Ford Earnings: Fuel Efficient Models & Crossovers in Focus

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Ford ( F ) plans to announce its Q2 earnings on Tuesday (7/26). Strong vehicle sales between January-June'2011 resulted in 12% growth year over year (yoy) on the back of continuing demand for Ford's fuel-efficient cars and crossovers. Demand for trucks with fuel-efficient V6 engines also supported growth. A few near-term macro concerns such as an increasing mix of small cars, rising commodity costs, higher structural costs and potential competition from new entrants remain and will likely weigh on Ford's sequential growth. Ford mainly competes with auto manufacturers like BMW (GR:BMW), GM ( GM ), Daimler (ETR:DAI), Audi ( GR ), Honda ( HMC ), and Toyota ( TM ).

Our $17 price estimate for Ford stock is about 30% above market price.

EcoBoost boosting Ford truck sales

Ford has made EcoBoost engines fundamental to its strategy of providing technologically advanced, high-output, smaller-displacement powertrains that deliver exceptional fuel economy and performance. This is leading to the increased adoption of EcoBoost by truck buyers who value fuel efficiency without compromising on capability. (See: EcoBoost Engine & Explorer Boost Ford Truck Sales)

The V6 equipped F-150 accounted for 56% of all 2011 F-150 retail sales in June'11 (up from 40% in March'11). We believe that Ford truck market share in North America will continue to expand as Ford plans to produce up to 1.5 million EcoBoost engines globally in a wide variety of vehicles from small cars to trucks by 2013.

The continued success of Ford crossovers will provide further fuel to Ford truck's market share gains in North America.

Impressive fuel efficient line-up of Ford Cars driving volumes

Increased environmental awareness and $4 a gallon gas in much of the country has encouraged customers to look for smaller, more fuel efficient cars. In Q2 we saw this trend continue as oil prices remained volatile. Ford car sales were able to capitalize on this trend because of Ford's push into fuel efficient technologies has helped it build one of the most impressive line up of fuel efficient vehicles. (See our previous post: Ford Driving Car Sales with Fuel Efficient Line Up)

Ford's two new small cars - Ford's new Fiesta and all-new 2012 Focus, are the fastest turning models at Ford dealer showrooms. Their combined sales were close to 27,000 in June 2011, up 66% year-on-year.

Political unrest in oil-producing countries and continued economic growth in emerging economies will continue to reinforce the trend towards fuel-efficient, smaller vehicles and in turn drive Ford's car market share.

Ford's long term strategy vs. near-term macro concerns

Ford has indicated its long term strategy in its mid-decade outlook. Ford expects to achieve significant global sales growth, refreshed product portfolio, stronger margins by focusing upon its 'One Ford' plan. Under this plan, Ford aims to restructure to achieve better operating profitability and improved balance sheet. It also aims to accelerate the development and production of new cars with focus on better designs, fuel-efficiency, safety and value add for customers with the latest launches. (See our previous post: Ford's Market Share Benefitting from "One Ford" Plan)

But few near-term macro concerns such as increasing mix of small cars, rising commodity costs, higher structural costs, and potential competition from new entrants will remain, which will likely depress Ford's 2011 Q2 earnings.

You can drag the trend lines in the  modifiable charts above to see the impact of these trends on Ford's stock value.

See our complete analysis for Ford .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: F , GM , GR , HMC , TM

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