Ford Motor Co. (F) yesterday reported better than expected and its best December sales since 2006. On an unadjusted basis, the automaker's sales increased by 1.9% YoY, above the consensus estimates of 1.2%. On a selling-day adjusted basis, December sales increased 5.9% year over year (YoY), again above consensus estimates of 5%.
Car sales increased 27.5% YoY, while truck sales were down YoY. By brand, Ford vehicle sales increased 6.4% YoY, while Lincoln sales declined by 8.7%. For the 31st straight year F-Series was the best-selling vehicle in the United States; however, the increase in sales was very modest (0.7%).
With annual sales of 645,316, the F-Series remained the best-selling vehicle in the country, followed by the full-size Chevrolet Silverado pickup, at 418,312.
Inventory increased to 522,000 units at the end of December, up from 517,000 units at the end of November. Sales were impacted by the recall program for the new Fusion and Escape. The mid-size Fusion saw a nearly 11% drop in sales and the Escape small SUV was down 21.3%. However, Ford expects these launches to be back on track in the next couple of months.
As expected, Ford's 2012 market share fell to 15.5% from 16.8% in 2011, dented by competition from Toyota and Honda, which recovered from 2011 earthquake-related setbacks. Overall it was a decent month for Ford.
Despite the fiscal policy challenges, Ford expects 2013 SAAR to improve driven by the macro recovery. The automaker expects 2013 SAAR of 15 million to 16 million units (including medium and heavy trucks).
Europe and South America Update
Ford last year announced its plans for restructuring its European operations based on cost, capacity and cars. The automaker's restructuring efforts go deep, addressing 18% of installed EU capacity and 13% of Ford's workforce. The automaker is targeting $450 to $500 million in savings from plant closures in the region. Moreover, it has put a timetable on returning to profitability (mid-decade) and is targeting a strong long-term operating margin of 6%-8%.
South America ("SA") is also likely to remain challenged in the near term due to the persistent headwinds from the regional trade policies and competition. Similar to the turnaround plan for Europe, Ford hopes to focus on cost, product, and brand in South America to address challenges in the region.
Ford's management recently noted that it hopes to further implement the One Ford plan in SA. Its recent launches of the EcoSport and Ranger in the region have gone well so far, and Ford plans to launch the Fusion in SA in 1Q13. The automaker looks to leverage the One Ford plan in the region to lower material and engineering costs and improve capital utilization. Additionally it plans to optimize distribution and improve quality to reduce structural costs.
Financials & Valuations
Ford has a price-to-earnings (P/E) ratio of 3.0, trading at a significant discount to the industry average of 9.6, and the company's own five-year average of 5.3. Ford has a forward P/E of 6.8 compared with 14.2 for the S&P 500. It has a PEG ratio of only 0.5. Compared with Ford, General Motors (GM) has a forward P/E of 5.8 and PEG ratio of 0.4.
Ford has price-to-book ratio of 2.7 compared with the industry average of 1.4 and GM's price-to-book ratio of 1.5. Ford has a price-to-sales ratio of 0.4 compared with the industry average of 0.5 and GM's price-to-sales ratio of 0.3. The company has price-to-cash-flow ratio of 5.8 compared with the industry average of 6.3 and GM's price-to-cash-flow ratio of 4.4. Ford has a dividend yield of 1.5%.
Ford has a mean recommendation of 2.1. Out of 21 sell-side analysts tracked 10 have a buy recommendation and four have a strong buy recommendation for Ford. None of the analysts tracked has a sell or underperform recommendation.
The stock is trading at $13.5. It has a mean target price of $14.7 and high-end target price of $20, representing an upside of 9% and 49% respectively. The stock gained 2% yesterday after the December sales announcement.
We have a buy rating on Ford. We remain positive on both Ford and GM as both automakers continue to post strong results. The recently announced Europe breakeven plan by Ford shifts the focus to profitability in North America. Ford benefits from a disciplined management approach, strong execution, a solid balance sheet, and an investment grade credit rating. All these factors combined with healthy U.S. demand puts Ford in a strong position to post healthy results in 2013.