Is Ford Worth the Money?

Ford (F) announced first quarter ended March 31, 2016 total revenue of $35.3 billion, up 11 percent year-over-year from $31.8 billion during the same period last year.

Ford declared first quarter of 2016 net operating income of $2.5 billion or $0.61 per diluted share, up 108 percent year-over-year from $1.2 billion in first quarter of 2015.

The global automotive company reported continued year-over-year expansion in both its top and bottom lines primarily driven by enhanced sales for the quarter coupled with superior customer traction for the company’s newly introduced advanced vehicles.

A closer look  

Ford has continued to deliver enhanced and robust key financial metrics with a solid year-over-year top line growth, superior worldwide market expansion allowed by Asia Pacific, Europe and North America, worldwide SAAR growth of over 3% and automotive profits, operating margins turned more than twice year-over-year.
Further, the consolidated product pricing remained weaker primarily due to a one-time stock accumulation impact on North America. Still, Ford delivered an all-time high net quarterly profit, a record North American quarterly profit, highest European quarterly profit since 2008 and robust profit from financial services coupled with significantly profitable automotive operations external to North America.

The automobile manufacturing company illustrated impressive first quarter results for the automotive sector of North America with robust company performance all through the board including, notably higher revenue and wholesale volume, enhanced market share driven by solid fleet sales that comprises of F-Series, Transit and SUV vehicles, superior year-over-year North American SAAR at 17.5 million units allowed by the US and impressive quarterly profit as well as operating margin.

Ford’s overall profits improved mainly driven by enhanced volume, smaller costs and superior product mix. The solid results for the quarter were further driven by attractive stocks and nearly 40% expansion of incentives due to standardization and increased demand for highly profitable major pickups that includes the Ford F-150 and key super duty models. In addition, the US average retail transaction charges grew notably driven by favorable product pricing due to superior incentives and an attractive product mix.

Ford seems well-positioned for delivering attractive year-over-year top and bottom line growths mainly driven by a healthy customer demand for the company’s innovative vehicles with superior features and extremely competitive pricing.

Areas of weakness  

The automobile sector in South America witnessed continued 44% year-over-year decline in its top line to $0.8 billion in first quarter of 2016 from $1.5 billion during the same period last year. Ford’s year-over-year market share and wholesales in South America also fell 1.2 percentage points and declined 38% respectively with a 17.9 percentage point decline in the company’s operating margins mainly due to a tough global operating environment forcing Ford to offer attractive product discounts to push sales. Brazil and South America SAARs were recorded at extremely low levels.

Greater company loss was driven by weaker industry sales comprising of Brazil declining 29%. However, Ford’s general cost performance remained favorable driven by strategic downsizing of the company operations with the removal of the 3rd crew for the quarter at Camacari.

Going forward, oil prices across the US and global markets are projected to remain weaker for this year as well which seems gainful for the global automobile sector. According to the US Energy Information Administration, gas prices in the US are projected to decline to $2.36 per gallon during 2016 from $2.43 per gallon earlier.

The continued global weaker oil pricing benefits witnessed by the Ford were somewhat offset by the ongoing weaker customer demand for vehicles due to lesser disposable income with customers to buy new vehicles.

Conclusion

Overall, the investors are advised to “Hold” their position in Ford Motor Co. considering the company’s currently weaker near-term and longer term growth prospects with PEG ratio of 0.64, indicating poor company growth. Ford also has a weaker financial position with poor total cash and significant total debt of $24.25 billion and $141 billion respectively, restricting the company to continue with its daily operations profitably. Further, the profit margin of 5.65% seems only satisfactory.
Published on Jul 20, 2016
By Subhen Mittra

Copyrighted 2016. Content published with author's permission.

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