What happened
Automotive companies American Axle & Manufacturing (AXL 0.80%), Tenneco (TEN), and Cars.com (CARS 1.04%) are soaring 30%, 19%, and 12% higher, respectively, on Friday morning as better-than-expected earnings results offset a gloomy jobs report.
So what
The U.S. economy lost a record 20.5 million jobs in April, sending the unemployment rate to 14.7%. That's a frightening figure, and quite a bit higher than March's 4.4% mark, but it was lower than the projected 16% jobless rate. The automotive industry has been hit hard by restrictions resulting from COVID-19 restrictions, but investors appear to be optimistic after American Axle, Tenneco, and Cars.com all recently reported solid quarterly results.
American Axle's first-quarter revenue checked in at $1.34 billion, which was ahead of analysts' estimates of $1.31 billion even with COVID-19 negatively impacting sales to the tune of about $169 million. But the bottom-line beat is likely the driving force behind the stock's 30% pop Friday. Adjusted earnings per share checked in at $0.20, well ahead of the $0.08 per share loss analysts had forecast.
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Tenneco also beat analysts' estimates on the top and bottom lines, but this one takes a little additional explaining as the numbers don't appear great at first glance. Revenue was down 14% compared to the prior year, to $3.84 billion, but still ahead of analysts' estimates of $3.62 billion. While the decline is unfavorable, it's actually a stronger result than you might think, because light vehicle industry production declined a larger 23% during the quarter -- suggesting the company's revenue could continue to outpace industry production. Adjusted for items, Tenneco lost $0.31 per share during the first quarter, but that result was far better than the $0.90-per-share loss analysts estimated.
Cars.com's stock price has been riding an absolute roller coaster of late. The stock jumped 34% on May 6 after the company posted a strong earnings beat, but even including that pop, the stock has shed roughly 52% of its value over the past three months. Earnings beat aside, a positive takeaway for investors was that prior to COVID-19, it had built on 2019 momentum and was on pace to deliver strong revenue, earnings, traffic increases, and dealer count growth. All of those factors should be well-positioned to help Cars.com resume growth in a post-pandemic environment.
Now what
Another reason these stocks are rising is that investors feel some sense of relief in terms of liquidity, or the companies' ability to weather COVID-19 impacts. American Axle had more than $1.4 billion liquidity between cash and available credit from its revolving facility. Tenneco ended the first quarter with a similar $1.57 billion liquidity, also almost evenly split between cash and undrawn credit. Cars.com generated free cash flow during the first quarter, which is great news considering most companies are attempting to limit their cash burn. It still has $187 million in cash and cash equivalents.
Ultimately, the automotive industry has been hard hit, with manufacturing mostly halted and consumers cautious about making big-ticket purchases -- and that ripple effect will be profound in the second quarter. But these companies offered a glimmer of hope during the first quarter that they have the liquidity and have taken measures to cut costs, among other strategies, to weather this COVID-19 storm.
