What Do We Take From Ford’s 2018 Results?

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Ford Motor

Ford Motors (NYSE: F) reported its full year results for Fiscal Year 2018 recently and the stock price trickled a bit higher on the next day. The company generated $160 billion in revenue and $0.92 in Non-GAAP EPS. Ford’s higher-than-expected earnings has boosted investor confidence. The company acknowledged that the past year had been challenging and it is addressing the same. The company is taking important and decisive actions to resolve under-performance. Some of these for example, they decided to phase out of sedans in the US market, restructuring in Europe, and plan to take China to a profitable growth.

Ford’s stock is trading at around $8.80 per share. We have a $10.60 price estimate for the company, which is above the current market price. View our interactive dashboard – Our Outlook For Ford In FY 2019 – and modify the key assumptions to arrive at your own price estimate for the company.

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Key Highlights from Fiscal Year 2018:

The company reported $160.3 billion in revenues which is up 2% from the previous year. However, the company’s adjusted EBIT and net income both declined due to trade and tariff challenges in China. Ford’s sales in China stood at 752,243 units, which is 36.9% lower than the Fiscal Year 2017. EBIT margins declined for every region except South America (increase by 10 basis points) and Middle East and Africa (900 basis points). The Asia-Pacific region led the decline of EBIT margins and recorded a -8.9% EBIT margin due to lower volume and net pricing in China’s JV and unfavorable market factors in China for Explorer and Lincoln imports.

Even while the EBIT margin fell, North America reported a $7.6 billion EMIT for the Fiscal Year, the only region in the Automotive segment to have a positive EBIT. Ford’s F-series pickup trucks gained a significant market share and the Super Duty line of trucks witnessed record high transaction prices. The shift towards trucks and high-end vehicles is likely to be a key driver of Ford’s profitability in the near term.

 

Fiscal Year 2019 outlook:

The Company reaffirms the 10% EBIT margin to be the main target for the North American region. They expect to complete the refresh of all the models in the region in the current Fiscal year where they are adding Ranger, re-engineered Explorer, and a new three row aviator for Lincoln.  The company is giving a higher focus on China as it is the largest automotive market in the world, and they think it could be twice the size of the U.S. by 2025. The company is concentrating on making sure that there is adequate dealer profitability and they are adding more than 10 new Ford and Lincoln products to China to the distribution network. The company has decided to give a specific focus to the region and thus broken it into a specific unit and appointed local talent in Key management positions, the CEO being Amit Jain. For Europe the company wants to focus on the redesigning of operations. In that region Ford registered the fifth consecutive year of growth in share in the light commercial vehicle business and they plan to lead the line in the segment next year. The market has not reacted adversely nor very strongly to the results. We believe that overall Ford will have a decent growth for the coming year led by China and Europe.

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