Italian supercar maker Ferrari (NYSE:RACE) said that continued high demand for its latest models drove a 12% increase in its fourth-quarter operating profit from a year ago, enough to push its full-year result slightly above its guidance range. 

But the company gave a cautious upgrade to its guidance for 2020, on concerns about slowing sales growth in China, Hong Kong, and Taiwan. 

The raw numbers

Metric Q4 2019 Change vs. Q4 2018 2019 Change vs. 2018
Revenue 927 million euros 10% 3.766 billion euros 10%
Vehicles shipped 2,376 (1%) 10,131 10%
Adjusted EBITDA  333 million euros 22% 1.269 billion euros 14%
Adjusted EBIT 219 million euros 12% 917 million euros 11%
Adjusted EBIT margin 23.7% 0.6 pp 24.4% 0.3 pp
Net income 166 million euros (13%) 699 million euros (11%)
Industrial free cash flow 116 million euros 4.5% 675 million euros 80%

Data source: Ferrari. EBITDA = earnings before interest, tax, depreciation, and amortization. EBIT = earnings before interest and tax. "Adjusted" figures exclude one-time charges; there were none in the fourth quarter of 2019. Ferrari took a charge of about 1 million euros related to the Takata airbag inflator recalls in the fourth quarter of 2018. "Industrial free cash flow" is cash flow related to Ferrari's core auto-manufacturing business; it excludes cash flow related to its financial-services arm. Pp = percentage points.

Ferrari's "net industrial debt," or debt in excess of its cash balance and receivables, totaled 337 million euros at the end of 2019, down from 370 million euros at the end of 2018.

A silver Ferrari Roma, a sleek front-engined two-seat coupe.

Ferrari introduced five new models in 2019, including the V8-powered Roma coupe. Image source: Ferrari.

How Ferrari's business performed in 2019

Ferrari's model range can be bewildering even to fans of the company. For auto investors, we can simplify by thinking of Ferrari's offerings in three groups:

  • regular production models (meaning that anyone can order one) with 8-cylinder engines;
  • regular production models with 12-cylinder engines;
  • limited-edition models sold only to favored clients by invitation.

The thing to remember is that 12-cylinder Ferraris are higher-priced and more profitable than their 8-cylinder counterparts, but they generally sell in lower volumes. (The limited editions, with price tags in seven figures, are more profitable still.) 

Here's a breakdown of how Ferrari performed in 2019. 

  • Ferrari's year-over-year increase in operating profit was driven by higher sales volumes and improvements to product mix and pricing, including the impact of a new personalization program that allows buyers to choose from a wide range of colors and interior trims, at (substantial) additional cost. Those gains were partially offset by higher research and development costs, the costs of launching new models, and fewer shipments of limited-edition models versus 2018. 
  • Sales of 8-cylinder models rose 11.2%, driven by "robust" demand for the Portofino, a four-seat convertible. 
  • Sales of 12-cylinder models rose 4.6% from 2018, driven by continued high demand for the top-of-the-range 812 Superfast. 
  • The 8-cylinder production models made up 76% of Ferrari's 2019 shipments; the remainder were 12-cylinder production models, plus a few limited-edition cars. 
  • Ferrari's geographical sales mix shifted in 2019, due to the timing of the launch of regional versions of the company's new models. Sales were up 20.3% in China, Hong Kong, and Taiwan; up almost 16% in Europe; but down 3.3% in North America.
  • Ferrari introduced five new models in 2019, a very high number for a small company. Four of those models will begin shipping in mid-2020; the fifth, a new 8-cylinder coupe called the Roma, will ship in the fourth quarter. 

Looking ahead: Cautiously upbeat guidance for 2020

Ferrari upgraded its revenue and profit guidance for 2020, saying that it's somewhat ahead of schedule on the five-year plan it presented in September of 2018. For the full year, it currently expects:

  • Revenue of more than 4.1 billion euros. (2018 plan: more than 3.8 billion euros.)
  • Adjusted EBITDA between 1.38 billion euros and 1.43 billion euros, with a margin of at least 34%. (2018 plan: above 1.3 billion euros, with a margin of about 34%.) 
  • Adjusted EBIT between 950 million euros and 1 billion euros, with a margin of about 24%. (2018 plan: about 900 million euros, with a margin of 24%.) 
  • Adjusted earnings per share of between 3.90 euros and 3.95 euros. (2018 plan: greater than 3.40 euros.)
  • Industrial free cash flow of 400 million euros or more. (2018 plan: more than 400 million euros.)