The Truth behind Ferrari’s Margin Expansion in 1Q16



High margins

As a luxury car manufacturer, Ferrari (RACE) strives to stun target consumers with its vehicle designs. The company wants to maintain exclusivity by producing cars in low volume with high margins. Ferrari targets consumers with higher levels of disposable income. By doing so, despite visible stagnation in sales figures, Ferrari manages to maintain industry-leading margins.

The Truth behind Ferrari's Margin Expansion in 1Q16

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Ferrari’s margin in 1Q16

In 1Q16, Ferrari reported an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of 178 million euros, or about $202.9 million, with an EBITDA margin of 26.3%. This EBITDA margin reflects an expansion from 25.7%.

Likewise, the company’s net profit margin also jumped to 11.6% in the first quarter this year from 10.4% in the first quarter of 2015.

Product mix impact

The sales of Ferrari’s V8 supercars boosted in 1Q16 while demand for its V12 supercars witnessed a decline. Note that supercars equipped with the V12 engine are typically sold at a higher price and also tend to have higher profitability than supercars with the V8 engine.

Higher shipments of V8 engine cars negatively affected Ferrari’s margin in 1Q16. This was primarily due to lower sales of its first hybrid car, LaFerrari during the quarter. However, higher sales of Ferrari’s FXX K and first deliveries of F60 America limited edition supercars helped the company offset the impact of adverse product mix and post a better margin.

Neutral currency impact

The company stated in its 1Q16 presentation that the impact of currency fluctuation was neutralized with the help of hedging. Interestingly, in the past several quarters, European companies including Ferrari, Daimler (DDAIF), and Volkswagen (VLKAY) benefitted from weakening euro, which is the reporting currency of all three automakers.

On the same token, the revenues and profitability of mainstream US automakers (IYK) such as General Motors (GM) and Ford (F) were negatively affected due to the strengthening US dollar.

Continue to the next part to learn about Ferrari’s revised 2016 guidance.


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