Ford Motor Co. (F) posted a 17.6% rise in earnings per share to 40 cents in the third quarter of the year from 34 cents a year ago, driven by impressive results in its North American operation and, to some extent, its Asian operation. With this, the company has also beaten the Zacks Consensus Estimate by 10 cents per share. Total profit rose 15.6% to $1.6 billion from $1.4 billion a year ago.
However, total revenue in the quarter slid 3.0% to $32.1 billion due to lower revenues in South America, Europe and Financial Services operations that offset the marginal improvement in revenues in North America and Asia. However, revenues were higher than the Zacks Consensus Estimate of $31.0 billion for the quarter.
Ford Automotive
Revenues in the segment fell 2.9% to $30.2 billion due to disappointing sales in South America and Europe. However, pre-tax operating profit improved 32.6% to $1.8 billion from $1.3 billion in the year-ago quarter driven by higher net pricing and lower contribution costs, offset partially by higher structural costs and unfavorable exchange rates.
In North America, revenues appreciated 8.3% to $19.5 billion. Pre-tax operating profit surged 50.2% to $2.3 billion from $1.6 billion a year ago due to favorable volume and mix, higher net pricing and lower contribution costs, offset partially by higher structural costs and unfavorable exchange rates.
In South America, revenues ebbed 23.3% to $2.3 billion. Pre-tax operating profit in the region declined significantly by $267 million to $9 million due to unfavorable exchange rates, particularly a weaker Brazilian real, as well as unfavorable volume and mix and higher costs.
In Europe, revenues shrank 25.6% to $5.8 billion. The region had a broader operating loss of $468 million compared with $306 million a year ago. The decline was attributable to lower volume, offset partially by lower costs and favorable exchange rates.
In Asia-Pacific & Africa, revenues grew 13.0% to $2.6 billion. The region saw an $88.0 million improvement in pre-tax operating profit to $45.0 million in the quarter from a loss of $43 million a year ago. The betterment can be attributable to favorable volume and mix, higher net pricing and favorable exchange rates, offset partially by higher costs associated with new products and investments to support higher volumes and future growth. Furthermore, the company has benefited from enhanced capacity and strong sales of its recently launched Focus in China.
Ford’s Other Automotive – consisting primarily of interest and financing-related costs – saw a loss of $139 million in the quarter, which is flat compared with the year ago level. The continued loss was attributable to lower net interest expense.
Financial Services
Revenues in the Financial Services segment fell 5% to $1.9 billion during the quarter. Ford Credit saw a 32.4% plunge in pre-tax operating profit to $393 million from $581 million in the previous year quarter.
Total operating profit in the segment plummeted 35.9% to $388.0 million from $605.0 million a year ago. The decrease was attributable to fewer lease terminations, leading to fewer vehicles sold at a gain, lower financing margin and the non-recurrence of credit loss reserve reductions.
Financial Position
Ford had cash and marketable securities of $24.1 billion as of September 30, 2012, up from $20.8 billion in the corresponding period a year ago. Total Automotive debt was unchanged at $14.2 billion at the end of the quarter compared with the same at the end of the second quarter of the year.
The automaker made its last drawdown of low-cost loans for the development of advanced vehicle technologies in August and began repayment in September. The company also paid $600 million to its worldwide funded pension plans, including $500 million in discretionary payments to U.S. funded plans
In the first nine months of 2012, the company’s cash flow from continuing operations declined to $4.1 billion from $6.8 billion a year ago. Meanwhile, capital expenditures increased to $3.6 billion in the period under study from $3.1 billion in the same period of 2011.
2012 Outlook
For the full year, Ford expects industry volume of 14.7 million in the U.S. and 14 million units in the 19 European markets covered by the automaker.
In the North American operation, Ford expects higher pre-tax operating profit and margin in 2012 compared with 2011 due to its strong product lineup. The company continues to expect South American operation to be profitable for the full year, but at a lower level than 2011.
It plans to restore profitability in its European operations by mid-decade and aims to achieve a long-term operating margin between 6% and 8%. Finally, Ford expects to record a loss in its Asia Pacific & African operation, which is roughly in line with 2011.
Ford continues to anticipate market share in the U.S. and Europe to be lower than 16.5% and 8.3%, respectively in 2011. It also expects the overall pre-tax operating profit to be lower than 2011 compared with the prior guidance of tallying. Operating margin in the Automotive segment is anticipated to be equal or lower than the prior guidance of improve over 5.4% in 2011.
Ford reiterated its guidance of Automotive structural costs to increase by less than $2 billion in 2012 in order to support higher volumes, new product launches and global growth plans. The automaker also reiterated its capital expenditures guidance of $5 billion compared with the prior guidance of $5.5 billion–$6.0 billion in 2012. It expects to meet challenges in Europe and South America by executing its One Ford plan.
Our Take
We appreciate Ford’s product plans and debt reduction strategy. The benefits from these strategies have already been reflected in the company’s results. However, we are concerned about the company’s sluggish European and South American operations. Further, the company’s Financial Services results continue to disappoint us.
As a result, the company retains a Zacks #3 Rank on its stock, which translated to a short-term (1 to 3 months) rating of Hold. Consequently, we reiterate our long-term recommendation of Neutral on the stock for the long term (more than 6 months).
Ford’s arch rival, General Motors Company (GM) will release its third quarter results tomorrow.
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