Ford (NYSE:F) had another great quarter with great results. Seeking Alpha was able to conduct a short interview with the company's CFO Bob Shanks and a few of my questions were addressed in the interview. In this article, I will give an overview of Ford's quarter along with comments of Mr. Shanks, who I thank for his time.
Last summer, when Ford was trading for $8 something, I said that it was time to back the truck up to load up on Ford shares. I am happy to report that the company's share price nearly doubled since then and now we have many more people saying that Ford is a "buy" than there were last summer. All the skeptics have disappeared between last summer and this summer because the company has done impressive things since then.
Ford had an amazing quarter where it posted improved results and increased market share in every geography it operates in. The results were strong across the board despite challenges faced by each geography. Despite making strong investments and making large contributions to the pension funds, the company's gross cash increased from $23.7 to $25.7 between the second quarter of last year and the second quarter of this year. Ford is working on improving its balance sheet, which has been one of the biggest priorities for Alan Mulally since he took the helm of the company. In the first half of 2013, Ford generated more cash flow than it did in the entire year of 2012.
In the first half of the year, Ford sold 3.18 million cars, up from 2.80 million in the first half of 2012. The revenue is up from $61 billion to $69 billion in the same period. Furthermore, Ford's pre-tax earnings increased from $3.22 billion to $3.74 billion and operating margin was up from 5.6% to 5.8%. All numbers look very healthy and signal a strong trend.
Ford posted a net profit in North America, Asia and South America whereas the losses in Europe became smaller. The CFO of Ford Bob Shanks told Seeking Alpha that the company was well on its track to reach profitability in Europe by 2015 and that the company's management was very confident of this goal despite all the troubles experienced in the continent. In the last quarter, Ford posted a loss of $348 million which is an improvement of $56 million over the second quarter of 2012 and $114 million over the first quarter of this year. While the net pricing in Europe was down, the volume was up, which may signal either that Europeans are preferring smaller cars or that Ford is offering incentives in the continent.
In North America, Ford's market share rose from 15.6% to 16.5% between the second quarter of 2012 and the second quarter of 2013. This is impressive, given that North America is a fast growing market. This is the third quarter in a row when Ford posted market share gains. In North America, Ford's operating margin was as high as 10.4%, up from 10.2% last year.
In South America, Ford's market share jumped from 9.4% to 9.6% as the company's volume increased from 119 million to 147 million. When asked about the troublesome currency fluctuations in the continent, Mr. Shanks wasn't particularly worried and he said that Ford would just deal with it instead of complaining about it. In the last quarter, currency fluctuations in the continent affected the company's earnings by $187 million but Ford was still profitable in the continent as it earned $151 million in South America.
In Europe, Ford continues to gain market share as its market share jumped from 7.6% to 8.1%. Ford sold 391,000 cars in the continent, up from 359,000. The company's operating margin in the continent was negative 4.6%, which is up from negative 5.8% of the same quarter last year. Ford generated 7.6 billion in Europe, up from $7.1 billion in the second quarter of 2012. This is the second quarter in a row where Ford posted a market share gain in Europe.
In Asia, Ford's market share increased from 2.6% to 3.6% as the company generated $3.0 billion on 317,000 cars in the continent, up from $2.3 billion on 250,000 cars in the same quarter last year. Ford is investing heavily in order to increase its production capacity as well as dealership network in Asia, particularly in China in order to capture a rapidly growing market there. Ford's operating margin was up sharply in the quarter as it jumped from negative 2.9% to positive 5.8%. Between the second quarter of 2012 and the second quarter of 2013, Ford Asia went from a loss of $66 million to a profit of $177 million.
Ford Credit posted a net profit of $454 million, up from $438 million last year, which was a result of increased financial margin and an increased volume. The company's credit loss was improved from $80 million to $71 million. Ford Credit continues to contribute to Ford's profits, which is something GM and Chrysler can't say since they lost their credit functions during the recession.
Despite contributing $1 billion to the pension funds (more on that in my next Ford article) and spending $500 million on dividends, the company's cash position improved in the quarter.
There was one thing I was particularly curious about. The number of Ford's outstanding shares has been on the increase in the last few years (up from 3.33 billion to nearly 4 billion) and I was wondering if Ford would spend some of its cash on buybacks. Mr. Shanks said that for the time being Ford had better use of its cash and signaled that the company was thinking about another increase in the dividend rate. Of course, another big item for the company in the next few years will be the pension contributions, which I will talk about in detail in my next Ford article. Mr. Shanks also said that Ford actually has an ongoing share repurchase program, which is in place to limit dilution that may be caused by stock based payments offered to the employees but this program is limited in nature.
Overall, Ford had another great quarter and this makes me look forward to 2014 and 2015 when Ford will improve even more, particularly in Europe and Asia, and the investors will be rewarded handsomely. I'd like to say "thanks" to Mr. Shanks again for his time.
Disclosure: I am long F. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.