Ford (F) Stock Down: Weak 2014 Eclipses Long-Term Growth
Shares of Ford Motor Co. (F) plunged 7.5% on Sep 29 on the weak 2014 outlook revealed by the company. The automaker reduced the guidance for 2014 pre-tax profit, excluding special items, to $6 billion from the previous guidance of $7–$8 billion. The decline in guidance is due to increase in warranty costs, including recalls, in North America, along with decline in industry volumes and weak economic situation in South America and Russia.
Automotive revenues are on track to be in line with 2013. The expectations of lower automotive operating margin and automotive operating-related cash flow in 2014, compared with 2013, remain unchanged.
However, the pre-tax margin from North America is now expected to be at the lower end of Ford’s previous guidance range of 8% to 9%. The pre-tax profits from Europe, Asia Pacific and Ford Credit are expected to be better than 2013, same as the prior guidance.
Better Expectations for 2015
Results are expected to be better in 2015 as Ford remains on track to launch 23 vehicles in 2014. The company plans to launch 16 vehicles globally in 2015.
As a result, pre-tax profit, excluding special items, is expected in the range of $8.5 billion to $9.5 billion in 2015. This is substantially higher than the 2014 guidance as Ford expects better results from all five geographic segments in 2015.
Revenues and operation margin of Ford as well as industry sales volumes in the U.S., China and Europe are expected to grow in 2015. Ford’s wholesales volumes from all regions are also expected to improve. Further, Ford Credit’s pre-tax profits are expected to be in line or higher than the 2014 level. Even the operating-related cash flow is expected to be positive in 2015.
The only weakness in 2015 is expected from Europe as continued volatility in Russia and increased pension expenses due to lower interest rates are expected to weigh on Ford’s results. As a result, the automaker now expects a $250 million loss from the region in 2015, compared to the previous expectation of profit.
Further Improvement Expected in the Long Run
In the long run, Ford expects all automotive business units and Ford Credit to be profitable. The company expects annual global sales to increase 45–55% to nearly 9.4 million by 2020. Automotive operating margin is expected to improve to 8% by 2020, while the company targets further improvement to 8–9% over a longer term.
Ford is also targeting positive operating-related cash flow, capital spending of about $9 billion per annum and investment grade profile of “A” by 2020. Further, the company aims to sell 300,000 Lincoln vehicles, triple the current sales, driven by the brand’s launch in China and improved market coverage. Ford also plans to launch two Lincoln vehicles, apart from the MKZ and MKC, by 2016 and another two by 2020.
Ford currently carries a Zacks Rank #3 (Hold). Better-ranked auto stocks worth considering include Tesla Motors, Inc. (TSLA), Nissan Motor Co. Ltd. (NSANY) and Tata Motors Limited (TTM). All these stocks have a Zacks Rank #1 (Strong Buy).
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