Here’s How Russia Drove Ford’s Stock Down Nearly 8 Percent
If you were watching the stock market on Monday at all, you may have noticed that in addition to the slumping performance of emerging market stocks that Ford (NYSE:F) joined the struggle bus as its stock tanked by over 7 percent — and over 8, at some points during the trading session.
The culprit, it turned out, was a press release issued by Ford that described its growth trajectory for 2020, when it intends to sell 9.4 million vehicles on an annual basis, an increase of 45 to 55 percent over its current volume. While that’s great news, buried in the release was a paragraph toward the end that indicated that “lower industry volume and weakening conditions in South America and Russia” were going to hurt its 2014 results, and combined with higher warranty costs (including recalls) in North America, would yield an annual profit of $6 billion (versus the projected $7 billion to $8 billion).
Though Ford was counting on a strengthening performance in Europe, the situation with Russia and Ukraine sparked some significant macroeconomic headwinds and some hearty devaluation of the Russian ruble put a speed bump in Ford’s European recovery. South America, for its part, is close behind, with high inflation and currency weakness hitting Venezuela and Argentina especially hard. It’s slated to lose about $300 million in Russia alone, and about $900 million in the entirety of South America.
Ford is also anticipating that its margin will fall on the lower end of its 8 to 9 percent guidance. Spooked, many investors took their shares elsewhere and the stock closed the day at $15.11 per share, or down 7.47 percent ($1.22).
This year, Ford is releasing a near-record 23 new vehicles around the world, in one of its most prolific years for new vehicle introductions to date. Sixteen of those are in North America alone, and include a new Mustang and a new F-150. While vehicle rollouts aren’t cheap, the real benefits to Ford’s bottom line likely won’t hit home until next year.
“Our long-term plan underscores the commitment we have to our One Ford plan, while accelerating our pace of progress, delivering product excellence, and driving innovation in all areas of our business,” said Mark Fields, Ford’s president and CEO, who took the reins from Alan Mulally earlier this year. “We remain completely focused on offering customers the freshest lineup of world-class vehicles to meet their needs.”
The company explained that by 2020 (which is about five years from now, if you can believe it), all five of Ford’s automotive business units plus Ford Credit will contribute to the company’s profitability. Today, the company’s profits are largely realized by North America and Ford Credit.
By next year, the fruits of this year’s labor will begin contributing to Ford’s financial profile. Investments made in getting the new aluminum-clad F-150 online will largely be complete, and many high-volume, crucial models will be coming to maturity in their life cycles, including the new Focus, the new Transit, and, of course, the new F-Series.
Additionally, Ford has just recently began shipping out its Lincoln brand to China, where vehicles like the MKZ and the MKC crossover are expected to do very well. The North American market has not been very kind to Ford’s soft-luxury brand, but the segment is immensely popular in China, as GM has found with Buick.
“Our Lincoln sales and profit margin targets are supported by our aggressive product investment strategy and growth plans in China,” said Lincoln president Kumar Galhotra. “Our opportunity is to attract luxury customers who are looking for new and personalized customer experiences.”