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How Ferrari Began 2018 with Stronger Profitability

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Dec. 4 2020, Updated 10:52 a.m. ET

Ferrari’s 1Q18 profit margins

In 1Q18, Ferrari (RACE) reported a 13% YoY (year-over-year) rise in its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of 272 million euros or about $323 million. The company’s adjusted EBITDA margin was 32.8%, which reflected a considerable expansion from 29.5% in 1Q17.

Similarly, Ferrari’s 1Q18 adjusted EBIT margin also rose, to 25.3% from 21.6%, in 1Q17.

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2018 began on a strong note

Continued growth in Ferrari’s sales volume and a positive product mix—driven by higher demand for Ferrari’s high-end models—were the two key factors behind RACE’s improved profit margins. Higher shipments of the V12 engine–based car model and a net price increase also had a positive impact on Ferrari’s profitability in the first quarter of 2018.

Ferrari’s profit margins from its V12 engine cars typically tend to be higher than its V8 engine models. In 2017, shipments growth for the company’s V12 engine cars—such as GTC4Lusso and LaFerrari Aperta—also resulted in strong positive growth in profits.

Ferrari targets consumers with high disposable income. By doing so, even under tough economic and industry conditions, the company manages to maintain industry-leading profit margins. RACE’s profit margins are much higher than legacy automakers’ (XLY), including General Motors (GM), Ford (F), and Fiat Chrysler (FCAU). This difference is partly because Ferrari’s super luxury cars sell at a much higher price than mass-market vehicles sold by other mainstream auto companies.

Currency headwinds continued to hurt

In 1Q18, currency headwinds acted as the only negative factor for Ferrari’s profit margins. The company cited a weaker US dollar and British pound against the euro as the primary reason for these currency headwinds.

In 2017, Ferrari’s profitability was also hurt by unfavorable foreign exchange rates. Weakness in the Chinese yuan, US dollar, Japanese yen, and British pound were the key reasons for currency headwinds last year.

Next in this series, we’ll take a look at Ferrari’s progress toward its fiscal 2018 guidance.

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