Ford Beats Earnings & Revenues Estimates, Down Y/Y
Ford Motor Co. (NYSE: F) posted earnings per share of 40 cents in the second quarter of 2014, down from 45 cents in the second quarter of 2013 (all excluding special items). However, the company surpassed the Zacks Consensus Estimate of 37 cents.
Pre-tax income rose 1.72% to $2.60 billion from $2.56 billion in the second quarter of 2013. Net income increased to $1.3 billion or 32 cents per share from $1.2 billion or 30 cents a year ago. Net income for the reported quarter includes pre-tax special item charges of $481 million for separation-related action and impairment of equity investment in the Ford Sollers joint venture in Russia.
Revenues in the quarter fell 1.3% year over year to $37.4 billion but managed to beat the Zacks Consensus Estimate of $36.71 billion.
Revenues in the segment fell 2% year over year to $35.3 billion, due to a 1% drop in wholesale volumes to 1.66 million units. The decrease in volumes reflects lower market share in all regions except for the Asia Pacific. Pre-tax profit improved 3.1% to $2.2 billion from $2.1 billion a year ago owing to lower costs and favorable market factors, partially offset by adverse exchange, particularly from South America.
In North America, revenues decreased 3% to $21.2 billion due to the adverse effect of a weaker Canadian dollar and a 5% fall in wholesale volumes to 760,000 units, partially mitigated by a favorable mix. The volume was affected by a decline in market share and unfavorable change in dealer stocks, which offset the increase in industry volumes. However, pre-tax profit was up 5.1% to a record high of $2.44 billion. Results were affected by lower costs and higher parts and accessory profit.
In South America, revenues declined 30% to $2.1 billion due to unfavorable exchange and lower volumes, which offset net pricing gains. Wholesale volumes declined 22% to 114,000 units, reflecting lower industry volumes. Pre-tax loss amounted to $295 million compared with pre-tax profit of $151 million in the second quarter of 2013 due to unfavorable exchange, higher costs and lower volume and mix.
In Europe, revenues increased 10% to $8 billion on higher volume in the Europe 20 markets and favorable exchange rates, partially offset by unfavorable mix. Wholesale volumes remained flat at 376,000 units. The region had a pre-tax profit of $14 million compared with pre-tax loss of $306 million a year ago. The improvement was due to lower costs and favorable exchange rates, partly offset by lower joint venture earnings and royalties, primarily in Russia, along with lower parts and accessories profit.
In the Asia Pacific region, revenues (excluding Chinese joint ventures) grew 9% to $2.9 billion on the back of favorable mix and an impressive 21% rise in wholesale volumes to 362 thousand units. The increased volumes reflected a gain in market share and increase in industry volumes. In China, Ford's market share improved to a record 4.6%, driven by strong sales of Kuga, Mondeo and Fiesta.
The region reported a pre-tax profit of $159 million, rising from $130 million in the year-ago quarter. The improvement was due to higher volumes and a favorable mix.
In the newly formed Middle East and Africa segment, revenues fell to $1.1 billion from $1.2 billion on an unfavorable exchange rate and a 5.8% decline in wholesale volumes to 49,000 units. The decline in volumes was owing to lower market share. The region earned a pre-tax profit of $23 million, compared with $13 million a year ago.
Ford's Other Automotive – consisting primarily of interest and financing-related costs – incurred a pre-tax loss of $171 million against $205 million in the year-ago period. The loss was a result of net interest expense.
Revenues in the segment rose 10.5% to $2.1 billion. Ford Credit reported a 4.4% decline in pre-tax profit to $434 million.
Ford had automotive cash and marketable securities of $25.8 billion as of Jun 30, 2014, an improvement of $0.1 billion from $25.7 billion as of Jun 30, 2013. Automotive debt decreased slightly to $15.4 billion as of Jun 30, 2014 from $15.8 billion as of Jun 30, 2013.
In the first half of 2014, the company's cash flow from operating activities increased to $6.1 billion from $4.4 billion a year ago. Automotive operating-related cash flows declined to $3.8 billion from $4 billion a year ago. Capital expenditures amounted to $3.4 billion, up from $3.1 billion in the year-ago period.
Ford extended its revolving credit facility to $12.2 billion, of which $2 billion has been allocated to Ford Credit.
Ford expects production volumes of 1.54 million units in the third quarter of 2014, down 12,000 units from a year ago.
Ford affirmed the guidance of pre-tax profit, excluding special items, in a range of $7 billion to $8 billion in 2014. Automotive revenues are expected to be in line with 2013. However, automotive operating margin and automotive operating-related cash flow are expected to be lower than 2013.
Ford expects 2014 pre-tax profit from North America to be lower than the 2013 level and operating margin to range from 8% to 9%. Ford expects to report higher losses from South America this year than in 2013.
In Europe, Ford is undertaking massive restructuring activities. As a result, the company will be incurring restructuring and launch costs. Loss in the second half of 2014 is expected to be higher than the first-half loss of $180 million. Overall, in 2014, Ford expects better pre-tax results than 2013 and anticipates attainment of profitability in 2015.
In the Middle East and Africa unit, Ford expects breakeven results in 2014. In the Asia Pacific, Ford expects pre-tax profit to be higher than the 2013 level.
Moreover, the automaker expects Ford Credit's pre-tax profits in 2014 to be higher than the 2013 level. Net interest expense is expected to be about $700 million in 2014.
Other Stocks to Consider
Ford currently carries a Zacks Rank #3 (Hold). Better-ranked automobile stocks worth considering include Meritor, Inc. (NYSE: MTOR), Magna International Inc. (NYSE: MGA) and Gentex Corp. (NASDAQ: GNTX). All these stocks have a Zacks Rank #2 (Buy).
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