Ford Earnings Preview: International Growth in Focus

+6.58%
Upside
13.23
Market
14.10
Trefis
F: Ford Motor logo
F
Ford Motor

Ford Motor Co. (NYSE:F) plans to report its Q1 earnings on April 26th. Here we highlight a few key trends in order to guide investors through the earnings release. Ford competes globally with automakers like BMW (GR:BMW), GM (NYSE:GM), Honda (NYSE:HMC), Toyota (NYSE:TM), Daimler (ETR:DAI) and others. Our price estimate for Ford stands at $20.59, which is around 35% above the current market price.

Will International Auto Growth Continue?

In 2010 global automobile sales recovered impressively notching growth of near 14%, reaching 74 million vehicles. While North America contributed around 20% to the global vehicle sales, international markets contributed a lopsided 80%. [1] According to our estimates, Ford’s international operations contribute 35% to its stock price, and we expect it to become an increasingly more important source of value for Ford.

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Supporting Policies for International Growth

Low interest policies in Europe will help vehicle sales volume by facilitating vehicle financing because of lower borrowing costs. Many countries are lowering import restrictions in order to stimulate competition that will consequently drive the vehicle sales volume.

In Latin America, continued government incentives in Brazil for the local production of vehicles will likely lower the cost of vehicles in South America and accelerate volume growth. [2] In Russia, a new automotive industrial regime introduced in February 2011 will lower import duties on automotive components for the next eight years for qualified automotive manufacturers. [3] This will help continue the growth of vehicle sales in Russia, which Ford’s management thinks could become the largest auto market within Europe. Lastly, significant volume opportunities in emerging economies like China, India, Brazil and Turkey are likely to be supportive of higher vehicle sales.

Mitigating Factors on the Macro Front

A fair amount of uncertainty regarding the impact of the tragic earthquake and tsunami in Japan on the global auto parts supply chain remains an issue as well as the medium-term impact of the Chinese governments’ discontinued policies to stimulate Chinese auto demand.

The potential sovereign debt crisis in Europe could hamper growth in the European auto market. Furthermore, rising oil prices could also decelerate the growth of vehicle sales internationally.

Overall we expect the international vehicle sales to increase in Q1 of 2011 albeit at a slower pace than that experienced in Q1 of 2010.

Other Factors to Watch

Apart from international vehicle sales growth, investors should look out for the effect of continually rising commodity costs on Ford’s gross profit margins. Also, investors should watch for the impacts that discontinued production of brands like Jaguar, Land Rover, Mazda, Volvo and Mercury will have on future results.

We estimate these brands constitute around 7% of Ford’s vehicle loans outstanding portfolio at the beginning of 2011, which should decline over time. [4]

You can see the complete $20.59 Trefis price estimate for Ford’s stock here.

Notes:
  1. Ford’s 2010 Q4 and Full Year Financial Results []
  2. Ford’s SEC Filings []
  3. Ford and Sollers Sign a Memorandum of Understanding to Establish a Joint Venture in Russia []
  4. Ford’s 2010 Annual Report []