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Factors that Helped Ferrari Expand Its Profit Margins in 2017

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Ferrari’s 2017 profit margins

In 4Q17, Ferrari (RACE) reported solid adjusted EBITDA[1. earnings before interest, taxes, depreciation, and amortization] of 258.0 million euros (about $319.0 million). The company’s adjusted EBITDA margin for 4Q17 was 30.7%, which reflected an expansion from 30.0% in 4Q16. Ferrari’s 4Q17 adjusted EBIT margin also jumped to 23.1% from just 21.9% in 4Q16.

Likewise, RACE’s fiscal 2017 EBITDA margins stood strong at 30.3% against 28.3% in 2016. Its EBIT margin for the year expanded to 22.7% from 20.4% in 2016.

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Key positive factors for higher profits

Continued growth in Ferrari’s shipments and higher demand for Ferrari’s high-end car models were the two key factors for the company’s improved 2017 profit margins. Shipments of the V-12 LaFerrari Aperta had a positive impact on Ferrari’s 2017 profitability.

RACE’s profits from its V-12 cars typically tend to be higher than its V-8 models. In 2016, the shipments of the newly launched V-12 cars—GTC4Lusso and LaFerrari Aperta—started. Both models delivered strong positive growth in the company’s key markets in 2017.

Ferrari targets consumers with higher levels of disposable income. Even in tough industry times, the company maintains its industry-leading profit margins. Ferrari’s profit margins are much higher than those reported by legacy automakers (XLY) General Motors (GM), Ford (F), and Fiat Chrysler (FCAU). This is partly because the luxury cars manufactured by Ferrari are sold at much higher prices than mass-market vehicles sold by other mainstream auto companies.

Currency headwinds

Ferrari’s 2017 profitability was negatively affected by an unfavorable foreign exchange rate. The company noted weakness in the Chinese yuan, US dollar, Japanese yen, and British pound as key reasons for these currency headwinds.

In contrast, a weaker euro helped Europe-based automakers such as Ferrari, Fiat Chrysler, and Volkswagen (VLKAY) boost their profitability in 2016.

In the next part, we’ll discuss what Ferrari’s management guided for fiscal 2018.

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