The Ford Motor Company (NYSE:F) is primarily a manufacturer of cars and trucks which are sold across the globe. The company operates in North and South America, Asia, Europe and Africa. In addition to its manufacturing business, the company also operates a financial services business (Ford Motor Credit) that provides customers with the means to finance the purchase, or lease of a Ford-made vehicle. The company trades on the NYSE with a market capitalization of $50.06B and has 3.81B shares outstanding.
The car manufacturer recently reported that the total vehicles it sold in 2012 amounted to 5.668M units, or 27K less than it sold in 2011, making some investors wary that the sales growth of the company is not only slowing, but is beginning to decline. At the same time revenues also declined somewhat in 2012, reaching $126.6B, $1.6B less than 2011 revenues, on the back of declining sales volumes. Given the nonexistent annual sales growth in 2012, some investors wonder if the growth cycle in the sector is switching gears and the time to be invested in Ford has come to an end.
Although the headline numbers certainly support the notion that it's time to divest out of Ford, the more detailed divisional figures coming out of the company tell a different tale. For instance, Ford's North American operations enjoyed a record operating margin of 10.4% in 2012, up 210 basis points over 2011. The improvement is even more pronounced on a quarterly basis as the company lifted fourth quarter operating margins from 4.5% in 2011 to 8.4% in 2012.
The strong improvement in North American operating margins is primarily due to favorable market conditions and the non-repeat of ratification bonuses. Looking ahead, it is expected that 2013 figures will show additional growth over 2012, with an operating margin of 10%. These expectations reflect two drivers of growth; a healthy demand for the company's North American models and an efficient operation that manages costs by matching actual production to realized demand.
Sales volumes also grew at a healthy pace of 3.6% over 2011. Total units sold in North America reached 2.784M in 2012, as opposed to 2.686M units sold in 2011. Therefore, when one examines the company's North American division, the notion that growth has come to an end is no longer valid.
As the table below illustrates, Ford's pain is primarily due to its European operations. The company's European division posted awful results with fourth quarter operating margin in negative 11.4%. Although full year 2012 margins were not as bad, at negative 6.6%, the continued weakness in the European economies is most likely to impact Ford's sales volumes and margins for the first half of 2013. In fact, the company estimates that Q1-2013 sales in Europe will reach about 405K units, a continued drop when compared to Q1-2012 of 13K units.
Estimated Q1-2013 Unit Sales (in 000s):
2011 & 2012 Unit Sales (in millions):
The company's European division masks the strength Ford enjoys in other markets. African and Asian sales are expected to continue their exceptional growth in 2013 and posted a growth rate of over 14% in 2012 alone. North America is also expected to continue delivering positive results as Q1-2013 unit sales are expected to grow by 93K units over Q1-2012.
Given the growth generated by Ford's North American, African and Asian divisions, investors should reconsider the idea of divesting out of Ford. Yes, the European economy is adversely impacting the company's sales, however, the company's growing influence in emerging markets such as China is beginning to show the company's real engine of growth is not in Europe, but in Asia. Therefore, investors of Ford can expect leverage to the growing middle class of the emerging markets.