Solid 2013 to Precede Weak 2014 for Ford - Analyst Blog
Ford Motor Co.
) projected higher profit in fiscal 2013 based on continuous
investment for growth in the One Ford plan. The company expects
full-year pre-tax profit, excluding special items, to increase to
$8.5 billion, from $8 billon recorded in 2012.
Ford predicts 2013 automotive revenues to increase by 10%. The company also expects gain in market share in all regions except Europe. Meanwhile, the automaker is focusing on the transformation plan in Europe and restructuring in Australia for better results in future.
Ford projected 2013 pre-tax profit from North America to be higher than 2012. However, the company reduced the operating margin guidance to 9.5% to 10% from the previous guidance of 10% due to higher warranty expense of $250 million to $300 million resulting from the recent recall of the Escape 1.6 liter.
South America is expected to record breakeven results in 2013 as a result of challenges from the Venezuela government's actions. The guidance for other Automotive business units, Automotive net interest expense and Ford Credit remain unchanged. Meanwhile, operating effective tax rate is projected to be 27%.
Fiscal year 2014 is expected to be crucial for Ford as massive expansion plans have been announced. The company will hire 11,000 workers in the U.S. and Asia to support the launch of 23 models during the year.
Ford will also open 3 new manufacturing facilities, 2 in Asia Pacific and 1 in South America. Moreover, the automaker intends to continue strengthening its One Ford Plan on the back of its global brands and business growth through impressive products and higher sales and profitability. Consequently, Ford expects pre-tax profit, excluding special items, to be $7 billion to $8 billion in 2014.
Further, the automaker plans to introduce 16 vehicles in North America, thus augmenting product launched 3-folds compared to 2013. However, Ford estimates 2014 wholesale volume in North America to be lower than 2013 and net pricing to be unfavorable. Accordingly, the automaker expects 2014 pre-tax profit to be lower than 2013 and operating margin to range from 8% to 9%.
Ford's South American business is likely to benefit from higher profitability in Brazil and Argentina. However, deterioration in the external environment in Venezuela will negatively impact the results of the company. Thus, Ford expects to report breakeven results from South America in 2014.
In Europe, Ford is undertaking massive restructuring activities. As a result, the company will be incurring restructuring costs and launch costs. Overall, in 2014 Ford expects better results than 2013 and anticipates attainment of profitability in 2015.
In Asia Pacific, Ford guides pre-tax profit to be in line with the 2013 level, as positive transformation in the region is offset by costs associated with growth, weak results in Australia, production constraints and competitive pricing environment.
Moreover, the automaker expects that Ford Credit's profits in 2014 will be in line with the 2013 level.
Ford is concerned about uncertainty in Europe and unfavorable conditions in South America. This will pose challenges for the automobile giant in achieving the 8% to 9% operating margin outlook by mid-decade.
Ford is one of the largest automobile producers in the world along with General Motors Co. ( GM ), Honda Motor Co., Ltd. ( HMC ) and Toyota Motor Corp. ( TM ). Currently, Ford has a Zacks Rank #2 (Buy).
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