Ferrari Supercharges Its Guidance as Profit Jumps 20%

Italian supercar maker Ferrari N.V. (NYSE: RACE) said on Monday, Nov. 7, that its earnings jumped 20.2% in the third quarter from its year-ago result, leading it to raise its full-year 2016 profit forecast for the second time this year.

Ferrari's adjusted earnings before interest and tax rose 22.9% to 172 million euros, well ahead of analysts' average 144 million euro estimate. Ferrari shares jumped over 5% in early trading on the New York Stock Exchange on Monday.

Ferrari earnings: The raw numbers

All financial results are in millions of euros. One euro = $1.10 on Nov. 7.

Metric Q3 2016 Q3 2015 Change
Revenue 783 723 8.3%
Shipments 1,978 1,949 1.5%
Adjusted EBIT 172 140 22.9%
Adjusted EBIT margin 22% 19.4% +260 basis points
Net income 113 94 20.2%
Industrial free cash flow 178 92 93.5%
Net industrial debt (797) (585) 212 million euro improvement

Data source: Ferrari N.V. "Industrial" refers to cash flow and debt related to Ferrari's core business of auto-making, not its financial services unit. "Net industrial debt" is Ferrari's total auto-related debt minus its cash. Ferrari had 2.2 billion euros of total industrial debt as of Sept. 30.

Shipments of Ferrari's new V12-powered GTC4Lusso began in the third quarter. A version powered by a turbocharged V8 will begin shipping next year. Image source: Ferrari N.V.

What happened at Ferrari in the third quarter

Since it was spun off from Fiat Chrysler Automobiles (NYSE: FCAU) at the beginning of the year, Ferrari has worked to boost its profit by offering vehicles with somewhat wider appeal as well as exclusive, high-priced limited-run models.

Both approaches helped in the third quarter. The first examples of Ferrari's new GTC4Lusso model, a V12-powered four-seater, helped bolster strong sales of its existing eight-cylinder 488 and 12-cylinder F12 lines. The company also finished and delivered the final examples of its hyper-exotic (and hyper-profitable) limited-run $2.1 million LaFerrari Aperta.

The upshot? A solid year-over-year improvement on nearly all financial metrics.

Ferrari also unveiled a new product during the quarter, a lower-priced turbo-V8-powered version of the four-seater to be called "GTC4Lusso T." The "T" is expected to boost the model's sales volumes significantly; it will begin shipping next year.

How Ferrari is finding growth despite limited sales volumes

One of the concerns about Ferrari as an investment has been this: Given that the company holds its sales volumes fairly steady from year to year to preserve exclusivity, how will it generate profit growth?

For now, that question has been answered: by selling high-priced limited-run models like the LaFerrari Aperta to its most devoted and well-heeled fans. That may not prove to be a sustainable long-term strategy, as economic conditions could change or the (very limited) market could become saturated.

But for right now, it's working: All 200 examples of the LaFerrari Aperta were sold before the first one was shipped.

What Ferrari's CEO had to say about the quarter

CEO Sergio Marchionne was upbeat during Ferrari's third-quarter earnings conference call.

Outlook: Ferrari boosted its full-year guidance

Ferrari said that it now expects its full-year gross operating profit to come in at 850 million euros, up from a previous forecast of 800 million euros. It expects to end the year with 700 million euros in net industrial debt, down from a prior forecast of 730 million.

It maintained its previous guidance for full-year revenue (more than 3 billion euros) and shipments (about 8,000 cars).

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