) is scheduled to announce its Q3 earnings on October 24. It has
been an excellent year for the Dearborn based automaker as shares
of the company have gained more than 30% year-to-date, helped by a
solid set of numbers announced in the previous two earnings
release. Ford's profits have been boosted by a strong demand for
vehicle's in North America and China. Furthermore, the European
losses in the first two quarters have been lower than expected.
Here are some of the trends to watch out for in the upcoming
We have a
$17 price estimate for Ford
, which is in line with the current market price.
American Margins To Remain Steady
Ford's sales in the U.S. are up 12% through September, helped by
a 20% jump in the sales of the F-Series pickups. Since Ford
continues to sell its pickups and SUVs at a brisk pace, its margins
should remain strong in the third quarter as well. The bulkier
vehicles are generally more profitable than compact cars and
In the second quarter, Ford's North American operating margins
widened to 10.4% from 10.2% in the second quarter of 2012. The
North American margins have consistently exceeded 10% in the last
couple of years. Anything above 10% is considered exceptional in
the automotive industry.
In the near term, Ford could gain some market share due to a
strong demand for pickups.The housing market, for the large part of
the year, has been relatively solid which has resulted in strong
pickup sales. American automakers have traditionally dominated this
category so they stand to benefit more from a strong demand for
pickups. However, once the sales of pickups plateau, it will be
difficult for Ford to gain further market share.
European Operations Show Signs Of Improvement
The macroeconomic conditions in Europe are still very weak.
Automotive sales are down 4% through September on a year-over-year
basis.Automakers are crippled with overcapacity issues in Europe
with experts estimating a total overcapacity of 4 million units in
the region. Ford is in the process of shutting down three plants in
the region which will see its workforce shrink by 6,200
Ford has lost more than $800 million in Europe in the first half
of the year but even this is seen as an improvement. In 2012, the
automaker lost $1.8 billion and the company's initial estimates
were putting the losses in 2013 at $2 billion. However, going by
the current rate, it seems likely that the automaker will restrict
the losses to within $2 billion.
See our complete analysis for Ford
Ford aims to become profitable in Europe by the mid-decade. The
automaker has already debuted eight out of the fifteen new vehicles
promised as part of its turnaround plan. In fact, the company's
sales in the last couple of months might be a harbinger of better
things to come. Better than expected sales combined with cost
cutting measures could result in further improvements in Ford's
European operations in the third quarter.
Chinese Momentum Continues
Ford's dream run in China continues with unit sales surging 61%
in September. In the first three quarters of the year, Ford's sales
are up 51% compared to the previous year figure.
New and refreshed vehicles including the Kuga, the
EcoSport, the Edge and the Explorer appeal to value seeking Chinese
customers. Ford intends to introduce a total of 15 new
vehicles by 2015. The automaker is ramping up the number of dealers
across the country and will raise the production level to 1.2
million units in the next two to three years. In fact, Ford is so
bullish on China that it expects 40% of the unit sales to come from
the country by the end of the decade.
Till the first quarter of 2013, Ford barely managed to breakeven
in the Asia Pacific region. However, this should not be considered
as a cause for concern. It is quite common in the automotive
industry for the companies to struggle to post profits during
the initial years of operations since some of the one time
investments are treated as operational costs. As the automaker
consolidates in Asia Pacific, its profitability will increase. In
fact, in the second quarter, the operating profits swelled to $177
million (operating margins ~5.8 %) in the region. We could see some
further improvement in the margins as the company's operations
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