Three Reasons Why Ford Has Beaten Its Profit Guidance For 2016 In Europe
Ford Motor Company (NYSE: F) has already crossed its stated target of $600 million in pre-tax profits for the year from its European operation. In fact, the U.S. auto maker has already overshot its goal by more than 66%, having crossed $1 billion in pre-tax profits through the first three quarters of the fiscal year 2016. Surprisingly, the company has achieved this goal despite losing market share. In the month of November alone, the company lost 20 basis points in market share, while on a year-to-date basis the company has lost 10 basis points in market share. We wrote recently about why Ford has seen its sales decline in Europe. Despite this, its profitability is reaching unexpected levels. The company has managed to do so for the following three reasons:
- It has grown its unit pricing by 5.5% so far this year by focusing on more lucrative sales. Premium models like Vignale, Focus and Fiesta have generated close to 60% of the company’s sales so far this year.
- Ford is very strong in the SUV segment in the U.S. auto market and its growth in China has also been driven by its strength in the commercial and SUV segments. This year Ford has sold over 170,000 SUVs in Europe, implying a 35% year-over-year increase in sales for the segment. Given its higher unit prices and higher margins, this has translated into much higher profits for the company.
- Finally, the company has lowered its operating expenses by close to 12% through the first three quarters of the year. This has helped boost the company’s operating margin by 210 basis points.
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Notes:
- With F-150 EV Production Cut 50%, What Lies Ahead For Ford Stock?
- What To Expect From Ford’s Q3 Earnings?
- Will Strong F-Series Sales Power Ford’s Q2 Results?
- Can Ford Stock Return To Its Pre-Inflation Shock Highs
- Higher Truck Sales Will Drive Ford’s Q1 Results
- Ford’s Q4 Results Were Tough, But Things Could Get Better
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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