 72.7%, respectively, were also impressive. 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 $1.86 per share for the quarter beat the Zacks Consensus Estimate of $1.52 by a wide margin. Earnings increased 44% year over year. Revenues in the reported quarter were $42.4 billion, up 11% year over year, beating the Zacks Consensus Estimate of $39.1 billion.
 
The second-largest carmaker by sales, Ford Motor Co. F posted adjusted earnings per share of 52 cents in the second quarter, down couple of cents from the prior-year quarter and short of the Zacks Consensus Estimate of 60 cents. Revenues increased 5.9% to $39.5 billion and surpassed the Zacks Consensus Estimate of $36.62 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.
 
Japanese automaker, Honda Motor Co., Ltd. HMC reported earnings per share of ¥96.93 (94 cents) in the first quarter of fiscal 2017 (ended June 30, 2016), down 6.1% from the year-ago quarter. The Zacks Consensus Estimate was earnings of 71 cents per share. Consolidated net sales and other operating revenues went down6.3% year over year to ¥3.47 trillion ($33.74 billion). The figure, however, surpassed the Zacks Consensus Estimate of $32.6 billion. For fiscal 2017, Honda expects revenues to decline 5.8% to ¥13.75 trillion ($130.95 billion).

Another Japanese automaker, Toyota Motor Corporation TM posted earnings of $3.32 per ADR in its fiscal 2017first quarter, beating the Zacks Consensus Estimate of $2.30. The company's consolidated revenues fell 5.7% year over year to ¥6.58 trillion ($61 billion) but were ahead of the Zacks Consensus Estimate of $59.2 billion. Toyota's consolidated revenue guidance of ¥26 trillion ($254.9 billion) for fiscal 2017 reflects an8.5% decline from fiscal 2016.
 
While Toyota, Honda and General Motors reported better-than-expected earnings and revenues for the second quarter, Ford reported mixed results. This puts the spotlight on the exclusive auto ETF, First Trust NASDAQ Global Auto Index Fund CARZ, which has a sizable exposure to the above mentioned stocks. CARZ gained almost 0.9% (as of August 4, 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 33 stocks in the basket with Honda, Ford, General Motors and Toyota placed among the top five holdings with a combined allocation of nearly 32% of fund assets. Other firms hold less than 5% of assets.
 
In terms of country exposure, Japan takes the top spot at 36.3% while the U.S. takes the second spot having a 22.5% allocation, followed by Germany and China with 18.3% and 7.4% allocations, respectively.
 
The ETF is neglected with $39.6 million in AUM and sees light trading volume of around 7,200 shares. The product is a bit expensive with 70 bps in annual fees and currently has a Zacks ETF Rank #5 or ‘Strong Sell' rating with a High risk outlook (read: Q2 Earnings to Gather Steam: 4 Sector ETFs & Stocks to Play).

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