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Ford (F) to Report Q4 Earnings: Disappointment in Store?

Ford Motor Co.F is set to report fourth-quarter and full-year 2016 results on Jan 26. Last quarter, the company posted a positive earnings surprise of 23.8%. Further, the automaker managed to beat earnings in three of the trailing four quarters and missed in one, thus delivering a positive average surprise of 21.8% over this period. Let's see how things have shaped up for the forthcoming announcement.

Factors Influencing this Quarter

Ford is witnessing strong sales volumes in all major markets. The company's U.S. sales improved 2.61 million units in 2016. Ford's China sales also grew 14% to 1.27 million units in 2016. Sales in its 20 traditional European markets (Euro 20) rose 5.8% to 1.25 million vehicles in the first 11 months of 2016. This should significantly augment revenues. Ford's impressive product launches are helping boost sales volume.

However, the company will record a $3 billion pre-tax remeasurement loss related to its pension and other post-retirement employee benefits plans in the quarter, which will weigh on the bottom line. Further, the automaker has been incurring losses in South America since 2013. This trend is expected to continue in the to-be-reported quarter. Ford expects to report wider loss from South America in 2016 than a loss of $832 million in 2015.

In addition, Ford has been replacing its older models and rolling out new ones. This involves substantial expenditure, leading to high structural costs. Higher costs will adversely affect the company's profits.

Ford expects pre-tax profit for 2016 to be roughly $10.2 billion, lower than the 2015 level of $10.8 billion. This resulted from the company's move to increase the number of vehicles being recalled for a door latch-related issue in North America, which raised the total expense related to this recall. Further, adjusted earnings per share and automotive operating margin are now expected to be lower than 2015.

Ford expects 2016 pre-tax profit in North America, the Middle East and Africa and the Asia Pacific to be lower than 2015. The company also estimates operating margin in North America to be lower than 10.2% recorded in 2015. Even Ford Credit's profits in 2016 are expected to be lower than the 2015 level of $2.1 billion. However, Ford expects 2016 Automotive revenues to be equal to or higher than 2015 level. Results from Europe are anticipated to witness a year-over-year improvement in 2016.

Ford has underperformed the Zacks categorized Auto Manufacturers-Domestic industry in the last three months. This was due to poor operating forecasts for 2016 and 2017 and President Donald Trump's public criticism of the company's plans to shift small car production to Mexico. Share price of the stock increased 1.4% over this period, while the industry saw a 12% gain.

Earnings Whispers

Our proven model does not conclusively show that Ford is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. Ford's Earnings ESP is -2.86% because the Most Accurate estimate of 34 cents stands below the Zacks Consensus Estimate of 35 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Ford carries a Zacks Rank #4 (Sell). We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Ford Motor Co. Price and EPS Surprise

Ford Motor Co. Price and EPS Surprise | Ford Motor Co. Quote

Stocks that Warrant a Look

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Wabash National Corporation WNC has an Earnings ESP of +2.63% and a Zacks Rank #1. The company is expected to report fourth-quarter and full-year 2016 results on Feb 1. You can see the complete list of today's Zacks #1 Rank stocks here.

Autoliv Inc. ALV has an Earnings ESP of +3.85% and a Zacks Rank #3. The company's fourth-quarter and full-year 2016 financial results are scheduled for release on Feb 2.

American Axle & Manufacturing Holdings, Inc. AXL has an Earnings ESP of +2.94% and a Zacks Rank #3. The company is expected to report fourth-quarter and full-year 2016 financial numbers on Feb 10.

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Ford Motor Co. (F): Free Stock Analysis Report

American Axle & Manufacturing Holdings Inc. (AXL): Free Stock Analysis Report

Autoliv Inc. (ALV): Free Stock Analysis Report

Wabash National Corp. (WNC): Free Stock Analysis Report

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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 Nasdaq, Inc.


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

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