Honda (NYSE:$HMC) delivered extremely strong quarterly performance in Q4 on the back of a U.S renaissance in car sales – due to aging fleets and hope – as well as improved operations after the 2011 Thailand floods.That said, however, its outlook remains weak due to headwinds in China and Europe. Honda achieved record sales in 2012 of 3.82 million units — an increase of 19%. Quarterly profits increased 62.6% to $851 million but the annual forecast for FY 2013 has been reduced for the second time by 1.33% to $4.01 billion (¥370 billion from ¥375 billion) as Honda expects to sell 4.06 million cars versus the 4.12 million cars announced earlier. Results like this are creating real problems for the number three Japanese auto brand in the U.S., Nissan (NASDAQOTH:$NSANY), as Toyota (NYSE:$TM) also surged back in 2012.
According to a report of Bernstein Research, Volkswagen (VLKPY.pk) now has approximately 24% — up from 22.4% in 2011– of the Western European market and the company has also turned out to be the largest automobile seller in the largest market in the world, China. Its share of Western Europe is more than twice its closest rival, Peugeot-Citroen of France. Some analysts believe VW could push that share to 30% given the state of most of its rivals in Europe.VW is filing excellent profits with a final margin of an insane 23.1% over the first half of 2012 while its competitors GM Europe’s Opel-Vauxhall (NYSE:$GM),Ford Europe (NYSE:$F), Peugeot Citroen and Italy’s Fiat are all posting deep operational losses in their European divisions.
The leading American player in the rare earths mining sector Molycorp Inc (NYSE:$MCP) has revealed an intention to sell $200 million in stock and $100 million convertible senior notes – due in 2018 – to fund its latest capital expenditure, which includes development work at its Mountain Pass, Californiarare-earths mining facility. The news caused an 8.7% dip in the company’s shares in premarket trading; piling on a company whose shares had already fallen more than 60% in the 2012.
FedEx Corp. (NYSE:$FDX) reported a 12% year-over-year drop in quarterly profits. This is due to hurricane Sandy and the global economic slowdown, which has changed customer’s preferences from high margin overnight delivery service to cheaper alternatives. This shift was also evident in FedEx’s income by segment. Operating profits at its premier air express unit dropped by 33% to $230 million, while margins have shrunk from 5.2% in 2011 to 3.4%. On the other hand, operating income of its slower ground and freight segment are up by 4% and 90% to $412 million and $76 million, respectively.
In short, the fall in air transport was offset by ground operations. This is a trend I expect to continue in the long term as the era of cheap, abundant energy that facilitated the model is over and therefore air freight volume is likely going to drop, but margins may remain as it will weed out all of the price elastic customers, leaving those whose need far outweighs the shipping cost differential.
After years of losing money in the U.S., the Japanese vehicle manufacturer Suzuki Motor Corp, that has significant representation in the First Trust NASDAQ Global Auto ETF (AMEX:$CARZ), has decided to leave the country’s auto market while its American subsidiary is preparing to file for chapter 11 bankruptcy under a pile of $346 million debt, half of which it owes to its parent, against assets of $233 million.The company recorded a net loss of $15.8 million in the U.S. in its previous year from a sale of just 26,000 vehicles as opposed to Toyota’s (NYSE:$TM) American subsidiary which sold 1.6 million vehicles in the same period. Suzuki always struggled in the U.S.Even a shift towards bringing in their own vehicles – versus the old strategy of rebranding others cars—which garnered positive press and customer satisfaction could not overcome a market that, regardless of 2012’s results, is simply not that strong.
Peter Pham is an author, international fund manager, and a registered financial director by the Cayman Monetary Authority (CIMA). In 2013 he published his first book entitled, The Big Trade: Simple Strategies for Maximum Market Returns. He currently manages the portfolio of a global hedge fund and runs an asset management company, Phoenix Capital. (read more)
The Big Trade: Simple Strategies for Maximum Market Returns
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