Ford Sees Its Gambles Pay Off, Despite Hampered Expectations
Ford’s first-quarter earnings left something to be desired for many people, but the company’s leadership is convinced it’s the beginning of a big year, and one that will be all about profits and growth.
“Yes, yes, yes, yes,” said Bob Shanks, Ford’s chief financial officer, when asked whether he was pleased with his company’s first-quarter performance, on a call with Autos Cheat Sheet. “We’ve been talking about this year being a breakthrough year, but it’s really going to be a story of first half versus second half. This is very much in line with what we expected, and with what we laid out in January.”
What Shanks expected and what investors were hoping for may have been two different things. Though Ford did bring in significant revenues and profits, the numbers were still off from what analysts were expecting. Pre-tax profits came in at $1.4 billion and $942 million in net income, which is the result of $33.9 billion in revenue and $0.23 in earnings per share. CNBC reports that expected earnings per share were pegged at $0.26, making the company’s reported numbers a bit of a disappointment.
As for the positives, revenues were up: Ford continued to be a sales machine in North America while also gaining ground in Asia. Ford turned a profit in the Middle East and Africa, although the numbers from Europe and South America continued to be disappointing. The other big bright spot was the clear success of the new aluminum-frame F-150 pickup truck, which has long been the lynchpin of Ford’s fleet, despite constrained production.
“Overall, things have gone well. The product has been so well-received in the marketplace, and in fact, one of the other things we’re doing today is changing the guidance for our North American business for operating margin,” Shanks said. “We’re going to take it from 8.5% to 9.5%, and what’s behind that change is that we have a much more positive view of the effect of the new F-150 on our business.”
Shanks’s sentiment and positive reactions to his company’s numbers were echoed by Ford CEO Mark Fields, who reaffirmed that 2015 was set to be a big year.
“The first quarter was a good start to a year in which our results will grow progressively stronger as the new products we have been launching start to pay off. We are re-confirming that 2015 will be a breakthrough year for Ford,” Fields said in a statement.
What’s underlying the confidence from Ford’s leadership is that it’s becoming obvious the willingness to take risks is paying off. It was considered quite a big leap to take the F-150 — America’s best-selling vehicle for decades — and mess with the formula by working with aluminum rather than steel. While it was unclear how consumers would react, that gamble is working.
But it isn’t just the new F-150 that looks to be a boon for Ford — all the research and development of newer, more efficient propulsion systems, like the EcoBoost engines, have also helped put Ford in a good position moving forward. As gas prices have dropped over the past year, consumers have flocked back to larger vehicles, like SUVs and pickups, which are Ford’s bread and butter. With those vehicles already more efficient and cheaper to operate for drivers, the extra incentive of cheap gas has made them even attractive to consumers.
Ford is also revamping its lineup left and right, with several more models yet to be released this year and next, along with an emphasis on performance (think the new GT and F-150 Raptor) and luxury, with the rehashing of the Lincoln brand. A lot of these projects are still works in progress, but it seems that Ford has placed itself in a strategically superior position to many of its rivals, namely GM and Fiat Chrysler.
The questions headed into the second and third quarter revolve around whether Ford can keep its momentum in North America and keep step with a stronger dollar — affecting profitability in foreign markets — as well as with shifting prices for fuel. There are a lot of factors playing into Ford’s success this year, but it’s clear the company’s leadership feels good about things.
“As we continue our product launches and grow capacity this year, we expect to see stronger results as the year progresses,” Shanks said in a statement.