New Products Should Boost JLR Profits.
Investors See Jaguar F-Pace As Earnings Trigger.
Jaguar Land Rover’s (JLR) profits fell last year despite improving sales dramatically, but new models like the Jaguar F-Pace SUV will bolster revenues and the bottom line.
That’s the verdict of Bernstein Research, which said the F-Pace, which uses many components from the XE and XF, will generate higher profits.
JLR pre-tax profits fell to £1.56 billion in the year ended March 31, from £2.6 billion in the previous year. Profits were hit by slowing sales in China where margins are much higher than in the rest of the world. About one quarter of JLR’s sales are in China, where it opened a factory in 2014. Profits were also hit by Takata airbag costs, and the explosion in Tianjin Port last year.
Bernstein said the XE and XF saloons were helping profit margins, contrary to many expectations, while foreign exchange gains were also helping as the pound weakened.
“But even adjusted for currency we’d argue JLR’s underlying variable margins have remained steady in recent quarters, in spite of higher (lower margin) XE/XF mix, and a falling mix of (high margin) Range Rover and Range Rover Sport. Fixed costs also look to have stabilised, declining as percentages of revenue in the past two quarters,” Bernstein said.
“Looking ahead we expect the F-Pace – built on the same underbody as the XE/XF but generating significantly higher pricing – to prove accretive for JLR’s profitability,” it said.
U.S. worries overdone
Bernstein said worries about U.S. market developments have been overdone, pointing out that premium SUV sales have grown 14.6 per cent so far this year compared with market growth of 1.2 per cent. It feels the same about the impact of the two big Range Rovers as they age.
“JLR’s cadence of future product launches means we remain confident the company’s growth will remain strong. The F-Pace has received stellar reviews and could arguably exceed our volume expectations of 70,000 units ones fully-ramped up. The next generation Discovery goes on sale later this year, and the L560 mid-size Range Rover launches twelve months from now. Looking across the global landscape we’d argue JLR offers one of the most ambitious – and potentially rewarding – product offensives industry-wide,” Bernstein said.