Ferrari (NYSE:RACE) reported solid first-quarter earnings despite the impact of the coronavirus outbreak, but warned that the current quarter is shaping up to be a difficult one, and it cut its profit forecast for the full year. 

Ferrari's first-quarter operating profit of 220 million euros ($241.4 million) was down 5% from a year ago, as an increase in deliveries failed to offset the loss of much of the income generated by its Formula 1 racing team after races were canceled.  

The raw numbers

Ferrari reports its financial results in euros. As of May 4, 1 euro = about $1.09.

Metric Q1 2020 Change (Decline) vs. Q1 2019
Revenue 932 million euros (1%)
Vehicles shipped 2,738 5%
Adjusted EBIT (earnings before interest and tax) 220 million euros (5%)
Adjusted EBIT margin 23.6% (1.1 pp)
Net profit 166 million euros (8%)
Earnings per share 0.90 euros (5%)

Data source: Ferrari. Adjusted figures exclude special items; Ferrari had no special items in the first quarters of 2019 and 2020. Adjusted figures are used here to facilitate comparisons with other periods. PP = percentage points. 

How Ferrari's business units performed

Ferrari records revenue for three business units, plus a catch-all category it calls "other." A quick look at the results tells much of the story of Ferrari's first quarter.

  • Cars and spare parts, Ferrari's name for its core automaking business, generated 788 million euros in revenue, up 7% from a year ago on good sales of V8-powered cars and the limited-production Monza models. 
  • Engines, the category for the engines that Ferrari makes for its former corporate sibling Maserati and (sometimes) for other Formula 1 racing teams, generated 33 million euros in revenue, down 44% on lower shipments to Maserati.
  • Sponsorship, commercial and brand, which includes revenue from Ferrari's racing activities as well as its licensed products and museum, generated 89 million euros of revenue in the first quarter, down 30% from a year ago on the temporary suspension of Formula 1 racing and reduced store and museum traffic amid the pandemic.
  • Ferrari recorded "other" revenue of 22 million euros, up from 19 million euros in the first quarter of 2019. 

So Ferrari's car business did well, but not quite well enough to offset lost revenue from canceled races and lower Maserati production. Its 5% decline in EBIT reflects that lost revenue, as well as a less-favorable mix of road cars sold than in the first quarter of 2019. 

A Ferrari racing car driven by Charles Leclerc, shown on track during testing earlier in 2020.

The suspension of Formula 1 racing hurt Ferrari's first-quarter revenue, and will weigh as the year goes on. Image source: Ferrari.

Key COVID-19 developments

After a week of preparation to ensure worker safety, Ferrari reopened both of its factories on May 4. The company said that most of its suppliers also restarted production on May 4, and that it had accumulated larger-than-normal inventories of parts to allow suppliers some leeway. 

Ferrari shut down its two factories in mid-March; both are located in the region of northern Italy that was hit especially hard by the pandemic. 

During the earnings call, CEO Louis Camilleri said that Ferrari's order book remains robust, with only a few cancellations so far. He noted, however, that during the 2008-2009 economic crisis, it was several months before cancellations reached the point of affecting Ferrari's production plans. 

Maintaining a robust order book (its waiting list is typically 12 to 18 months) is key to Ferrari's business plan, which emphasizes exclusivity to protect pricing power and margins. 

Looking ahead: Ferrari cut its full-year guidance

Ferrari expects the second quarter of 2020 to be a rough one, with recovery (for its business, if not the larger world) in the second half of the year. But recovery or not, it expects its revenue from Formula 1 racing to be sharply lower than in 2019. 

(Formula 1 currently plans to run a shortened season, starting in July, but those plans could change. In addition, some races may be run without spectators, which would reduce the revenue paid to teams including Ferrari.)

Here's what Ferrari is currently telling auto investors to expect for 2020, with ranges given due to the ongoing uncertainties: 

  • Revenue between 3.4 billion and 3.6 billion euros. (Prior guidance: More than 4.1 billion euros. 2019 result: 3.77 billion euros.) 
  • Adjusted EBIT between 600 million and 800 million euros. (Prior guidance: Between 950 million and 1 billion euros. 2019: 917 million euros.)
  • Adjusted EBIT margin between 18% and 22%. (Prior guidance: About 24%. 2019: 24.4%.)
  • Adjusted earnings per share between 2.40 and 3.10 euros. (Prior guidance: Between 3.90 and 3.95 euros. 2019: 3.71 euros.) 

Ferrari also now expects its "industrial free cash flow," meaning cash flow related to its automaking business, to come in between 100 million and 200 million euros, versus its earlier forecast of more than 400 million euros. It generated 675 million euros of industrial free cash flow in 2019.

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