Ford Is Still Cruising Despite Its Flat Tire In Europe

| About: Ford Motor (F)
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In its Q4 results announcement Tuesday, Ford Motors (NYSE:F) reported positive numbers from North American and Asia, but this was overshadowed by losses incurred in Europe. The automaker’s total revenues were up 5% to $36.5 billion and net income income swelled by 55% to $1.6 billion (excluding the one-time benefits). For the full-year, Ford earned a pre-tax profit of $8 billion. In 2013, the automaker expects the profit to remain at a similar level as that in 2012. Ford’s global unit sales were up 7% to 1.53 million units. [1]

See our complete analysis for Ford Motors here

Solid At Home

North America is Ford’s biggest market and accounts for about three-fifth of the sales. Revenues were up 12% to $22.1 billion, helped by stronger prices. The automaker sold 0.76 million units, that is 9% more than that in the previous year quarter. [1]

For the full year, Ford’s North American margins rose from 8.3% to 10.4%. For 2013, the automaker expects the margins to decline to 10%. However, that is hardly surprising since Ford had previously warned that it expects the long term operating margins in North America to deteriorate to 8-10% due to a greater proportion of small cars being sold. Pick-up trucks and SUVs generally have fatter margins as compared to small cars.

Booming Sales in Asia-Pacific & Africa

Unit sales in Asia-Pacific and Africa surged 41%, helped by the Focus model’s exceptional performance in China. We expect the momentum to carry on into 2013, as the company will launch the new Kuga, Mondeo, EcoSport and refreshed Fiesta across the region. Asia-Pacific and Africa now constitute about a sixth of the company’s sales and its contribution to the total tally continues to grow.

Although the full year margins were negative, the company was profitable in the fourth quarter with operating margins of 5.8%. For 2013, the automaker expects the region to breakeven, since the increased investments and marketing expenses related to new product launches are likely to lower the profits it will make through additional vehicle sales. [1]

Europe In Red

Ford lost a whopping $750 million in the fourth quarter alone. For the full year, the losses totaled to $1.75 billion, that is $250 million more than what the automaker had in mind through the third quarter. Furthermore, the company now expects the losses to touch $2 billion in 2013.

In October, the automaker announced a plan to turnaround its European operations. It will shut down three plants in Europe, one in Belgium and two in the U.K. These closures will help Ford reduce its capacity in the region by around 18%, and will result in annual savings of almost $500 million. Factors such as higher severance costs related to lay offs and accelerated depreciation of the plants that will be closed will contribute to the estimated losses in 2013. [2]

Ford’s volumes were down 16% to 0.33 million units in the fourth quarter. For the full year, sales were down 15%. New model introductions might help the slumping sales in the region. The automaker plans to introduce 15 new or refreshed models in the next five years. A good customer reception combined with an improvement in the overall European automobile industry will be the key to Ford’s turnaround in the region.

We have a $13 price estimate for Ford, but we are in the process of revising our estimates to incorporate the Q4 earnings.


  1. Ford Motors 8-k
  2. Ford Motors 10-Q

Disclosure: No positions