Earnings Preview: Ford Expected To Report Strong Q2 Results
Ford Motor (NYSE: F) is set to report earnings for the second quarter of fiscal 2016 on Thursday, July 28th. The U.S. based auto maker more than doubled its earnings per share (EPS) in the previous quarter on the back of a 20% increase in sales in North America. The increase was largely driven by the increased supply of America’s best selling vehicle, the F-150 pick-up truck, but increased sales of the SUVs Edge, Escape and Explorer also showed strong growth.
For the first half of the year, Ford’s U.S. sales have grown by 5%, with trucks rising 13%, SUVs rising 7% and Lincoln sales rising 13%. However, most of these gains were delivered in the first quarter, in which U.S. sales rose 9%. In the second quarter, sales growth was only 1.4%, even with June sales growing 6% following a 29% bump in Ford F-series sales. The U.S. is the most important market for Ford, being the biggest contributor to the Ford North America division, which contributed nearly 80% of Ford’s pre-tax income in the previous quarter. The relative slow down in the second quarter should hardly affect Ford as the sales level is already very high and average transaction prices for trucks have been $ 2,000- $ 3,000 higher in recent months compared to the previous year. Moreover, Ford is already benefiting from GM’s misguided ad campaign for the Chevrolet Silverado pick-up.
One of the more notable points for Ford in the previous quarter was the pre-tax profit it posted in Europe on the back of a 6% gain in new vehicles sold. The same trends continued in the second quarter with sales rising close to 9%, pushing first half sales to 807,000 compared to last year’s 750,000. The one troubling point for Ford this quarter is likely to be the company’s China performance, where it posted a 30% sales increase in the first quarter, but sales fell by 6% in the second quarter. Overall first half sales were close to 6% higher than those for 2015. On a brighter note, Ford’s luxury brand Lincoln has seen its sales nearly triple in the first half of 2016. Moreover, the company is already in talks with its Joint Venture Partner in China, Changan Automobile Group, to manufacture vehicles for the brand in China and also plans to start selling the MKS sedan in China later this year. We have already written about how the company can increase its valuation by up to 20% simply by meeting its Lincoln sales target.
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Ford Motor
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