Earnings Review: Ford’s Profits Down On Disappointing Performance In North America

Ford Motors (NYSE:F) announced earnings for the third quarter of fiscal 2014 on Friday. The numbers were disappointing: the company’s profit before taxes was down to $1.2 billion, down $1.4 billion compared to a year ago, while its net income stood at $835 million, down $437 million compared to a year ago. The revenue for the quarter stood at $34.9 billion, a decline of $0.9 billion compared to the third quarter of fiscal 2013. ^[1]

We have an $18.7 price estimate for Ford, which is about 25% more than the current market price. We are in the process of revising our estimates in order to incorporate the latest earnings.

North America Shows Some Weakness But China Remains Strong

Ford’s North American wholesale volume declined by 8%, while its revenues declined by 6%. The decline in revenue is explained by product launch efforts, which included the five-week shutdown of the Dearborn Truck Factory for the launch of the new F-150 series of trucks. The U.S. auto market, the biggest and most profitable market for Ford, is on pace to record a 7.6% growth on last year’s volumes. Ford’s total U.S. market share was 14.1% in the third quarter, a decrease of 0.8% from a year ago. ^[2] This drop reflects the planned reductions in daily rental sales and a lower share of F-150 in the sales mix. The company closed its Dearborn factory during the quarter in order to retool for the new F-series trucks, which will be aluminum bodied instead of steel and thus more fuel efficient.

In Asia-Pacific, wholesale volume was up by 5%, while revenue jumped by 3% compared to a year ago.((Ford Motor Company CEO Mark Fields Discusses Q3 2014 Results, Seeking Alpha, October 2014)) The company’s wholesale volume in China grew by 10% over the quarter, allowing Ford to increase its market share by 0.4% over the quarter. The growth in market share in China reflects the continued strong performance of Ford’s EcoSport, Kuga and Mondeo models. The region’s operating margin was 1.7%, down 2.9% from a year ago, and pre-tax profit was $44 million, up $72 million from last year’s second quarter. The company attributed to the decline to increased expenses related to ongoing investments in products in Asia, including five new plants that are expected to be operational over the next 9 months. ^[2]

Europe Improves

Ford’s total market share for Europe for the first quarter was 8.4%, with a 0.5% improvement in the company’s market share of the five biggest European markets to 8.8%. ^[2] The company’s share in the commercial vehicle segment improved over the quarter to 13% reflecting the strong performance of its new line of Transit vehicles and the Ranger compact pickup. The automaker is still trying to achieve an optimal sales channel mix for the region, with a special focus on achieving a higher share of the fleet segment.

Ford had earlier aimed to introduce a total of 15 new or refreshed models in Europe over the next five years, but revised those plans in the last quarter and raised that figure to 25, starting with the debut of the affordable SUV EcoSport early this year. With a more stable automotive market and new model introductions, Ford expects its operating losses to narrow to $400 million in 2014. Furthermore, the automaker estimates it will breakeven in 2015. ^[3]

See full analysis for Ford Motors

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

1. Ford Motors 8-K [↩]
2. Ford Motor Company CEO Mark Fields Discusses Q3 2014 Results, Seeking Alpha, October 2014 [↩] [↩] [↩]
3. Ford’s profit goal for Europe in reach, Odell says, November 22, 2013, europe.autonews.com [↩]