I love it when a plan comes together. - Colonel John "Hannibal" Smith
Whether you are a fan of the TV series from the early 80s starring George Peppard, Dwight Schultz, and Mr. T, or the movie from 2010 starring Liam Neeson and Bradley Cooper, Hannibal's famous saying brings a smile. We all like the feeling of seeing our hard work pan out.
In today's market, rarely is a multi-year plan outlined and then executed with only a few (let alone no) hiccups. Burger King Worldwide (BKC) is seeing the benefits of that today as its shares soar after it was announced that Burger King and Tim Hortons (THI) plan to merge.
Another company that has continued to execute is Ford Motor Company (NYSE:F). Since cratering in the end of 2008 at $1.43 per share, the stock has rebounded more than 600%. (I know, just about everything has rebounded dramatically since the end of 2008.) Since the beginning of 2012, the stock is up an impressive 68%. This has been accomplished under the steady hand of Alan Mulally. He has since stepped down, and current CEO Mark Fields took over the reins on July 1. Since that time, stock has been up approximately 2.1% - ahead of the 1.8% gain of the S&P 500 during the same period.
During that time, Ford released earnings for its second quarter, which included a warning that earnings for the second half of the year would be lower than the previous year. Ford delivered a record profit in North America and made money in Europe for the first time in three years. However, Ford, which earned $3.9 billion before taxes in the first half of this year, confirmed it expects full-year earnings of $7 billion to $8 billion. That's down from $8.6 billion in 2013. One of the main culprits is that Ford is closing one of its F-150 truck production plants to prepare for its all new aluminum-sided F-150, which will weigh approximately 700 lbs. less than the current model. The high-strength aluminum alloys (which are already used in aerospace, commercial transportation, energy and many other rugged industries) are expected to improve dent and ding resistance, and the biggest benefit will be weight saved and therefore improved fuel efficiency. "It's one of the biggest logistical challenges we've ever taken on," said Joe Hinrichs, the executive vice president of Ford Motor Co. over North and South America.
Enter my first comment, "I love it when a plan comes together." Ford prepared the Street and shareholders for potentially weaker earnings as a result of a big cost. Now, the company is hopefully a few days ahead of schedule to deliver on that plan. The goal is to deliver the new aluminum truck by year's end. Another plant outside of Kansas City will continue to produce current steel bodied F-150s until next year, when that plant will close to have new equipment installed. In total, the plant closures are expected to cost approximately 90,000 units of production. To put that in perspective, the F-150 is the highest volume vehicle sold in the United States, with about a 100,000 vehicle lead over the second most popular vehicle, the Toyota (NYSE:TM) Camry.
Dealers have received the green light to start ordering new models, but have been given small initial allocations. A few years ago, under Alan Mulally, Ford changed the game and began charging a premium for smaller, more fuel efficient vehicles due to improvements in technology. Now, add in a new 2.7L EcoBoost V6 engine (which has the power of many mid-size V8s), combined with the more expensive alloy and the cost of an F-150 is likely to increase. It will be important to watch over the next 12 to 18 months what direction the margins in North America are going. We know the second half of the year is going to be down slightly compared to the previous year, but does Ford still have pricing power? Will it be able to raise the price for all this new technology and not suffer in terms of sales and/or market share? I wish I had the answer, but if Mr. Fields can continue the momentum from the string of successes that Mr. Mulally developed, then 2015 and 2016 could be very good years for Ford.
Disclosure: The author is long F.
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.