2. Mainely Lobster is a publicly traded company with a market cap of around $50 million....

 

Transcribed Image Text:

2. Mainely Lobster is a publicly traded company with a market cap of around $50 million. The company usually holds a conference call disclosing its financial results one month after the quarter end. In addition to releasing preliminary earnings for the previous quarter, the company also provides earnings guidance for the upcoming quarter. The CFO, Mr. Bean, would like Julia to try writing a manuscript for him to discuss the company's forecasted earnings during the earnings call. Could you help her put together a draft of about 300 words? (20 points) You know that the upcoming quarter is critical in the sense that it is when the company makes nearly 40% of its annual revenues. Good news is that the projected quarterly sales represents a 25% increase year over year. However, higher labor costs have already taken a toll on the company. To make things worse, the American lobster is vanishing due to climate change throughout New England. Fishermen have to go father out to sea, resulting in higher raw material costs for the company (the unit COGS was well below $30 last year). The management team would love to impress the investors for sure. At the same time, they need to be careful so that they don't end up ruining their reputation by being overoptimistic and misleading investors. You may get some idea from the relevant part in Ford's 2021 Q2 earnings call transcript below. So now let's turn to the outlook. Based on the underlying strength of our business and present assessment of the semiconductor supplies through the second half, along with other factors, we have increased our outlook for full year adjusted EBIT to between $9 billion to $10 billion. Now this assumes about a 30% sequential increase in volume in our second half versus our first half, which is supported by the anticipated improvement in the supply of semiconductors. Our guidance implies we are -- we expect second half adjusted EBIT to be lower than the first half of the year. And so we provided a bridge to help with this, and we've included that on Page 19 of our earnings presentation. So let me provide a little bit of color around this. Relative to tailwinds, we expect about $3 billion to $4 billion in favorable market factors, net of an increase in volume-related production costs for the higher volumes. Headwinds, right? We see headwinds coming through, and we see pressure on contribution margin. We expect commodities to be up almost $2 billion half-over-half. Warranty costs are expected to be higher in the second half, up about $500 million, though we still expect full year warranty expense to be down year-over-year. Relative to structural costs, about $1.5 billion in investments in modernization, consistent with what we laid out in May, including customer experiences, connectivity, IT, new product launches. Looking at Ford Credit. Based on current market dynamics, we expect Ford Credit to decline by about $1 billion as auction values begin to normalize, and we also have a non-repeat of reserve releases that we had in the first half. And lastly, we also have the nonrecurrence of the $900 million noncash gain on Rivian we booked in the first quarter. And it's important to note that this gain also impacts our run rate heading into 2022. We are also increasing our full year adjusted free cash flow target to $4 billion to $5 billion, supported by expected favorable working capital in the second half as production increases from an anticipated improvement in chip availability. 2. Mainely Lobster is a publicly traded company with a market cap of around $50 million. The company usually holds a conference call disclosing its financial results one month after the quarter end. In addition to releasing preliminary earnings for the previous quarter, the company also provides earnings guidance for the upcoming quarter. The CFO, Mr. Bean, would like Julia to try writing a manuscript for him to discuss the company's forecasted earnings during the earnings call. Could you help her put together a draft of about 300 words? (20 points) You know that the upcoming quarter is critical in the sense that it is when the company makes nearly 40% of its annual revenues. Good news is that the projected quarterly sales represents a 25% increase year over year. However, higher labor costs have already taken a toll on the company. To make things worse, the American lobster is vanishing due to climate change throughout New England. Fishermen have to go father out to sea, resulting in higher raw material costs for the company (the unit COGS was well below $30 last year). The management team would love to impress the investors for sure. At the same time, they need to be careful so that they don't end up ruining their reputation by being overoptimistic and misleading investors. You may get some idea from the relevant part in Ford's 2021 Q2 earnings call transcript below. So now let's turn to the outlook. Based on the underlying strength of our business and present assessment of the semiconductor supplies through the second half, along with other factors, we have increased our outlook for full year adjusted EBIT to between $9 billion to $10 billion. Now this assumes about a 30% sequential increase in volume in our second half versus our first half, which is supported by the anticipated improvement in the supply of semiconductors. Our guidance implies we are -- we expect second half adjusted EBIT to be lower than the first half of the year. And so we provided a bridge to help with this, and we've included that on Page 19 of our earnings presentation. So let me provide a little bit of color around this. Relative to tailwinds, we expect about $3 billion to $4 billion in favorable market factors, net of an increase in volume-related production costs for the higher volumes. Headwinds, right? We see headwinds coming through, and we see pressure on contribution margin. We expect commodities to be up almost $2 billion half-over-half. Warranty costs are expected to be higher in the second half, up about $500 million, though we still expect full year warranty expense to be down year-over-year. Relative to structural costs, about $1.5 billion in investments in modernization, consistent with what we laid out in May, including customer experiences, connectivity, IT, new product launches. Looking at Ford Credit. Based on current market dynamics, we expect Ford Credit to decline by about $1 billion as auction values begin to normalize, and we also have a non-repeat of reserve releases that we had in the first half. And lastly, we also have the nonrecurrence of the $900 million noncash gain on Rivian we booked in the first quarter. And it's important to note that this gain also impacts our run rate heading into 2022. We are also increasing our full year adjusted free cash flow target to $4 billion to $5 billion, supported by expected favorable working capital in the second half as production increases from an anticipated improvement in chip availability.

Answer rating: 100% (QA)

Answer Mainely Lobster is forecasting increased sales and earnings for the up... View the full answer