2014 was meant to be a year of transition for Ford (NYSE:F), and the same can be seen in the recent headlines across the Internet. Ford has now designated its current COO, Mark Fields, as the next CEO. The new CEO will have the big shoes of Alan Mulally to fill, which is a big ask since Mulally turned the automaker around in times of distress. However, there's yet another date which Ford investors are looking at closely - April 25 - the day of its first-quarter earnings. Let's take a look at what's expected from Ford and if it could perform well going forward.
Looking beyond the expectations
Analysts, according to Yahoo! Finance, expect Ford's revenue to grow just slightly on a year-over-year basis. However, the company's bottom line is expected to take a solid hit, declining from $0.41 a share in the year-ago period to $0.31 in the first quarter.
I agree that these numbers do not look impressive at first sight. However, taking a look at the reasons why Ford expects its numbers to decline will tell us that the company is doing the right thing. Ford's expenses are expected to rise as the company is investing in new models.
Ford expects its 2014 pre-tax profit to trail the 2013 figure, due to a possible deterioration its margins. This will be a very busy year for Ford as it plans to roll out 16 new or refreshed models in the U.S., including the revamped version of its best selling F-150. Extra cost associated with the changeover of the F-150 is one of the reasons why the automaker is cautious on the 2014 outlook. Ford anticipates its North American operating margins to slide to 8-9% this year, as a result of these extra expenses.
As a result of such investments, Ford's performance can get better in the long run. In fact, Ford is also looking to make its vehicles better so that they generate strong demand. According to USA Today:
"Ford is making the radical shift to lighter-weight aluminum for the F-150 body and cargo box, and investing in high-strength steel for the frame, which is lighter than regular steel. The changes will cut some 700 pounds from the full-size F-150.
Cutting weight improves fuel economy and performance and allows the use of lighter components elsewhere. The truck's chief engineer, Pete Reyes, insists the aluminum truck will carry more, tow more, and be more resistant to dents in the bed and on body panels than the steel F-150 Ford currently sells.
'This is a gutsy move, as Ford will either leapfrog ahead of the competition on light-weighting vehicles to improve fuel economy, or they could mess up what is arguably one of their most profitable products,' says Christian Mayes, analyst at Edward Jones Equity Research."
A smooth road ahead
Ford is running smoothly. The company has made considerable progress in achieving its goals and has gained significant market share in the U.S., Asia-Pacific, and Africa, where it realized record profits.
Ford has started 2014 on a bright note with shares already up 5%. The performance looks set to continue in the future as Ford had launched 11 new products in 2013, which was a major revamp of the product line. The iconic Ford Mustang was launched in six cities across four continents, while the Focus bagged the title of the world's best-selling car, and Fiesta was the world's best-selling subcompact car in the first nine months of the year. The Ford F series is the leader in U.S truck sales.
Apart from the U.S. market, Ford will launch around 25 new vehicles in Europe in the next five years. Similar expansion plans have been lined up for China, the Middle East, and Africa. So, Ford is looking to get better across all of its markets and this bodes well for investors.
However, Ford is still worried about its South American market due to a relatively weak economy in Brazil, Argentina, and Venezuela in the absence of any clear economic policy direction. In spite of these challenges, Ford has improved its profitability in Brazil and Argentina, although it was offset by deterioration in Venezuela. Looking forward, Ford has to face higher volatility in Venezuela due to the increasing risk of a devaluating peso in Argentina, along with the government's control of import of vehicles.
But, the company remains hopeful about Europe as the economic indicators are improving. It expects reduced losses in Europe, including a restructuring cost of about $400 million, which will be reported in the fiscal 2014 results. According to management, "The European transformation plan continues to progress well and as mentioned earlier, Europe remains on track to achieve profitability in 2015." In 2014, Ford anticipates Europe's GDP to grow at around 1%.
The previous year was outstanding for Ford with strong results from North America, break-even results in South America, and reduced losses in Europe. In addition, Asia pacific and Africa continue to deliver consistent performances. Looking ahead, the upcoming launches and structural changes Ford plans to bring about in South America and Europe looks promising.
Considering all these factors, Ford seems to be a good investment option going into the earnings as its outlook looks quite strong.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.