Ford (F) Beats Q3 Earnings & Revenues Estimates, Down Y/Y

Ford Motor Co. (F) posted earnings per share of 24 cents in the third quarter of 2014, down from 45 cents in the second quarter of 2013 (all excluding special items). However, the company surpassed the Zacks Consensus Estimate of 19 cents.

Ford Motor Company - Earnings Surprise | FindTheBest

Pre-tax income dropped significantly 54.4% to $1.2 billion from $2.59 billion in the third quarter of 2013. Net income decreased to $835 million or 21 cents per share from $1.3 billion or 31 cents a year ago. Net income for the reported quarter includes pre-tax special item charges of $160 million for separation-related action to support Ford’s European transformation plan.

Revenues in the quarter fell 2.5% year over year to $34.9 billion but managed to beat the Zacks Consensus Estimate of $33.34 billion.

Ford Automotive

Revenues in the automotive segment fell 3.2% year over year to $32.8 billion, due to a 3.4% drop in wholesale volumes to 1.49 million units. The decrease in volumes reflects an unfavorable change in dealer stocks due to product launch and supplier parts shortages, together with a declining industry volume in South America.

Pre-tax profit declined to $686 million from $2.2 billion a year ago owing to higher warranty costs, including recalls in North America, and lower volumes in North and South America, together with adverse balance sheet exchange effects, mainly in South America.

In North America, revenues decreased 6.1% to $19.9 billion due to an 8% fall in wholesale volumes to 665,000 units. The volumes were affected by five weeks of downtime in the quarter at the Dearborn Truck Plant for the F-150 launch and supplier parts shortages. Pre-tax profit went down 38.6% to $1.4 billion. Results were affected by higher warranty costs and lower volumes.

In South America, revenues declined 17.9% to $2.3 billion due to lower volumes, and weaker currencies, partially offset by higher pricing. Wholesale volumes declined 21% to 113,000 units, reflecting the impact of the weakening economy in Brazil, import restrictions in Argentina and lower production in Venezuela. Pre-tax loss amounted to $170 million compared with pre-tax profit of $160 million in the third quarter of 2013 due to lower volumes and adverse balance sheet exchange effects.

In Europe, revenues increased 7.8% to $6.9 billion on higher volumes in the Europe 20 markets. Wholesale volumes increased 6% to 321,000 units. The region had a pre-tax loss of $439 million compared with pre-tax loss of $182 million a year ago. The decline is driven by balance sheet exchange effects and lower component pricing and non-recurrence of prior-year gains.

In the Asia Pacific region, revenues (excluding Chinese joint ventures) grew 4% to $2.6 billion on the back of 5% rise in wholesale volumes to 346,000 units. The increased volumes reflected a gain in market share and an increase in industry volumes. In China, Ford’s market share improved to a record 4.7%, driven by strong sales across the company’s vehicle lineup.

The region reported a pre-tax profit of $44 million, down from $116 million in the year-ago quarter. The decline was due to higher structural costs and unfavorable exchange.

In the newly formed Middle East and Africa segment, revenues rose 10% to $1.1 billion from $1 billion, based on a 9% increase in wholesale volumes to 48,000 units. The region earned a pre-tax loss of $15 million, compared with $25 million a year ago.

Ford’s Other Automotive – consisting primarily of interest and financing-related costs – incurred a pre-tax loss of $144 million. The loss was a result of net interest expense.

Financial Services

Revenues in the segment rose 10.5% to $2.1 billion. Ford Credit reported a 16.6% increase in pre-tax profit to $498 million.

Financial Position

Ford had automotive cash and marketable securities of $22.9 billion as of Sep 30, 2014, down from $26.1 billion as of Sep 30, 2013. Automotive debt decreased slightly to $14.9 billion as of Sep 30, 2014 from $15.8 billion as of Sep 30, 2013.

In the first nine months of 2014, the company’s cash flow from operating activities decreased to $3.1 billion from $5.6 billion a year ago. Automotive operating-related cash flows improved to $6.7 billion from $6.4 billion a year ago. Capital expenditures amounted to $5.2 billion, up from $4.6 billion in the year-ago period.

Guidance for 4th-Quarter 2014 and Full-Year 2014

Ford expects production volumes of 1.54 million units in the fourth quarter of 2014, down 35,000 units from a year ago. The automaker is focused on its 23 global new product launches and expects more profitability in 2015.

Ford affirmed the guidance of pre-tax profit, excluding special items, in a range of $7 billion to $8 billion in 2014. Automotive revenues are expected to be in line with 2013. However, automotive operating margin and automotive operating-related cash flow are expected to be lower than 2013.

Ford expects 2014 pre-tax profit from North America to be lower than the 2013 level and operating margin to range from 8%–9%. Ford expects to report losses from South America this year, similar to 2013.

In 2014, Ford expects Europe to incur a loss of about $1.2 billion that reflects better year-over-year results.

In the Middle East and Africa unit, Ford expects breakeven results in 2014. In the Asia Pacific, Ford expects pre-tax profit to be flat year over year.

Moreover, the automaker expects Ford Credit’s pre-tax profits and net interest expense in 2014 to be consistent year over year.

Guidance for 2015

Ford will be focusing on its One Ford plan in 2015, such as restructuring activities for greater profit, developing new products according to customers’ demand and improving the balance sheet. The automaker intends to launch 16 new global vehicles in 2015.

Ford expects pre-tax profit, excluding special items, in a range of $8.5 billion to $9.5 billion in 2014 with all the five automotive regions reporting better results compared to 2014. Automotive revenues, operating margin and operating-related cash flow are expected to be higher than 2014.

Moreover, the automaker expects Ford Credit’s pre-tax profits in 2015 to be consistent or higher year over year.

Other Stocks to Consider

Ford currently carries a Zacks Rank #5 (Strong Sell). Better-ranked automobile stocks worth considering include Toyota Motor Corp. (TM), Tata Motors Ltd. (TTM) and Gentherm Inc. (THRM), each carrying a Zacks Rank #1 (Strong Buy).

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