On Dec 8, 2014, we issued an updated research report on Ford Motor Company (F). This Zacks Rank #3 (Hold) stock had reported positive earnings surprises in three of the last four quarters with an average beat of 5.8%.
Ford posted earnings per share of 24 cents in the third quarter of 2014, down from 45 cents in the third quarter of 2013 (all excluding special items). However, the earnings surpassed the Zacks Consensus Estimate of 19 cents.
Revenues in the quarter fell 2.5% year over year to $34.9 billion but managed to beat the Zacks Consensus Estimate of $33.34 billion.
Ford is pursuing a major expansion plan in many mature and emerging markets, primarily China and India. The company’s accelerated product transformation plan “One Ford” is positively impacting the company’s revenues. Ford is also turning toward capital deployment to boost shareholder value. In May 2014, the company’s board approved a new repurchase program for 116 million shares.
However, the automaker has been replacing its older models and rolling out new ones. This involves substantial expenditure, which resulted in high structural costs in 2013. The company expects structural costs to increase in 2014 as well, for supporting higher volumes as well as the expansion and improvement of its line-ups.
Ford reduced the guidance for 2014 pre-tax profit, excluding special items to $6 billion from the previous guidance of $7–$8 billion. The guidance is also lower than $8.6 billion earned in 2013. The decline in guidance is due to an increase in warranty costs, including recalls in North America, along with a decline in sales volumes in North and South America, unfavorable balance sheet exchange effects and the weak economic situation in South America and Russia.
Ford’s results are expected to be better in 2015 as it remains on track to launch 23 vehicles in 2014 and 16 vehicles in 2015. As a result, pre-tax profit, excluding special items, is expected in the range of $8.5–$9.5 billion in 2015. This is substantially higher than the 2014 guidance as Ford expects better results from all five geographic segments in 2015.
Key Picks from the Sector
Investors interested in the auto industry could consider better-ranked stocks like Gentex Corp. (GNTX), Douglas Dynamics, Inc. (PLOW) and STRATTEC Security Corporation (STRT), all sporting a Zacks Rank #1 (Strong Buy).
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