Ford Motor Beats, Earnings Up 50% - Analyst Blog

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Ford Motor Co. ( F ) posted an impressive 50% rise in earnings per share to 45 cents in the second quarter of 2013 from 30 cents in the same quarter of 2012 (all excluding special items). With this, the company has beaten the Zacks Consensus Estimate of 37 cents as we expected due to the combination of the stock's Zacks Rank #2 (Buy) and +2.70% ESP (Read: Zacks Earnings ESP: A Better Method ).

Pre-tax income rose 39.7% to $2.6 billion from $1.8 billion in the second quarter of 2012. Net income surged 52.4% to $1.8 billion from $1.2 billion a year ago.

The Detroit automaker's business in all the geographic regions improved during the quarter. We have seen the company's North American and Asia-Pacific businesses to improve in the prior quarters. But this time, Ford's European and South American businesses showed marked improvement as well. Thanks to its One Ford plan that seems to bear fruits.

Revenues in the quarter grew 14.4% to $38.1 billion, exceeding the Zacks Consensus Estimate of $35.4 billion. The improvement was attributable to increased wholesale volumes in automotive business and higher market share in all the regions.

In the first half of the year, Ford's total U.S. market share was 16.2% versus 15.4% in the first half of 2012; European market share was 7.9% versus and 8.1% in the same period a year ago; and China market share was 3.9%, up from 3.2% in 2012. Industry volumes in the period were 15.6 million units in the U.S., 13.5 million units in Europe and 21.4 million units in China.

Ford Automotive

Revenues in the segment grew 16.0% to $36.0 billion on a 16.0% rise in wholesale volumes to 1.7 million units, reflecting improved market share and lower dealer stock reductions, as well as net pricing gains in all the regions, except Europe, offset partially by unfavorable exchange in all regions. Pre-tax profit soared 52.2% to $2.1 billion from $1.4 billion a year ago due to higher profits in all the regions.

In North America , revenues went up 13.7% to $22.4 billion on a 14.5% rise in wholesale volumes to 823 thousand units. The company benefited from higher industry sales and healthy full-size pickup sales in the region, market share gains in East and West Coast markets, continued discipline in matching production to real demand and a lean cost structure.

Pre-tax profit improved 15.9% to $2.3 billion. This is the fifth time in the past six quarters that the North American business achieved a pre-tax profit of more than $2 billion. Ford continues to expect higher pre-tax profit compared with 2012 and operating margin of 10% in the region.

In South America , revenues escalated 30.4% to $3.0 billion due to higher volumes from new products and net pricing gains, offset partially by unfavorable exchange. Wholesale volumes rose 23.5% to 147 thousand units, reflecting favorable changes in dealer stocks and higher industry sales.

The South American business recovered from the exchange-driven loss in the first quarter. Pre-tax profit jumped to $151 million from a meager $5 million in the second quarter of 2012. Ford continues to expect breakeven results in the region due to a challenging economic environment.

In Europe , revenues inched up 7.0% to $7.6 billion as wholesale volumes increased 8.9% to 391 thousand units. The increase in volumes was attributable to non-repeat of dealer stock reductions incurred in 2012 and higher market share, partially offset by lower industry volumes.

The region had a narrower pre-tax loss of $348 million compared with $404 million a year ago. The improvement in volumes was caused by favorable volume and mix, offset partially by higher structural costs, mainly accelerated depreciation and a nonrecurring write-off related to planned closure of facilities. For full year 2013, Ford expects lower pre-tax loss of about $1.8 billion in the region, compared with the prior guidance of a loss of $2 billion.

In Asia-Pacific & Africa , revenues grew 30.4% to $3.0 billion on an impressive 26.8% rise in wholesale volumes to 317 thousand units. The increased volumes reflected a gain in market share to 3.6%, driven mainly by China. In China, Ford's market share improved 1.5 percentage points to a quarterly record of 4.3%, fueled by strong sales of the new Focus, Kuga and EcoSport SUV.

The region reported an operating profit of $177.0 million in sharp contrast to a loss of $66 million - a clear-cut impact of the company's One Ford plan. It is the company's best-ever quarterly pre-tax profit. For full year 2013, Ford expects Asia Pacific Africa to be profitable given its strong first half performance and momentum in the region.

Ford's Other Automotive - consisting primarily of interest and financing-related costs - revealed a broader pre-tax loss of $205 million compared with $163 million a year ago. The loss was attributable to net interest expense, offset partially by a favorable fair market value adjustment on the company's investment in Mazda Motor.

Financial Services

Revenues in the segment rose 10.5% to $2.1 billion. Ford Credit reported a 3.7% rise in pre-tax profit to $454 million due to higher receivables and financing margin, offset partially by lower credit loss reserve reductions.

Ford Credit continues to expect pre-tax profit to be about equal to 2012 and to pay distributions to its parent of about $200 million. It also anticipates year-end managed receivables between $97 billion and $102 billion, within the prior range of $95 billion to $105 billion.

Financial Position

Ford had cash and marketable securities of $25.7 billion as of Jun 30, 2013, an improvement of nearly $2.0 billion from $23.8 billion as of Jun 30, 2012. However, Automotive debt rose $1.6 billion to $15.8 billion as of Jun 30, 2013 from $14.2 billion as of Jun 30, 2012.

In the first half of 2013, the company's cash flow from continuing operations increased nearly 63.0% to $4.4 billion from $2.7 million a year ago. Operating-related cash flows more than doubled to $4.0 billion from $1.7 billion a year ago. Capital expenditures increased nearly 35.0% to $3.1 billion from $2.3 billion in the same period a year ago.

2013 Guidance

In the year, Ford expects industry volume (including medium and heavy trucks) of 15.5 million units-16.0 million units in the U.S.; 13.0 million units-13.5 million units in the 19 European markets; and 20.5 million-21.5 million units in China.

The company expects its 2013 market share in the U.S. to be higher than 2012 (15.2%), Europe to be almost the same as in 2012 (7.9%), and China to be higher than 2012 (3.2%).

Ford provided a better outlook about its margins. During the year, Ford anticipates total company pre-tax profit to be the same or higher than 2012 ($8.0 billion) compared with the prior guidance of being equal to 2012. It expects operating margin to be equal to 2012 (5.3%) compared with the prior guidance to be equal or lower than 2012.

Moreover, the company expects operating related cash flows to be substantially higher than 2012 ($3.4 billion) compared with the prior projection of being higher than the prior year.

Hiring Spree

In separate news, Ford announced that the company raised its work force requirement to 3,000 from 2,200 people announced previously. The company plans to hire 800 more engineers, computer specialists and other salaried workers in the U.S.

Ford Motor lost 13,000 salaried workers in the U.S. between 2006 and 2009. Its human resources chief, Felicia Fields, revealed that many of them returned to the company while some are hired afresh from Motorola ( MSI ), Microsoft ( MSFT ) and other technology companies.

Ford's cross-town rival, General Motors Company ( GM ), will release its second quarter results tomorrow.



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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 , Business , Earnings , Stocks

Referenced Stocks: F , GM , MSFT , MSI

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