- Ford is recording higher market share in the emerging markets, and the launch of new models should help it sustain the momentum.
- Ford is improving its distribution and production facilities, which places it in a solid position in the industry.
- Ford's performance in South America is expected to improve, while Europe is also on track to become profitable.
- Ford's valuation is also attractive, and it is better than rival General Motors on this front.
After a weak start to the year, automaker Ford (NYSE:F) is making a comeback. When Ford reported its first-quarter report in April, its earnings came in short of estimates. In fact, Ford's earnings dropped 39% year-over-year on the back of higher warranty costs and currency losses in South America. But, Ford's sales for the month of May came in strong, increasing 3% year-over-year. More importantly, Ford's sales in China increased 32% year-over-year in May.
Taking a look at the moves that Ford is making, it won't be surprising if its current growth momentum continues. The automaker is investing in new models and is preparing itself to make the most of emerging markets. Let's take a close look at Ford's strategies and see how it is positioned for the long run.
Ford is aggressively restructuring the business to operate profitably at the current demand level. It aims at accelerating the development of new products to tap opportunities in different markets.
For example, the automobile major witnessed higher market share in the Asia-Pacific, where it achieved a record share in China. Among its business units, Asia-Pacific reported a record quarterly profit. North America, Middle East, and Africa also reported solid results. The record profit in the Asia-Pacific is quite encouraging. It was driven by positive customer response to Ford's new products, signifying the traction and success of its growth strategies in one of the largest auto markets in the world. In addition, Ford is making improvements in Europe and is on track to achieve a profit in 2015.
Ford is aggressively strengthening its product line-up. It unveiled several concepts and products in the first quarter, including the all new 2015 F-150 pick-up truck, the Figo, and Ka four-door concepts. It also took the wraps off the new 2015 Focus five-door and Wagon, and the new 2015 Expedition and Lincoln Navigator.
Apart from displaying new models, it is important for Ford to improve its distribution. So, Ford launched a two-ton transit in Europe, the Transit Connect in the U.S. and Canada, and the Transit Custom in Australia. It also expanded the production of the EcoSport to Thailand in the Asia-Pacific, which became the fourth plant globally to build the model.
In addition, Ford is bolstering its other facilities worldwide. It announced an investment of $168 million at its Ohio assembly plant for the production of the all new 2016 F-650 and F-750 medium-duty trucks, beginning in the spring of 2015. Also, in the U.S., it announced an investment of $500 million and added 650 jobs to build a new 2.7-liter EcoBoost engine at the Lima Engine Plant in Ohio. Ford intends to increase the production of its Super Duty model, which is why it has been making such investments.
In addition, Ford is moving to aluminum for the production of its upcoming pick-up trucks in order to boost fuel efficiency. According to Bloomberg Businessweek:
The F-Series accounts for one in five of Ford's U.S. sales and the company has said the aluminum-bodied version will be as much as 700 pounds (318 kilograms) lighter than its steel predecessor. The vehicle will also close in on 30 miles (48 kilometers) per gallon in highway driving, people familiar with the matter have said. Ford will offer the lightweight pickup with a 2.7-liter turbocharged engine, the smallest displacement powertrain in its truck lineup.
Thus, with a move such as this, Ford is on track to capture a bigger share of the North American pick-up truck market going forward.
South America to improve
However, the company is facing weakness in South America. Ford recently announced that investors should brace for a weak performance in the continent. As reported by The Wall Street Journal:
Ford Motor Co. on Wednesday warned it expects its South American operations to post a "significant" loss in the current quarter, pointing to macroeconomic effects, including weak currencies and low volumes.
The downturn in South America has weighed on the automaker's results in recent periods, particularly amid pressure from currency devaluations in Venezuela, which caused Ford to write-down cash assets in the region.
But, Ford expects the situation in South America to improve as the year progresses. Its losses in the second quarter are expected to be less than the previous quarter, and management is confident that the South American operations will become profitable in the second half of the year.
So, it is clear that Ford's troubles are short-term in nature and the company is expected to improve going forward. What's even more impressive is the fact that Ford's valuation is also solid. It has a trailing P/E ratio of 10.5 and a forward P/E ratio of 8.9. In comparison, peer General Motors (NYSE:GM) is way more expensive at around 20 times last year's earnings. In addition, Ford's profit margin is also strong at 4.44%, way better than GM's 2.81%.
Hence, Ford looks like a solid investment from different angles. Investors need to look beyond the short-term issues faced by the company, as it can deliver solid growth in the long run on the back of new and innovative models.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.