Ferrari (NYSE: RACE) said on Monday that its second-quarter operating profit rose nearly 15% from its result in the second quarter of 2019, before the COVID-19 pandemic, as it began shipments of a higher-priced new super sports car to eager buyers. 

On a per-share basis, Ferrari earned 1.11 euros ($1.32) in the second quarter, trouncing its 0.04 euro year-ago result and coming in ahead of the consensus Wall Street estimate of $1.20 as reported by Thomson Reuters. But revenue of 1.04 billion euros ($1.23 billion) fell a bit short of Wall Street's $1.25 billion expectation. 

The automaker also raised its full-year cash flow guidance.

What drove Ferrari's increased profitability

You might have noted that Ferrari's operating profit beat estimates, but its revenue fell a bit short of analysts' expectations. That suggests that its profitability was greater than expected, and it was: EBIT margin (earnings before interest and tax, divided by revenue) was a stout 26.5% in the second quarter, up from just 4% a year ago and 24.3% in the second quarter of 2019. 

That's a very impressive result even by Ferrari's lofty profitability standards. But as acting CEO John Elkann said during the company's earnings call, it's likely to be somewhat temporary.

What happened is that the company began deliveries of a new model, the SF90 Stradale sports car, during the quarter. The SF90 Stradale, a gasoline-electric hybrid, is one of the fastest Ferraris ever built and has a starting price to match: $625,000 before options. (Note that the company's options list is lavish, and it has been making it even more lavish in recent quarters in a bid to improve its margins. It's now common for buyers to add more than $100,000 worth of options.) 

A red Ferrari SF90 Stradale, a hybrid mid-engined exotic sports car.

The Ferrari SF90 Stradale is a hybrid sports car with about 1,000 horsepower. Early demand has been strong despite the stiff $625,000 starting price. Image source: Ferrari.

Analysts tend to watch the mix of V-8-powered and V-12 models in Ferrari's quarterly sales results. As a general rule, Ferrari's V-12 models have higher prices and are more profitable than its (still very expensive and very profitable) V-8 powered models -- though the SF90, which incorporates a V-8 engine in its hybrid drivetrain but is priced and positioned like a V-12 model, breaks that rule somewhat.

The burst of SF90 deliveries, along with continued good demand for an open-top variant of the company's flagship V-12-powered 812 Superfast (called the 812 GTS), made Ferrari's mix somewhat richer than usual during the quarter, Elkann said. He expects the company's product mix to "normalize" during the second half of 2021, as it will include a greater percentage of the V-8 Roma and Portofino M models. 

Highlights of Ferrari's second-quarter report

  • 83% of Ferraris delivered in the second quarter (including the SF90s) had V-8 engines, and 17% had V-12 engines. A year ago, 76% of deliveries were V-8 models, 24% V-12s. 
  • Ferrari is seeing strong demand for two recently introduced V-8 models, the F8 Tributo sports car and Roma gran turismo. (A gran turismo, or GT, is best thought of as a cross between a sports car and a luxury car. Compared to Ferrari's sports cars, the Roma is a bit less hard-edged, more elegant -- but still a Ferrari.) 
  • The automaker also began deliveries of a revised version of its Portofino during the quarter. The Portofino M, as it's called, is a V-8 powered GT convertible.
  • Ferrari took a record number of new orders in June. Its order book now extends "well into 2022," Elkann said.
  • Elkann noted that the new GT models, the Roma and Portofino M, are drawing new and younger buyers to the brand. About 60% of buyers placing orders in the first half of 2021 were new customers, the average age of new Ferrari customers has been falling, and more of them than ever are women, Elkann said -- all strong points for future growth. 
  • To that last point, the number of female Ferrari owners has nearly doubled over the last four years. The trend is led by China, where about 1 in 5 of its buyers are women, Elkann said. 

Last but not least, Elkann will soon relinquish the acting CEO title he has held since December, when former CEO Louis Camilleri, who was reportedly ill with COVID, retired on short notice. New CEO Benedetto Vigna will take over as of Sept. 1. Elkann will continue as chairman. 

A silver Ferrari Roma, a sleek front-engined grand touring car.

Ferrari hoped that the elegant V-8-powered Roma would draw new, younger buyers to the brand, particularly in China. So far, it seems to be working. Image source: Ferrari.

Cash, debt, and one-time items

As of June 30, Ferrari had 2.36 billion euros in long-term debt, including debt attributable to its financial-services unit, down from 2.73 billion euros in debt as of the end of 2020. Against that, it had 922 million euros in cash, down from 1.36 billion euros as of the end of 2020. 

Its "net industrial debt," or debt attributable to its automotive business net of cash, was 552 million euros on June 30, versus 543 million euros as of Dec. 31, 2020.

Ferrari had no one-time items in the second quarter of 2021.

Looking ahead: Ferrari boosted its cash-flow guidance

Ferrari raised its full-year expectation for free cash flow attributable to its automaking business to about 450 million euros from the roughly 350 million euros it expected earlier in the year. For the full year, auto investors should now expect:

  • Revenue of about 4.3 billion euros (2020: 3.5 billion euros. 2019: 3.8 billion euros.)
  • Adjusted EBIT between 970 million euros and 1.02 billion euros. (2020: 705 million euros. 2019: 917 million.)
  • Adjusted EBIT margin between 22.6% and 23.7%. (2020: 20.7%. 2019: 24.4%.)
  • Adjusted earnings per share between 4 euros and 4.20 euros. (2020: 2.88 euros. 2019: 3.71 euros.)
  • Industrial free cash flow of about 450 million euros. (2020: 172 million euros. 2019: 675 million euros.) 

CFO Antonio Picca Piccon noted that Ferrari currently expects its full-year results to be at or near the high end of those ranges, assuming that the pandemic doesn't materially interfere with its business between now and the end of 2021.