Ferrari N.V. (RACE +0.59%), the iconic Italian maker of sports and racing cars, reported a 60% increase in first-quarter net profit -- and an eye-popping 22% operating profit margin -- on strong sales of some of its highest-powered and highest-priced models. Ferrari's revenue and profit both exceeded analyst expectations, and shares rose sharply after the news was released before the bell on May 4.
The historic entrance to Ferrari's factory and headquarters in Maranello, Italy. Image source: Ferrari N.V.
Ferrari earnings: The raw numbers
All financial numbers are shown in euros. As of May 4, 1 euro = about $1.09 U.S Dollars.
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Revenue | 821 million | 675 million | 22% |
| Vehicles shipped | 2,003 | 1,882 | 6% |
| Earnings before interest and tax (EBIT) | 177 million | 121 million | 46% |
| EBIT margin | 21.6% | 18% | 3.6 ppts |
| Net profit | 124 million | 78 million | 60% |
| Earnings per share (euros) | 0.65 | 0.41 | 60% |
Data source: Ferrari N.V. "PPTS" = percentage points.
Ferrari's first quarter: The nutshell summary
Ferrari's 22% jump in revenue and its 3.6 percentage-point gain in EBIT margin were driven by increased sales, a more favorable "mix" of models sold, and in increase in sales of engines to other automakers. Sales of Ferrari's higher-priced 12-cylinder models rose 50% from a year ago, offset only slightly by a 3% decline in sales of less-profitable eight-cylinder models.
Strong demand for the 12-cylinder GTC4Lusso helped power Ferrari's first-quarter profit gain. Image source: Ferrari N.V.
Highlights from Ferrari's first-quarter report
First, a quick review. Ferrari has three lines of business:
- It builds and sells a line of sports cars to retail buyers and sells spare parts for those cars and for older Ferraris.
- Its racing team generates revenue via sponsorships and commercial opportunities.
- It builds engines for other automakers and racing teams.
Revenue from cars and spare parts rose 21% from a year ago, to 581 million euros. That gain was driven by higher overall sales volumes, price increases, and a jump in sales of 12-cylinder models, including the GTC4Lusso, the F12tdf two-seater, and the limited-production LaFerrari Aperta supercar.
Ferrari built just 209 examples of the $3.4 million LaFerrari Aperta open-top supercar. All were quickly spoken for. Image source: Ferrari N.V.
Ferrari is also boosting revenue and profit on its sports cars via a "personalization program" that allows customers ordering Ferraris to add exclusive features. (As you'd expect, such features aren't cheap.)
Revenue from sponsorship, commercial, and brand opportunities rose 4%, to 123 million euros, on higher sponsorship revenue related to Ferrari's Formula One racing team.
Revenue from engines jumped 81%, to 104 million. Ferrari supplies engines to Fiat Chrysler Automobiles' (FCAU +0.00%) upscale Maserati brand, and Maserati sales rose 89% in the first quarter on strong results for its new Levante SUV. The gain from increased engine sales to Maserati was offset slightly by the end of an agreement to rent Ferrari racing engines to a rival Formula One team.
Ferrari noted that its research and development costs rose by about 15 million euros from a year ago, mostly on efforts related to the development of gasoline-electric hybrid technology for its road and racing cars.
Ferrari's Formula One team has won two of the first four races of the 2017 season. Image source: Ferrari N.V.
Ferrari's debt fell to about 1.3 billion euros from 1.4 billion euros at the end of 2016, while its cash on hand rose to 569 euros from 458 million euros at year-end. Ferrari's non-GAAP "net industrial debt," a widely watched number, fell to 578 million euros from 653 million euros at the end of 2016.
Ferrari had no special items in the first quarter.
Looking ahead: Ferrari maintained its upbeat 2017 guidance
Ferrari maintained its upbeat guidance for the full year. It expects to beat its strong 2016 results as follows:
- Shipments of about 8,400 vehicles (2016 result: 8,014).
- Net revenue greater than 3.3 billion euros (2016: 2.85 billion euros).
- Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) greater than 950 million (2016: 748 million euros).
- Net industrial debt to fall to about 500 million euros (2016: 653 million euros).
