Ford Looks Set To Have A Strong Second Half In 2015

+15.77%
Upside
12.18
Market
14.10
Trefis
F: Ford Motor logo
F
Ford Motor

In recent years, Ford Motors’ (NYSE:F) financial performance in the three key markets of the United States, Europe and Asia has been wildly divergent. The company has been reinvesting most of the profits made in Asia, both in aggressive expansion efforts there and in trying to return to profitability in Europe, where the company has lost nearly $4 billion in the last two years. [1] It should be a while before these offshore operations start contributing to Ford’s bottom line. As a result, Ford has been heavily dependent on its North America operations for profit. In fact, Ford’s North America division has been more profitable than the entire company on a pre-tax basis in recent quarters. In this article, we take a look at how the U.S.-based auto maker has been faring in each of these markets in the recent months.

We have an $14.7 price estimate for Ford, which is about 5% less than the current market price.

See full analysis for Ford Motors

Relevant Articles
  1. With F-150 EV Production Cut 50%, What Lies Ahead For Ford Stock?
  2. What To Expect From Ford’s Q3 Earnings?
  3. Will Strong F-Series Sales Power Ford’s Q2 Results?
  4. Can Ford Stock Return To Its Pre-Inflation Shock Highs
  5. Higher Truck Sales Will Drive Ford’s Q1 Results
  6. Ford’s Q4 Results Were Tough, But Things Could Get Better

U.S. Market

On the face of it, Ford’s numbers in the U.S. car market have been disappointing recently. In May, overall unit sales declined by 1.3%, even as industry wide sales grew by 1.3%. [2] The sales of Ford’s utilities and truck segments both declined, by 0.8% and 5.1% respectively, while sales from the Lincoln brand grew by 1.8% on a year-over-year basis. However, looking more closely at the figures gives one a slightly more complicated picture.

Ford’s most profitable product is its F-150 series of trucks. Sales of the F-150 declined by 10% compared to May 2014 and it looks as though the combined sales of General Motors’ Chevrolet Silverado and GMC Sierra will outpace the sales of F-150 for the first time in five years. However, the major reason for this decline was that production levels of the F-150 have still not returned to full capacity since the shift to the new model. Dealerships are operating at less than ideal levels of inventory and as a result consumer demand is not being met with supply. Production levels are expected to increase in the next couple of months and sales should rise accordingly.

On the other hand, even though sales of the F-150 are down, the average transaction price is up. For the month of May, average transaction price for F-150 came in at $43,300, at least 7% higher than May 2014’s level and an all-time record for the truck. [3] Additionally, given the high turnover rate and less than desired levels of inventory at dealerships, Ford has decided to reduce the length of its annual factory shutdown in the summer from two weeks to just one week this year. The company estimates that this will allow it to produce some 40,000 more units, most of which will be SUVs and trucks, two of the hottest car segments in the U.S. car market and also two of the most profitable.

China

In 2014, Ford reported double digit gains on a year-over-year basis for each month in China. Total unit sales in 2014 grew by 19% compared to unit sales in 2013. However, those performance levels have now made year-over-year comparisons tougher for Ford in 2015. For example, in May 2015, Ford sold 91,103 units in China, a mere 4% gain from last year’s figure. [4] The auto maker has also changed its reporting in China from wholesale figures to retail figures in order to give a better gauge of consumer demand as it records the number of units moved by dealerships rather than the number of units bought by dealerships from the company.

On a year to date basis, Ford sold 460,000 units in China, implying a meager 1% gain over last year’s 456,000 units. But despite the recent weakness, the long term trends for Ford are strong. The company opened a sixth assembly plant in the region in Hangzhou last month. The increased capacity offers a potential of increased sales and can help the company overcome the recent slowdown.

Europe

Between 2012 and 2014, Ford has lost over $4 billion in Europe. The company is slightly more optimistic about its 2015 prospects and has guided for a reduction in losses to only $250 million in 2015. While profitability continues to be tough in Europe, there have been a few bright spots for the company in recent months. In May, Ford’s new car sales grew by 1.3% year over year and 9.3% on a year-to-date basis. Its market share has grown by 20 basis points to 7.8% compared to May 2014. [5]

Moreover, Ford’s sales mix in the region continues to improve. Sales in the retail and fleet channels, more profitable than commercial and rental sales, accounted for 72% of the company’s sales in May. [6] That figure is 3 percentage points higher than the industry average. [6] Moreover, Ford’s sales in Europe are being driven by new product sales, which tend to command higher prices. The company is set to introduce the Mustang to the European market and five thousand pre-orders have already been made for the vehicle, which goes on sale during the summer.

Summing up, the second half of 2015 will be interesting for the company as production levels of the F-150 return to normal in the U.S., added capacity in China allows the company to meet consumer demand and new product launches in Europe continue to drive sales.

View Interactive Institutional Research (Powered by Trefis):

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

Notes:
  1. Ford 10-K FY 2014, Ford Investor Relations []
  2. Ford’s U.S. Sales in May, Ford Media, June 2015 []
  3. Ref: 2 []
  4. Ford’s China sales rise 4% in May, Automotive News, June 2015 []
  5. Ford Europe sales up in May with new product on way, Detroit Free Press, June 2015 []
  6. Ref: 4 [] []