Will Ford's Earnings Disappoint Again?

| About: Ford Motor (F)


Ford is set to release its quarterly earnings this week.

The company has disappointed investors the last time, but it may meet the analyst estimates this time due to the increasing sales in Europe and the U.S.

Ford's strong product pipeline and cost- cutting initiatives make it a good buy, irrespective of the earnings report.

Auto major Ford (NYSE:F) had disappointed investors when it had released its first-quarter results back in April. Ford had missed earnings estimates by a big margin, and also reported a big year-over-year drop. Now, Ford has a chance to reclaim investor confidence when it reports its second-quarter results this week. Let's take a look at what analysts are expecting from Ford, and how its outlook might turn out.

The expectations from Ford

Ford's estimated average earnings for the quarter are expected at $0.37 per share, down from $0.45 per share in the previous year's quarter. The average revenue for the quarter is estimated to be $36.28 billion, better than the year-ago quarter's $36.08 billion. Revenue is expected to decline 17.8% on a sequential basis.

So, the company's quarterly results aren't expected to be bright. But, can it make up for it by delivering a strong outlook? Let's find out.

A solid pipeline and improving end-markets

The company is counting on its new launches to propel growth. For example, Ford's Fusion sedan, with an aggressive design, is earning plaudits. Its novel design and better fuel economy, backed by the EcoBoost turbocharged engine, have contributed to its success.

The next in line is the Escape, with its third-generation model that has sent sales soaring. It runs parallel to the success of Fusion, and there are possibilities of either of them touching the 300,000 annual sales mark in the U.S. The Escape features comfortable seating, improved driving performance, and better fuel economy. It can also be used as an occasional towing vehicle.

Ford also saw a rise of 6.6% in its European sales in the first and second quarters this year. The company continues to drive high sales in retail, fleet, as well as commercial vehicles. Since Ford outlined its turnaround strategy for Europe two years back, it has launched 15 new vehicles and has more lined up in the second half of the year. Ford should continue gaining traction in the European auto market as it recovers.

Moreover, Ford should also benefit from the increased efficiency of auto-assembly plants. As I stated in my previous article:

As per Alix Partners, 58 of the 100 largest auto-assembly plants in Europe were running at 75% efficiency in 2013, up from 29 plants in 2012. This further deteriorated the conditions of the automakers.

Ford, along with other car makers like Peugeot and General Motors (NYSE:GM), is shutting down numerous plants all across Europe and cutting back the workforce to tackle the lack of productivity and dipping sales. Ford has closed two production sites in the U.K. and will close a major assembly plant in Belgium in 2015, eliminating some 6,200 jobs in total. This will reduce Ford's production by 350,000 vehicles and will increase the efficiency of other plants. Ford accounts for nearly 18% of Europe's total excess plant capacity, so it's certain that increasing efficiencies of the existing plants will put Ford right on track to meet its goal of returning to profitability in Europe by 2015.

This move is expected to benefit Ford by about $500 million in annual savings.

Focusing on fuel efficiency

With increasing fuel prices, there's demand for vehicles with better fuel economy figures, and in order to meet this demand, Ford is restructuring its Dearborn Truck Plants for the production of its F-150 trucks to be launched next year. The company's F-Series trucks are expected to gain more traction with the upcoming next generation F-150 that features military-grade aluminum alloy body. This reduces the body weight, thus improving the fuel economy.

Although this will lead to high costs initially, Ford should benefit in the long run as it reduces fuel consumption via using aluminum alloy instead of steel for the truck's outer body. The company has decided to let go of near-term profits in the wake of achieving better sales and higher profits in the long run. It is estimated that in the next 10 years, around three-fourth of trucks will utilize aluminum, so Ford is making a smart move by positioning itself for the future.


Ford might not issue a strong outlook for the ongoing quarter, but it should be noted that the company is focusing on long-term gains rather than short-term profits. So, if Ford issues a weak outlook and declines, investors should consider this as a buying opportunity as the company looks set to get better in the long run.

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.