Ford (NYSE:F) has shown remarkable growth over the last year. The revenues have gone up by 16%, compared to the past year, due to higher sales in automotive segment and continued growth in profits from Ford Credit. Earnings per share have risen to $1.76, compared to $1.62 at the end of last year. The market share in the domestic market has gone up from 15.3% to 15.7% for Ford during the last twelve months.
Ford's margins have also improved due to the focus on efficient production and cost efficiencies. In this article, I analyze the trend in its margins over the past three years.
I have compared Ford's margins with its biggest competitor, General Motors (NYSE:GM). The table below shows the trend in gross margins for both of these companies over the past three years.
Source: SEC Filings
The gross margin of the company has decreased by about 3% over the past three years. Despite lower sales, the company was achieving a better gross margin than its current levels. However, the full year results are not yet available for Ford and I expect the gross margin o improve. Historically, the fourth quarter earnings are impressive for the company and I believe the gross margin will improve slightly from the 2012 levels. The company is improving gross margin again by expanding its sales in China, which is world's biggest automobile market at the moment. When compared to GM, the company has performed far better in terms of gross margins in the last three years.
Operating margins of these companies show an interesting trend. While Ford has relatively stable operating margin, General Motors have seen negative operating margin over the past two years.
Source: SEC Filings
The operating margin for Ford is showing a gradual increase despite falling in 2011. Operating expenses are growing at a lower rate than sales; as a result, operating margin is increasing. However, the investment in new models as well marketing expenses to market these products in new territories might result in increased operating expenses. However, in the long-run, I believe the operating margin will show an upward trend for Ford. On the other hand, General Motors have extremely depressed operating margins. Even if we deduct the extraordinary expenses over the past two years, the operating margins for General Motors are well below Ford. In an industry with such low margins, the variation of some basis points can make a considerable difference. Ford's margins look even more impressive if we take into account the margins of its closest competitors.
Net Profit Margin
Source: SEC Filings
The trend in net profit margin is consistent with the trend seen in gross and operating margins. The net profit margins are gradually growing for Ford due to increased sales as well as better performance of Ford Credit. As the sales are growing and the interest rates are becoming more favorable to the lending institutions, I expect the net profit margin to show an upward trend over the next two-three years. Ford beats GM on net profit margin as well, just like it did with gross and operating profit margins.
January sales have been poor for most of the car manufacturers due to the snow and colder than expected weather. Ford announced that the sales fell by 7% year-over-year for the month. However, as I mentioned above, the company is expanding in the emerging markets and the sales in these markets remain strong. Ford registered 22% growth in sales in Qatar, and the company currently holds 4.36% of the local market share - there is a lot of room for Ford to grow sales in this region and the trend in recent sales shows that the company is increasing its market share in these areas. In about a year, the company has grown its market share from 3.6% to 4.36% in the country. Furthermore, the company will launch seven new models in the Middle East in order to meet its growing demand.
India and China are two of the biggest markets for car manufacturers at the moment. Compact cars market in India alone is expected to double from 1 million units in 2013 to 2 million units by 2018 - in order to exploit this growth opportunity, the company has launched compact car in India. As a result of these growth outlets, I believe Ford will continue to grow its top-line as well as bottom-line. We will surely see further improvement in margins over the next two-three years.
Ford has been facing increasing costs from its pension plan over the past few years. There has been some devaluation in investment and pension assets over the last three years. Ford contributed $5 billion in the last year to its pension plan - however, the contribution for 2014 is expected to be lower than the previous year. As a result, we will likely see another increase in profits and cash flows.
As I mentioned in my previous article, the company has launched a new range of vehicles, including its best seller, F-150 truck. Furthermore, the company is focusing on global expansion and Chinese and Indian market is showing good signs for Ford. I expect the company to continue its recent revival and profit margins will also continue to grow.