Ford Motor Co. (F) is set to report fourth-quarter 2014 results on Jan 29. In the last quarter, it had posted a positive earnings surprise of 26.32%. Let’s see how things are shaping up for this announcement.
Factors Influencing This Quarter
Ford will benefit from expansion in many mature and emerging markets, primarily Argentina, Brazil, China, India and Thailand along with the success of its One Ford plan.
However, in the fourth quarter, the company will incur a charge of $800 million owing to the Venezuelan currency devaluation. This will adversely affect Ford’s net income by $700 million, after deferred tax benefits. Meanwhile, the company expects to record pre-tax profit of $6 billion for 2014. In Sep 2014, Ford had reduced the pre-tax profit guidance to $6 billion from $8.6 billion in 2013.
Automotive revenues in 2014 are expected to be in line with 2013. Ford expects 2014 pre-tax profit from North America to be lower than the 2013 level and operating margin to be at the lower end of the previous range of 8–9%. Ford expects to report a loss of $1 billion from South America this year.
The European unit will incur a loss of about $1.2 billion, reflecting better year-over-year results. In the Middle East and African unit, Ford expects breakeven results in 2014. In the Asia Pacific, Ford expects higher pre-tax profit.
Moreover, the automaker expects Ford Credit’s pre-tax profits and net interest expense in 2014 to be consistent year over year.
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, 2 or 3 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 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate both stand at 23 cents.
Zacks Rank: Ford carries a Zacks Rank #3 (Hold). Though a Zacks Rank #3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
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:
O'Reilly Automotive Inc. (ORLY) has an Earnings ESP of +2.40% and a Zacks Rank #2 (Buy). The company will report its fourth-quarter 2014 results on Feb 4.
Lear Corp. (LEA) has an Earnings ESP of +1.46% and a Zacks Rank #3. The company’s fourth-quarter financial results are scheduled for release on Jan 30.
AutoNation Inc. (AN) has an Earnings ESP of +1.10% and a Zacks Rank #3. It will release its fourth-quarter earnings results on Feb 3.
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