Earnings Review: Ford Posts A Strong Set Of Results That Only Suffer By Comparison To 2015’s Record Levels Of Profitability
Ford Motor (NYSE: F) reported financial results for the second quarter of the fiscal year 2016 on Thursday, July 28th. The U.S. based auto maker’s earnings per share (EPS) declined by 9.3% despite revenue growing by 6%. This was largely the result of costs growing faster than revenue. Cost of Goods Sold and Inventory grew by 8% and Selling, Seneral and Administrative expenses grew by 4.7%. These results are mostly in line with our expectations. New vehicle sales were just about flat compared to the second quarter of fiscal year 2015 but average unit pricing was about $1,100 higher than last year’s.
The company’s performance in North America was strong even though year on year sales declined slightly since last year’s sales were at an extremely high level. Average unit price increased by 2.3% but costs grew faster resulting in an operating margin decline of about 90 basis points. Going forward, we expect Ford to perform strongly in the region, given its strong presence in the segments of the North American car market that are still growing, i.e. Crossovers and pick-up trucks. Ford’s flagship F-150 series of trucks have been selling extremely strongly since returning to full inventory and production levels. SUVs such as Escape, Edge and Explorer have also shown strong growth. The latter grew by 7% in the first half of 2016, while the former grew by 7%.
Ford’s recovery in Europe looks to be fully underway now, with the company posting a strong first half of the year. New vehicle sales have grown by 7.1% in the first half of the year, with second quarter growth at 10.3%. Average pricing is up 5%, while revenue was up 15.7% indicating that the company has been successful in its cost cutting program. Consequently, operating margin increased by around 350 basis points.
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China has been one of the most important growth markets for the company in recent years. The same was true in this quarter, with unit sales in China growing by close to 6% for the first half of the year. However, most of that growth came in the first quarter. Second quarter sales were down around 6%. This resulted in a 28% decline in equity income from China JVs and a 17% decline in average equity income per unit sold. This is worrisome for investors in Ford as China sales grew by 9% over the quarter, indicating that Ford’s sales are not in the segments that are delivering growth in the region.
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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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