Ferrari (NYSE:RACE) said on Nov. 5 that its adjusted net income rose 5% in the third quarter, on an 11% increase in shipments driven largely by strong demand for its new V8-powered Portofino convertible. 

Ferrari's adjusted core earnings of 278 million euros ($322.48 million) fell slightly short of Wall Street's average estimate of 282 million euros, as reported by Bloomberg. Revenue of 838 million euros also fell slightly short of estimates. 

Despite the increase, the company maintained its prior full-year profit and revenue guidance, saying that its capital expenditures will come in somewhat higher than it had previously expected. Its share price fell in early trading after the report was released.

A red Ferrari Portofino, a dramatically-styled convertible sports car, is shown parked in Dresden, Germany.

Strong demand the V8-powered Ferrari Portofino helped boost Ferrari's third-quarter sales by 11%, but hurt its overall mix. Image source: Ferrari N.V.

The raw numbers

As of Sept. 30, 1 euro equals about $1.16.

Metric Q3 2018 Change vs. Q3 2017
Revenue 838 million euros 0.3%
Vehicles shipped 2,262 11%
Adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) 278 million euros 5%
Adjusted EBIT (earnings before interest and tax)  203 million euros 0.4%
Adjusted EBIT margin 24.2% unchanged
Net profit 287 million euros 105%
Adjusted net profit 146 million euros 5%
Industrial free cash flow 100 million euros (32%)

Data source: Ferrari N.V. Adjusted figures exclude special items. In the third quarter of 2018, Ferrari took a one-time tax-related benefit of 141 million euros. Ferrari had no special items in 2017. Industrial free cash flow is cash flow related to Ferrari's core automaking business; it excludes cash flow related to its financial-services unit. 

Ferrari's net industrial debt, or debt in excess of its cash balance and receivables, fell to 372 million euros as of Sept. 30, down 100 million euros from the prior quarter end.

The key factor driving Ferrari's earnings: Mix

Ferrari's model range is somewhat complicated, but for investors, the thing to keep in mind is simple: All Ferraris are very profitable products by auto industry standards, but those powered by 12-cylinder engines are higher priced and generally have higher profit margins than 8-cylinder models. On occasion, Ferrari produces limited-edition models; those typically carry seven-figure price tags and are extremely profitable. (The limited-edition models generally have 12-cylinder engines, but not always.) 

Not surprisingly, the 8-cylinder models as a group generally outsell the 12-cylinder models, but the mix varies from quarter to quarter. Quarter-to-quarter changes in Ferrari's adjusted EBIT margin generally follow changes in the mix of 8-cylinder, 12-cylinder, and limited-edition models sold during the quarter.

How Ferrari performed in the third quarter

Right now, Ferrari has two models that are drawing strong interest from customers. The 812 Superfast, introduced late last year, is a hard-edged two-seat coupe with a V12 engine; the Portofino, introduced earlier this year, is a four-seat convertible powered by a V8. The Portofino is Ferrari's "entry level" model; it's still very expensive, but it's intended to draw new customers to the brand. 

Here's the nutshell summary of the company's third quarter: Sales of 8-cylinder models rose 11.4% from a year ago, on strong demand for the Portofino; sales of 12-cylinder models rose 7.9% on good demand for the 812. The gains were partly offset by the end of production of its most recent limited-edition model, the LaFerrari Aperta. 

In addition to its sports cars, the company realizes revenue from the sale of engines to other automakers (notably Maserati) and racing teams; sponsorship and other income related to its Formula 1 racing team, called Scuderia Ferrari; and from licensing the Ferrari brand to other companies. 

  • Revenue from cars and spare parts rose 1.8% from a year ago, to 616 million euros. Higher overall sales volumes helped; the change in mix (more 8-cylinder cars) hurt. 
  • Revenue from engine sales fell 20% to 70 million euros, on lower sales of engines to Maserati. (Maserati's global sales fell 19% in the third quarter.) 
  • Sponsorship, commercial, and brand revenue rose 3.4% to 128 million euros. Ferrari's racing team finished higher in the standings in 2017 than it had in 2016, allowing it to command higher fees from sponsors.

The company noted that while its revenue was up just 0.3% from a year ago, it would have risen 2%, beating Wall Street's estimate, if exchange rates had held constant.  

Looking ahead: Full-year guidance

Ferrari confirmed the guidance it gave earlier this year for shipments, revenue, and adjusted EBITDA; its estimate of net industrial debt improved; and its capital-expenditures estimate rose. Ferrari now expects:

  • Shipments of more than 9,000 vehicles, including limited-edition models. (2017 result: 8,398.)
  • Revenue over 3.4 billion euros. (2017: 3.4 billion euros.)
  • Adjusted EBITDA greater than or equal to 1.1 billion euros. (2017: 1.04 billion euros.)
  • Net industrial debt below 350 million euros as of year-end. (Prior guidance: below 400 million euros. 2017 year-end: 473 million euros.) 
  • Full-year capital expenditures of about 650 million euros. (Prior guidance: about 550 million euros. 2017: 387 million euros.)

The upshot: While some analysts had expected Ferrari to boost its revenue and profit guidance, the company remains solidly on track for a year that will improve on its very good 2017 results.

John Rosevear has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.