Ford (F) Slides Despite Finishing 2012 On a Strong Note
This Tuesday, shares of Ford Motor Company (F: Charts, News) slid despite solid fourth quarter numbers from the Dearborn, Michigan-based automaker. Ford reported earnings of 31 cents per share on revenue of $36.5 billion, easily topping estimates on both top and bottom lines.
For the full year, Ford reported earnings of $1.41 per share on revenue of $134.3 billion, also beating the consensus forecast of $1.35 per share on $125 billion in revenue. Ford attributed its robust earnings to strong sales in North America and Asia. However, bleak guidance sunk the stock, after the company warned that international markets are forecast to post a combined loss next year. Daily Chart
Ford posted strong growth in Asia, while other international markets were a mixed bag. For the full year, Ford reported a small operating loss for its combined Asia-Pacific-Africa segment, which it expects to break even by the end of 2013. Asia-Pacific-Africa's 41% growth in wholesale unit volumes in the fourth quarter were primarily generated by Chinese growth. To support continued expansion in these emerging markets, Ford increased its investments in the Asia-Pacific-Africa area to the point of denting profitability. Ford's long suffering European division posted a loss of $1.75 billion for 2012, which is expected to bleed to a loss of $2 billion by the end of next year. Although Ford's Chinese growth is significant, it is still too small to be profitable. Revenue from its Asian operations are not nearly enough to offset the massive losses incurred in Europe. Ford's growth in China was the primary driver for a 41% increase in wholesale unit volumes in the Asia-Pacific-Africa region. Additionally, Ford is in the midst of a project to double its production capacity in China to approximately 1.2 million vehicles by 2015. While this is a solid, long-term investment, Ford's costly expansion plans will weigh on its bottom line over the next two years before becoming earnings accretive. Even Ford's larger rival, General Motors (GM
), has failed to produce a significant profit from the rapidly growing Chinese market, despite growing revenue at a rapid clip. After Ford's Chinese division becomes profitable, analysts believe its profits will also be "modest" compared to the weight of its North American and European operations. Looking forward, Ford would benefit from cutting its losses in Europe while expanding in Asia. Ford management believes they can turn around the company's European operations by 2015. As Ford reduces productivity in Europe, it must simultaneously increase both European and Asian sales just to break even - an extremely tricky task when combined with currency fluctuations, contracting margins and unstable cash flow. Shares of Ford trade at 7.4 times forward earnings with a PEG ratio of 1.55. By comparison, GM trades at 7.6 times forward earnings with a PEG ratio of 0.71, making it more fundamentally expensive but with more headroom for future growth. Ford also offers a strong 2.9% dividend, while GM does not offer one. Both Ford and GM have monumental tasks ahead of them - attempting to divest from Europe while increasing their stakes in Asia and other emerging markets. If both automakers can successfully move their operations to Asia and cut their ties with Europe, then they will flourish in the long term. Other News About F Ford Motor's CEO Discusses Q4 2012 Results
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Published on Jan 31, 2013
By Leo Sun