Earnings Review: Ford Reports Lower Profits As Expected

Ford Motors (NYSE:F) announced earnings for the first quarter of fiscal 2015 on Tuesday, April 28. As predicted, the numbers were disappointing: the company’s net income stood at $924 million, down $65 million compared to a year ago. ^[1] The revenue for the quarter stood at $33.9 billion, a decline of $2 billion compared to the first quarter of fiscal 2014.((Ref :1)) The company lost money in Europe and South America, and while it reported a profit in North America ($1.3 billion), the number was far lower than usual for Ford due to the impact of the slow roll out of the remodeled F-150 and Edge crossover. The U.S. automaker sold 40% fewer  F-150 pickup trucks compared to the first quarter of last year, and over 50% fewer units of Edge. ^[2] According to Ford CFO Bob Shanks, the company would have made a profit of $1 billion higher if it were not for higher product launch costs and lost sales due to low inventory. ^[3]

We have a $15  price estimate for Ford, which is slightly lower than the current market price. We are in the process of revising our estimates in order to incorporate the latest earnings.

Lost Market Share In North America

Ford’s North American pre-tax profits declined by 11%.  Ford’s total U.S. market share was 14.0% in the first quarter, a decrease of 60 basis points from a year ago. ^[4] This drop reflects the planned reductions in daily rental sales, and a lower share of F-150 in the sales mix. The company’s share of the retail sales market remained unchanged at 13.5%. North America operating margin was 6.7%, down 60 basis points from last year. ^[4]

[trefis_forecast ticker=”F” driver=”0103″

North America is not only the most profitable region for the company but also its most critical region, as when profits there suffer, the company’s overall profitability tends to suffer, too.  In the first quarter, profitability in the region was weighed down by the low supply of the company’s best selling F-150 pick-up trucks.  Ford is undertaking a refresh of the F-150, which earlier used to be made from a steel body, but the company closed down production at the two plants where it is manufactured — Dearborn in Michigan, and Kansas City — to allow for their retooling, so that the trucks could be manufactured with aluminum bodies. The plants are still not running at full capacity, and, as a result, dealerships are running with lower inventory than usual. The company has tried to make up for the low inventory by trying to sell most of its available inventory to retail buyers, who tend to prefer higher-trim trucks, which command higher margins, as opposed to commercial buyers, who tend to buy 100′s of units all at once, often at a slight discount. As a result, the company has lost out on market share in the commercial sales segment to GM, whose Chevrolet Silverado has done really well over the quarter. Production facilities at the two plants will not reach full capacity for another two months, therefore the company’s profits in the region will only begin to increase in the second half of the year.

Europe Improves

Ford’s total market share in the twenty biggest markets in Europe for the fourth quarter was 8.2%, on the back of a 30 basis point increase in market share in the retail sales 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 13.3%, reflecting the strong performance of its new line of the Ranger compact pickup. In fact, Ford was the leading commercial brand in Europe 20 in the first quarter. 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 aims to introduce a total of 25 new or refreshed models in Europe over the next five years.  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)

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 Q1 2015 Earnings Presentation, Ford Investor Relations [↩]
2. Ford Motor’s (F) CEO Mark Fields Discusses Q1 2015 Results – Earnings Call Transcript, Seeking Alpha, April 2015 [↩]
3. Ref: 2 [↩]
4. Ref: 1 [↩] [↩]