Ford Motor Co. (F) posted earnings per share of 25 cents in the first quarter of 2014, down from 41 cents in the first quarter of 2013 (all excluding special items). The company missed the Zacks Consensus Estimate of 32 cents.
Pre-tax income declined 37.5% to $1.4 billion from $2.1 billion in the first quarter of 2013. Net income decreased to $989 million or 24 cents per share from $1.6 billion or 40 cents a year ago. Net income for the reported quarter included pre-tax special item charges of $122 million for separation-related actions and favorable tax special items of $92 million.
Revenues in the quarter grew 0.8% to $35.9 billion, exceeding the Zacks Consensus Estimate of $34.49 billion. The improvement was attributable to market share gains in the Asia-Pacific region, particularly China.
Ford Automotive
Revenues in the segment remained flat year over year at $33.9 billion, despite a 6.2% rise in wholesale volumes to 1.6 million units. The increase in volumes reflects improved market share in all regions except South America and favorable change in dealer stocks. Pre-tax profit declined 44.1% to $919 million from $1.6 billion a year ago due to weak results in North America and South America.
In North America, revenues went down 5.1% to $20.4 billion on unfavorable mix, lower net pricing, adverse effect of a weaker Canadian dollar and a 2.5% fall in wholesale volumes to 717 thousand units. The volume was affected by a decline in market share, which offset the increase in industry volumes and favorable changes in dealer stocks. However, pre-tax profit was down 37.3% to $1.5 billion. Results were affected by unfavorable market factors and higher costs.
In South America, revenues declined 18% to $1.9 billion due to unfavorable exchange, volumes and mix, which offset net pricing gains. Wholesale volumes declined 8% to 104,000 units, reflecting lower industry volumes, impact of import restrictions in Argentina and lower production in Venezuela. Pre-tax loss widened to $510 million from $218 million in the first quarter of 2013 due to unfavorable exchange, higher costs and lower volume.
In Europe, revenues increased 18% to $7.8 billion on favorable exchange and an 11% improvement in wholesale volumes to 367 thousand units. The increase in volumes was attributable to higher industry volume, higher market share for Europe 20 and favorable dealer stock changes. The region had a narrower pre-tax loss of $194 million compared with $425 million a year ago due to lower costs and favorable market factors and exchange rate, partly offset by lower joint venture earnings and royalties in Russia and Turkey.
In the Asia-Pacific & Africa regions, revenues (excluding Chinese joint ventures) grew 19% to $2.6 billion, on the back of favorable mix and an impressive 32% rise in wholesale volumes to 350 thousand units. The increased volumes reflected a 3.4% gain in market share and increase in industry volumes. In China, Ford’s market share improved to 4.5%, fueled by strong sales of Kuga, Mondeo and EcoSport.
The region reported a pre-tax profit of $291 million, rising from a pre-tax loss of $28 million in the year-ago quarter. The improvement was due to favorable volume and mix and higher royalties from joint ventures, which offset the increase in costs.
In the newly formed Middle East and Africa segment, revenues inched down to $1.2 billion from $1.3 billion on unfavorable exchange and a 5.6% decline in wholesale volumes to 51 thousand units. The decline in volumes was attributable to lower dealer stock increases. The region earned a pre-tax profit of $54 million compared with $47 million a year ago.
Ford’s Other Automotive – consisting primarily of interest and financing-related costs – revealed a pre-tax loss of $222 million, compared with $125 million in the year-ago period. The loss was attributable to net interest expense and an unfavorable fair market value adjustment on the company’s investment in Mazda Motor.
Financial Services
Revenues in the segment rose 17.7% to $2 billion. Ford Credit reported a 1.6% decline in pre-tax profit to $499 million.
Financial Position
Ford had cash and marketable securities of $25.2 billion as of Mar 31, 2014, an improvement of $1 billion from $24.2 billion as of Mar 31, 2013. Automotive debt slightly decreased to $15.7 billion as of Mar 31, 2014 from $16 billion as of Mar 31, 2013.
In the first quarter of 2014, the company’s cash flow from operating activities increased to $2 billion from $0.7 billion a year ago. Automotive operating-related cash flows surged 71.4% to $1.2 billion from $0.7 billion a year ago. Capital expenditures amounted to $1.5 billion, in line with the year-ago period.
Ford is planning to extend its revolving credit facility to $12 billion by the end of April from the present $10.7 billion.
Guidance
Ford expects production volumes of 1.7 million units in the second quarter of 2014, up 32,000 units from a year ago.
Ford affirmed its pre-tax profit guidance, excluding special items, in a range of $7 billion to $8 billion for 2014. Automotive revenue is 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 2013.
In Europe, Ford is undertaking massive restructuring activities. As a result, the company will be incurring restructuring and launch costs. Overall, for 2014, Ford expects better pre-tax results than 2013 and anticipates attainment of profitability in 2015.
In the new Middle East and Africa unit, Ford expects breakeven results in 2014. In Asia-Pacific, Ford expects pre-tax profit to be higher than the 2013 level.
Moreover, the automaker expects that Ford Credit’s pre-tax profits in 2014 will be in line or 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). Some better-ranked automobile stocks worth considering are Fox Factory Holding Corp (FOXF), PACCAR Inc. (PCAR) and Harley-Davidson Inc. (HOG). All these stocks carry a Zacks Rank #2 (Buy).
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