Ford Motors: A Worthwhile Investment?

| About: Ford Motor (F)
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Summary

Automobile industry giant Ford Motors has not had an ideal year so far with revenues as well as earnings showing declining trends over the course of the year.

Diluted earnings per share for Ford during the third quarter of 2014 amounted to $0.24 as compared to $0.39 per share in the year ago quarter.

The Ford F-150 has been advertised by Ford as one with a ‘rebel edge’ and is expected to appeal even more to consumers in the modern era.

The company is expecting compounded sales growth of 40% in the new Middle East and Africa region over the course of the next 6 years.

The company has also decided to branch out into the performance vehicle market which is expected to show a 70% increase in sales domestically.

Automobile industry giant Ford Motors (NYSE: F) has not had an ideal year so far with revenues as well as earnings showing declining trends over the course of the year. Ford's operations in Europe and South America, in particular, have been ineffective and in the third quarter they have been unable to achieve profitability. Whilst it is true that Ford has remained busy through much of the year in the development of its new pickup truck models, the company has suffered on the sales of its existing cars. Ford's share prices have shown considerable fluctuations over the course of the year indicating the company's failure to consistently generate positive sentiment among its investors. The automobile company's share prices have shown a somewhat rising trend for the first 9 months of the year but with large fluctuations. Prices dropped sharply in October to yearly low of $13.80 even before the third quarter earnings announcement as investors had already anticipated a less than impressive financial showing. Prices have recovered since their drop in October but remain below the year high level of $17.72. Ford's shares are currently trading at $15.52 in the market.

Overview of Ford Motors' Last Reported Financial Performance

The renowned automobile company last reported its earnings back in October. Ford reported its financial results for the third quarter of fiscal year 2014. During the quarter, Ford reported revenue of $34.9 billion; down almost 3% from $35.8 billion in the same quarter of the previous year. Domestic sales remained strong but global sales declined considerably, particularly in Europe and South America. Operating income for Ford Motors during the quarter amounted to $492 million less than a third of the year ago quarter's operating income of $1.7 billion. Operating expenses for Ford increased 9% as compared to the year ago quarter on account of operational inefficiencies. Moving further down the financial tier, Ford reported net incomes of $835 million in the third quarter of 2014, down almost 35% as compared to $1.3 billion in the third quarter of 2013. Diluted earnings per share for Ford thus amounted to $0.24 as compared to $0.39 per share in the year ago quarter. Investors looked upon Ford's poor overseas showing as a sign of great weakness and share prices plunged as a result. However, despite a below par financial performance, Ford continued to reward its investors by paying out dividends of $0.12 per share. It is important to note that Ford has a strong dividend payout tradition. Dividends for the first 9 months of the year 2014 increased 20% as compared to the same period in 2013.

Future Outlook for Ford Motors

Ford's F-150 pickup truck has always been deemed as a favorite particularly among the American masses. The 2015 F-150 is set to contribute significantly towards the company's future growth. Ford has identified the emergence of rebel culture over the years and such culture is expected to become increasingly popular in the coming years and progressively penetrate into consumption patterns as well. The Ford F-150 has always been advertised by Ford as one with a 'rebel edge' and is expected to appeal even more to consumers in the modern era with the growth of rebel culture. Another reason why there may be a potential upside for Ford is its venture into the Middle East and African regions. The company is expecting compounded sales growth of 40% in the region over the course of the next 6 years. The region currently forms about 5% of Ford's overall global operations. Ford will benefit if it decides to change its overseas product mix in terms of regions and allot a larger share to this new region. The new region is currently expected to add $6.4 billion in revenues by 2020. Moreover, the company has also decided to branch out into the performance vehicle market which is expected to show a 70% increase in sales domestically and a 14% increase in sales in Europe. The move will also help Ford gain ground in its Chinese market and thereby increase overseas revenues.

Conclusion

Ford Motors has not had the best year especially in terms of its financial performances. Although domestic sales volumes remained relatively stable, overseas volumes declined sharply, particularly in Europe and South America. The company has suffered from operational inefficiencies which have put considerable pressure on margins. The latest round of results announced by the company have left investors more than disappointed with the way the automobile giant is doing at the moment. However, Ford has been able to redeem itself in the eyes of some investors who value their dividend payouts. Given that the payouts have been strong over the period of time, stocks for Ford seem to be a good investment opportunity for investors who seek a stream of steady and guaranteed income from their investment.

Although those seeking capital gains from their investment might not fancy Ford much at the moment, there is potential upside in the share based on the company's future prospects. Despite its poor 2014, Ford has made developments to ensure positive growth in the future. The company aims to take advantage of emerging consumer trends, as well as the growth of emerging markets globally and domestically. Ford Motors' positive growth prospects signify strong potential of being a worthwhile investment. However, what remains to be seen is how some of the company's latest releases pan out, and how they impact the financials of the company. There are questions that still surround the trend of stock prices in the future, since EPS- a good proxy for share price, has declined. That being said, investors who seek capital gains would find their investments well placed in other stocks with higher upside potential at the moment.

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.