Is Ford On Its Way To Sustained Profitability In Europe?

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Ford Motor Company (NYSE: F) reported a pre-tax profit of $138 million in Europe in the third quarter of fiscal year 2016. The number implied an increase of close to $129 million compared to the third quarter of the previous fiscal year. While this gain might not sound so significant, its importance is underscored when these numbers are placed alongside the company’s unit sales and revenue performance compared to last year’s third quarter.

Ford saw its sales decline from 375,000 units to just 320,000, or a decline of close to 15%. In comparison, its revenue in the region declined by 10% to $ 6.3 billion. This implies that the company achieved a revenue per unit sold increase of 5.5%, an impressive feat which underscores that the company has been successful at revamping its brand image in the region that it undertook in 2012. Additionally, the U.S. auto maker achieved a 210 basis point expansion in operating margin on a 12% reduction in operating expenses. Higher transaction prices along with operational discipline is a strong combination and bodes well for the company going forward.

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Going forward, the company expects there to be an impact of the Brexit vote on its bottom line. The U.K. is one of the biggest auto markets in Europe and one of the biggest ones for Ford. Lower potential sales in the country, combined with lower transaction prices in dollar terms (as a result of the decline in the value of the Pound Sterling), will affect its top line and bottom line. However, the company is now on track to achieve a strong sales mix in the rest of the region and has managed to cut costs significantly. This should allow the company’s operations in the region to sustain this return to profitability going forward.

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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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