Ford’s Earnings Can Cruise With European Recovery Adding To China, U.S. Strength

by Trefis Team
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Ford Motors (NYSE:F) is scheduled to announce its earnings on July 24. The Dearborn based automaker has had a good quarter with shares of the company up 25% in the last three months, buoyed by steady North American sales, sizzling Chinese numbers and a European recovery under way.

The automaker is doing extremely well in North America, especially the U.S. Not only is it selling more cars, but is selling more expensive and more profitable cars. Ford’s unit sales are up 13% in the first six months of the year in the U.S., helped by strong sales of the F-series pickups which are up 22%. The Escape is another model which is doing pretty well with sales up 23% through June. [1] The bulkier SUVs and pickups are generally more profitable than the small cars and compacts.

Ford’s operating margins stood at 11.5% in the first quarter. [2] Anything above 10% is considered exceptional in the automotive market. The recovery in the U.S. housing market is fueling the growth of pickups, which are used extensively for construction activities. As a result, the North American margins should continue to remain strong this quarter as well.

See our complete analysis for Ford Motors here

European Turnaround On Its Way ?

Europe, as it has been for a while, will be a concern. But the region is showing some signs of stabilization. Some of the recent months have seen vehicle sales decline at a slower pace. Moreover, Ford’s sales jumped 6.4% in Europe in June even though the total automotive market fell 6.6%. However, Ford’s European sales are still down 10% through June due to poor sales figures in the first quarter. [3]

Ford lost $462 million in the first quarter and expects to lose a total of $2 billion in 2013. Automakers are crippled with overcapacity issues in Europe with experts estimating a total overcapacity of 4 million units in the region. Ford is in the process of shutting down three plants in the region which will see its workforce shrink by 6,200 employees. [4]

Ford aims to become profitable in Europe by mid-decade and has already debuted eight out of the fifteen new vehicles promised as part of its turnaround plan. In the second half of the year, the automaker will also introduce the Focus Electric, the Transit Connect and the EcoSport.

China Gaining Traction

Ford is playing catch up to big boys in China, primarily because it was late to pour in investments into the world’s biggest automotive market. Although the automaker’s Chinese sales are less than one-third than those of GM and Volkswagen, Ford’s gains have consistently exceeded 40% in the last few months. Sales in the first six months of the year are up 47%. [5] At this rate, Ford’s Chinese sales could top 1 million in 2013, which would translate to about a sixth of the company’s annual sales. New and refreshed vehicles including the Kuga, the EcoSport, the Edge and the Explorer appeal to the Chinese customers.

Ford intends to introduce a total of 15 new vehicles by 2015. The automaker is ramping up the number of dealers across the country and will raise the production level to 1.2 million units in the next two to three years. In fact, Ford is so bullish on China that it expects 40% of the unit sales to come from the country by the end of the decade.

Overall, the picture looks bright for Ford. It is able to achieve the right balance of sales vs margins on its home turf, Europe is beginning to witness a turnaround and sales in China are surging.

As of now, we have a $15.30 price estimate for Ford, which is about 10% lower than the current market price. We will revise our estimate after the earnings release.

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Notes:
  1. U.S. auto sales, wsj.com []
  2. Ford 10-Q []
  3. FORD SAYS EUROPE SALES OFF 10 PCT IN 1ST HALF, July 13, 2013, bigstory.ap.org []
  4. Ford sales rise 6.4% in Europe in June, bucking industry trend, July 12, 2013, freep.com []
  5. Ford says China sales up 44 pct in June vs yr earlier, July 4, 2013, reuters.com []
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