Earnings Review: Ford Narrows Losses In Europe But Low Volumes In Lieu Of F-150 Re-Launch Impact Overall Results

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Ford Motors (NYSE:F) announced earnings for the fourth quarter of fiscal 2014 on Thursday. The numbers were disappointing: the company’s profit before taxes was down to $1.1 billion, down $197 million compared to a year ago, while its net income stood at $52 million, down $3 billion compared to a year ago. The net income last year was inflated due to a special $1.2 billion one time tax item. In this quarter, the net income was also impacted by a $1.2 billion write down of the business in Venezuela. The revenue for the quarter stood at $35.9 billion, a decline of $1.7 billion compared to the fourth quarter of fiscal 2013. [1]

We have an $15  price estimate for Ford, which is slightly 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

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Ford’s North American wholesale volume and revenue declined by 6%.  Ford’s total U.S. market share was 14.3% in the fourth quarter, a decrease of 1.1% 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. North America operating margin was 7.4%, down 0.8% from last year, and pre-tax profit was $1.5 billion, down $252 million.

In Asia-Pacific, wholesale volume was up by 2%, while revenue declined by 9% compared to a year ago, primarily due to the impact  of unfavorable currency translation. (Ref:2)  The company’s wholesale volume in China grew by 5% over the quarter, but its market share decreased  by 0.1% over the quarter. The growth in volume in China reflects the continued strong performance of Ford’s EcoSport, Kuga, and Mondeo models. The region’s operating margin was 3.6%, down 0.2% from a year ago, and pre-tax profit was $95 million, down $14 million from last year’s fourth quarter. The company attributed 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 6 months. (Ref:2)

Europe Improves

Ford’s total market share in the twenty biggest markets in Europe for the fourth quarter was 7.6%, on the back of a 2.8% increase in market share in the commercial vehicle segment driven by strong performance of the newly introduced line of compact vehicles. (Ref:2) The company’s share in the commercial vehicle segment improved over the quarter to 11.7%, reflecting the strong performance of its new line of Transit vehicles and the Ranger compact pickup. Operating losses in the region narrowed to $443 million for the quarter on improved volume.  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 second quarter and raised that figure to 25, starting with the debut of the affordable SUV EcoSport early last year.  Going forward, The company expects the impact of a more stable automotive market and new model introductions to be offset by uncertainty surrounding Russia and higher pension expenses.  As a result, Ford expects its operating losses to be in the region of  $250 million in 2015. (Ref:2)

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Notes:
  1. Ford Motors 8-K, SEC []
  2. Ford Motor Company CEO Mark Fields Discusses Q4 2014 Results, Seeking Alpha, January 2014 []