We are downgrading our long-term recommendation on
Ford Motor Co.
) to Underperform. The global automobile producer is facing
challenges from increasing structural and commodity costs and the
soft economic backdrop in Europe.
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Ford has disappointed by posting a 20% year-over-year decline in
profit (to $1.6 billion) in the first quarter of 2012. Including
special items, profits declined 45% to $1.4 billion. The decline
was attributable to higher tax expenses and lower operating
Total revenues slipped 2% year over year to $32.4 billion. The
decrease was due to lower wholesale volumes in Europe and Asia.
The company has been replacing its older vehicles with new models
to provide customers with smart technology, safety, improved fuel
efficiency and high quality standards with comfort. This initiative
involves an increase in commodity and structural costs. Ford
expects a roughly $2 billion increase in its automotive structural
costs in 2012.
The economic growth in Europe has been hindered by the debt crisis.
European countries have been hit by the excessive government debt
levels and austerity measures. Ford expects a loss of $500 million
to $600 million in its European operations in 2012.
However, Ford is expanding its foothold in the emerging global
markets including Argentina, Brazil, China, India and Thailand. The
company expects that 70% of its global expansion would be
attributable to Asia, primarily from China and India. It
anticipates that the investments will eventually bear fruit with a
50% expansion in sales to 80 million vehicles in 2015.
Michigan-based Ford Motor Co. is divided into two segments:
Automotive and Financial services. Its core and affiliated
automotive brands include Ford, Lincoln and Mercury. Although the
U.S. is Ford's primary selling ground, Europe, South America, and
Asia-Pacific constitute its other major markets. Ford
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Our recommendation on the stock is backed by a Zacks #4 Rank, which
translates into a short-term (1 to 3 months) Sell rating.