Ford Posts Better North American Margins And Lower Losses In Europe

| About: Ford Motor (F)
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Ford Motors (NYSE:F) announced strong first quarter earnings, helped by impressive North American and Chinese performances. Total revenues jumped 10% to $35.8 billion. The automaker’s net income swelled 15% to $1.6 billion, or $0.40 per share. Ford sold 1.5 million vehicles in the first quarter, 10% more than that in the previous year quarter. [1]

What particularly stood out was the North American profitability. Operating margins widened 50 basis to touch 11.5%. The company’s profitability increased as a result of greater proportion of sales of the more profitable pickups and SUVs in the United States. Operating margins above 10% in the automotive industry are considered exceptional, and Ford’s unit sales were up 17% in the region. Note that North America accounts for more than half of the company’s total sales.

Europe Shows Signs Of Improvement

Ford’s North American and Chinese sales have been pleasing in the last few quarters, but a major factor dragging its shares down is the magnitude of the European losses. The company lost $462 million in Europe this quarter, although, that only suggests that its restructuring is beginning to have a positive impact. The automaker lost $750 million in the fourth quarter of 2012, so there is an improvement on a sequential basis. The company’s full year guidance of a $2 billion loss in Europe remained unchanged.

Ford’s unit sales were down 8% in Europe, although, there wasn’t any erosion in the market share. Ford’s initial guidance of $2 billion announced at the time of Q4 2012 earnings was based on the assumption that the automaker would continue to hold on to its market share. Therefore, the initial results suggest that the company is on track with regards to its restructuring operations in Europe. Ford estimates it will turn profitable in Europe by the mid-decade.

Asia-Pacific Shines

Ford’s unit sales in Asia Pacific climbed 30% to 282,000 vehicles. The region now accounts for a fifth of the company’s total vehicle sales. Traditionally, most of Ford’s sales have come from North America and Europe since the automaker was late to pour investments into China. But new model introductions including the Kuga and the the Focus are attracting Chinese customers in large numbers. Moreover, the company will also debut the EcoSport and the Explorer in 2013, so the sales for the full year should be pretty strong.

Although the sales rocketed, the company could barely manage to breakeven. However, this is something that shouldn’t be too worrying since its pretty common in the automotive industry, for the companies to struggle to post profits during the initial years of investment. As long as the sales continue to rise, profitability will eventually catch up.

In South America, the automaker lost $212 million which was not totally unexpected since Ford had warned that currency fluctuations in Venezuela, and trade restrictions imposed by Brazil and Argentina, could cause the automaker to lose as much as $300 million in the first quarter alone.

Overall, the results suggest that Ford is on the right track; the company is able to sustain the high margins in North America, the losses in Europe seem to be within the company’s guidance and the sales are booming in China

We have a $13 price estimate for Ford, which is in line with the current market price.


  1. Ford Motors 8-k

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