Ford Motor Co.
(
F
) posted a 39% fall in profits of $1.20 billion or 30 cents per
share in the second quarter of the year, from $1.98 billion or 49
cents in the corresponding quarter of 2011, due to lower operating
results in all regions except North America. However, the company's
profits were higher than the Zacks Consensus Estimate of 28 cents
per share.
Revenues in the quarter dipped 6% to $33.3 billion, due to the same
factors mentioned above. However, it exceeded the Zacks Consensus
Estimate of $32.0 billion. In the first half of the year, Ford's
U.S. total market share was 15.4% in the U.S. and 8.1% in Europe.
Ford Automotive
The Ford Automotive segment witnessed a 6% drop in revenues to
$31.4 billion. Total vehicle wholesaled fell 72 thousand to 1.45
million units from 1.52 million units a year ago. Pre-tax operating
profit decreased 39% to $1.38 billion from $2.28 billion a year ago
due to lower profits in Europe, South America and Asia Pacific
& Africa.
In North America, revenues went up a tad 1% to $19.7 billion.
Pre-tax operating profit improved 5% to $2.0 billion from $1.9
billion a year ago, led by higher net pricing, improved
contribution costs and other factors, partially offset by higher
structural costs and unfavorable volume and mix.
The automaker expects higher profit in the region in 2012 compared
with 2011 due to strong product line-up, including the recently
launched Escape and to-be-launched Fusion in the second half of the
year. The company also remains committed to maintain its
competitive cost structure in North America.
In South America, revenues ebbed 21% to $2.3 billion. Pre-tax
operating profit plummeted to $5 million from $267 million a year
ago, driven by lower volume, higher costs and unfavorable exchange.
The automaker expects the regions to be profitable in 2012 but at a
lower level compared with 2011, due to strong competition, weak
currencies and changes in government policies affecting areas such
as trade and access to foreign currency.
In Europe, revenues slid 21% to $7.1 billion. The region had a
pre-tax operating loss of $404 million, in stark contrast to a
profit of $176 million a year ago, driven by decreases in both
volume and pricing as well as higher contribution costs. Due to the
challenging market conditions, Ford expects a loss of more than $1
billion in 2012 in Europe.
In Asia-Pacific & Africa, revenues grew 9.5% to $2.3 billion.
However, the region had an operating loss of $66 million compared
with a profit of $1 million a year ago due to higher costs
associated with new products and investments to support higher
volumes and future growth, apart from other factors.
Nevertheless, the company expects results to improve in the second
half of the year driven by favorable volume and mix, as the company
will benefit from enhanced capacity in China and Thailand and the
launch of all-new Focus and Ranger.
Ford's Other Automotive - consisting primarily of interest and
financing-related costs - revealed a broader pre-tax loss of $163
million compared with $76 million a year ago. The loss was
attributable to net interest expense and an unfavorable adjustment
in fair market value, primarily from the company's investment in
Mazda.
Financial Services
Revenues in the Financial Services segment fell 5% to $1.9 billion
from $2.0 billion a year ago. Ford Credit reported a 27% decrease
in pre-tax operating profit to $438 million from $604 million due
to fewer lease terminations, which resulted in fewer vehicles sold
at a gain, as well as lower financing margin.
This resulted in a 26% fall in pre-tax operating profit in the
overall segment to $447 million from $602 million a year ago. Ford
Credit continues to expect pre-tax profit of $1.5 billion for 2012.
Financial Position
Ford had cash and marketable securities of $23.8 billion as of June
30, 2012, an improvement from $22.0 billion as of June 30, 2011.
However, Automotive debt rose to $14.2 billion as of June 30, 2012
from $13.7 billion as of March 31, 2012 due to additional drawdowns
of low-cost loans for the development of advanced vehicle
technologies. The company will make its last draw on these loans by
August 2012, while its repayment will begin in September this year.
In the first half of 2012, the company's cash flow from continuing
operations more than halved to $2.6 billion from $5.7 billion in
the year-ago period. Capital expenditures increased to $2.3 billion
from $2.0 billion a year ago.
Guidance
For the full year, Ford continues to expect industry volume in the
range of 14.5 million-15.0 million vehicles for the U.S. and about
14 million units for the 19 European markets covered by the
automaker.
Ford anticipates market share in the U.S. and Europe to be lower
than 16.5% and 8.3%, respectively in 2011. It also expects the
overall pre-tax operating profit to be lower than 2011 compared
with the prior guidance of tallying. Operating margin in the
Automotive segment is anticipated to be equal or lower rather then
the prior guidance of improve over 5.4% in 2011.
Ford reiterated its guidance of Automotive structural costs to
increase by less than $2 billion in 2012 in order to support higher
volumes, new product launches and global growth plans. The
automaker now expects capital expenditures of $5 billion compared
with the prior guidance of $5.5 billion-$6.0 billion in 2012. It
expects to meet challenges in Europe and South America by executing
its One Ford plan.
Our Take
Despite the One Ford strategy, we are concerned about the
economic weakness in the world as well as higher structural costs.
This along with the depressing results led the company to retain a
Zacks #4 Rank on its stock, which translates to a short-term (1 to
3 months) rating of Sell.
Ford's archrival,
General Motors Company
(
GM
) is expected to release its first quarter results on August 2,
2012.
FORD MOTOR CO (F): Free Stock Analysis Report
GENERAL MOTORS (GM): Free Stock Analysis Report
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