Ford Motors Reports Earnings Beat And Boosts Investor Confidence With Aggressive Cost-Cutting Initiative

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Ford Motors (NYSE: F) reported better than expected results by beating both earnings and revenue estimates in its first quarter. The company reported a revenue of $41.96 billion and an EPS (Non-GAAP) of $0.43, displaying a year-on-year (y-o-y) growth rate of 7% and 10%, respectively. The company benefited from a stronger average price realization for its vehicle sales, even though volume sales remained low and input costs remained high. Furthermore, the market was seemingly pleased with the company’s new operational plan which is expected to lead to extensive cost savings and superior performance in the upcoming years.

Ford reported a wholesale unit sales volume of 1,662,000, 2% lower y-o-y along with a decline in its total market share by 0.6%. However, total revenue increased as a result of a larger proportionate sale of more expensive SUVs, crossovers, and trucks, leading to higher average price realization per vehicle. From a geographical standpoint, the company’s North American sales displayed some respite and posted a 3% y-o-y increase in wholesale sales volume. The Asia Pacific (APAC) region, on the other hand, proved to be disappointing as its total wholesale sales volume declined by 20%, with a majority of this decline driven by lower sales volume in China. Ford’s presence in China continues to face pressure from the strength of the country’s indigenous brands and its aged portfolio.

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Additionally, the company continues to face cost headwinds, exceedingly due to rising steel and aluminum prices. CEO Hackett confirmed that the company faced around a $500 million cost headwind in Q1 due to rising commodity costs and is expected to face a total of $1.5 billion cost headwind for the full-year 2018. However, despite higher costs, lower tax rates have provided some relief to the company’s bottom line and helped enhance earnings. The company’s adj-effective tax rate in Q1 was 19.6% lower y-o-y.

The major takeaway from the company’s earnings release was Ford’s decision to focus on its more profitable trucks, utilities, and commercial vehicle segment and to cut its investment in the new generation of sedans in North America. This new operational policy aligns with the current consumer shift in North America towards SUVs, pickups, and crossovers and a declining passenger car market. The automaker expects that by 2020, 90% of Ford’s total portfolio in North America will be comprised of trucks, utilities, and commercial vehicles. The change in the operational strategy is also expected to lead to significant cost efficiency and enable the company to reach its target of 8% adj-EBIT margin by 2020, two years ahead of its previous target.

Thus, based on the latest results, Ford’s future outlook looks promising. We have kept our pre-earnings estimates for the company’s 2018 performance unchanged based on the company’s Q1 results. You can make changes to our assumptions by using our interactive platform.

 

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